is no question that Warren Buffett is the world's greatest
investor. He started with around US$100,000 when he was 25.
He is now 70 and his net worth is approximately US$35 billion.
This represents an annual return that is close to 30 percent.
Putting it another way. If you invested $10,000
in Buffett Partnership Ltd in 1956 and reinvested in the stock
of Berkshire Hathaway in 1969 when Buffett terminated the
partnership, you would be worth well over $200 million-after
all taxes, fees and expenses.
Over the past years I have tried to read everything
written by Buffett. My aim has been to understand his investing
methods in a very practical way firstly so that I can implement
them in my own portfolios and secondly so that I can teach
them to others. Last year I gave over 25 workshops in Australia
and the USA to beginners and experienced investors showing
them practical steps how they can invest like Warren Buffett.
Also my investment software sold in 15 countries around the
discussing Buffett's methods, it will be helpful to say a
few words about the man himself. He is 70 years old and lives
in Omaha, Nebraska, the city where he was born. In his 20's
he worked for a number of years on Wall Street but returned
to Omaha because he said that in New York there was too many
stimuli. Talking about Omaha, he once said, "It's easier
to think here."
Buffett does not use any analysts or advisors
when making his stock selections. In fact, Berkshire Hathaway,
the 80 billion dollar investment company managed by Buffett,
only has 12 employees, mainly office staff.
The first point in understanding Buffett's investment
methods is to recognize that he does not think about the stock
market. "We look at individual businesses," he said
recently. "And we don't think of stocks as little items
that wiggle around in the paper. We think of them as parts
If I had to select a single quote that described
Buffett's methods it would be the following:
Your goal as an investor should be simply
to purchase, at a rational price, a part interest in an
easily understandable business whose earnings are virtually
certain to be materially higher, five, ten, and twenty years
Over time, you will find only a few companies
that meet these standards-so when you see one that qualifies,
you should buy a meaningful amount of the stock.
Each word or phrase in this quotation points
to key components of his ideas. For example, "rational"
tells us that investing should not be based on hope or speculation,
"easily understandable business" guides us to those
areas in which we have the most familiarity, and "five,
ten and twenty years from now" makes his investing time
If you want to see how your investing methods
compare with those of Warren Buffett, using the previous quotation
as a yardstick would be a good place to start.
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