Warren Buffett is one of the most successful investors of all time. He is known for his impressive record of returns throughout the duration of his investment career. From 1964-2017, his holding company, Berkshire Hathaway achieved average annual returns of 20.9%. Versus 9.9% (including dividends) for the S&P 500. I will provide an example to give a better idea of the returns possible with such an impressive long-term CAGR. $10,000 invested Berkshire in 1964 would have grown to $132,225,446 in 2017!
Note: This information was taken directly from Buffett’s annual report to shareholders for the year 2017.
Buffett's Investment Approach
Buffett’s approach to investing is known as value investing. While applying this approach, you will purchase stocks you believe are undervalued by the market. Providing you with an opportunity to profit once the market realizes the true value of the stock.
Buffett’s view on diversification is contrary to popular belief. Buffett applies the focus investing approach when regarding portfolio management. Focus investing is the opposite of diversification. The focus investor believes the highest level of success is attained when funds are invested in a small selection of companies. Whether that is three stocks, or eight. Generally, the focus investor will not include more than eight stocks in their portfolio. For more information on focus investing,click here.
Buffett’s view on diversification is contrary to popular belief. Buffett applies the focus investing approach when regarding portfolio management. Focus investing is the opposite of diversification. The focus investor believes the highest level of success is attained when funds are invested in a small selection of companies. Whether that is three stocks, or eight. Generally, the focus investor will not include more than eight stocks in their portfolio. For more information on focus investing,click here.
Buffett's Mentors
Warren Buffett’s most often credited intellectual influences are Benjamin Graham, Phillip Fisher and Charlie Munger. Warren Buffett’s investment strategy is generally viewed as a synergy of the investors’ strategies.
Benjamin Graham is known as “The father of value investing” and provided Warren with an in depth understanding of this approach. To quote Warren Buffett, “To me, Ben Graham was far more than an author or a teacher. More than any other man except my father, he influenced my life. Warren E. Buffett (1973) in the preface to the Fourth Edition of “The Intelligent Investor: The Definitive Book on Value Investing”
Phillip A. Fisher had a contrasting approach. He would often talk to customers, former employees, executives and even employees of competing companies, to gain a better insight into a company before making an investment. Fisher believed that to be successful, the investor could generate superior profits by a) investing in companies with above average potential and b) purchasing stocks in companies with superior and able management.
Lastly, we have Charlie Munger, Munger is the vice chairmen at Berkshire Hathaway and has held the position since 1978. When Munger arrived at Berkshire he brought not only financial judgement, but also the foundation of business law. This was an intellectual perspective that differed to Buffett’s. Munger’s famous influence on Buffett was persuading him to avoid purchasing average companies at bargain prices, and instead purchase great companies at average prices. This change in perspective is what led Buffett from a strict bargain investor to a true value investor.
Benjamin Graham is known as “The father of value investing” and provided Warren with an in depth understanding of this approach. To quote Warren Buffett, “To me, Ben Graham was far more than an author or a teacher. More than any other man except my father, he influenced my life. Warren E. Buffett (1973) in the preface to the Fourth Edition of “The Intelligent Investor: The Definitive Book on Value Investing”
Phillip A. Fisher had a contrasting approach. He would often talk to customers, former employees, executives and even employees of competing companies, to gain a better insight into a company before making an investment. Fisher believed that to be successful, the investor could generate superior profits by a) investing in companies with above average potential and b) purchasing stocks in companies with superior and able management.
Lastly, we have Charlie Munger, Munger is the vice chairmen at Berkshire Hathaway and has held the position since 1978. When Munger arrived at Berkshire he brought not only financial judgement, but also the foundation of business law. This was an intellectual perspective that differed to Buffett’s. Munger’s famous influence on Buffett was persuading him to avoid purchasing average companies at bargain prices, and instead purchase great companies at average prices. This change in perspective is what led Buffett from a strict bargain investor to a true value investor.
Buffett's Net Worth
At the time of writing, Warren Buffett was worth $US 84.7 Billion ($AU 116.1 Billion).
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