Warren Buffett is considered to be the world’s greatest investor. He is currently the fourth wealthiest man in the world and the second in the United States with a net worth of $53.5 billion. He is constantly featured in the news, and Time magazine named him one of the world’s most influential people.
Every year Buffett auctions a private lunch with him to be donated to charity. In 2012, the highest bidder forked over $3.5 million just to eat with him! Buffett is known as the “Wizard of Omaha,” “Oracle of Omaha” or the “Sage of Omaha” because of his Nebraska roots and extraordinary success in investing. Despite his immense wealth, the 82-year old is known for his frugal living and commitment to give away 99 percent of his wealth to charitable causes.
What has made him so successful? Buffett is known for his value style of investing, finding and investing in high-quality, undervalued companies for the long term. His investing approach of discipline, patience and value has consistently beaten the market for decades. Since 1965, Buffett’s fund Berkshire Hathaway has grown 21.7 percent each year for an overall return of 1,038,636 percent! During the same period, the SP500 has grown 9.4 percent annually for an overall return of 7,433 percent.
To put this in perspective, if in 1965 you invested $5,000 in Berkshire, it would be worth close to $52 million today, compared to $370,000 if invested in the SP 500! In 1965, Berkshire was trading at $16 per share; as of May 8, the class A share (BRK.A) is trading at $166,272.78. In the next couple of articles, I will give some of Warren Buffett’s best investment advice and what it means for the average investor.
- “Rule No. 1: Never lose money. Rule No 2: don’t forget rule No. 1.” The more money you lose or don’t have now, the greater the impact on your ability to earn money in the future. This is the reason why Buffett drove an old VW even after making his millions.
- “I made my first investment at age 11. I was wasting my life until then.” The secret to investing is starting early and getting your money to compound for you. Even if it isn’t much, over the long term, time is more important than the return or amount invested.
- “Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily understandable business whose earnings are virtually certain to be materially higher five, 10 and 20 years from now … If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes.” Buffett elaborates further, “When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.” It is important to think and invest for the long term. Many look to make a quick profit, but 92 percent of day traders lose money, violating both of Buffett’s top two rules! When looking to invest, make sure it is for the long haul.
- “The stock market is a no-called-strike game. You don’t have to swing at everything – you can wait for your pitch. The problem when you’re a money manager is that your fans keep yelling, ‘Swing, you bum!’” You don’t have to move at every opportunity; it is more important to be disciplined, patient and swing at the right one!