The legend of Buffett

Warren Buffett is one of the biggest names in finance – and for good reason. He amassed an $80 billion personal fortune thanks to his investments, making shareholders in his holding company very rich in the process. A share in his firm, Berkshire Hathaway, traded at $290 in 1980: today, that same share is worth over $300,000. Fortunately for us, Buffett has always been candid about how he invests, which means you can learn to invest like him. Interested? Read on... ✨

Before the octogenarian got his tentacles into everything from Apple to Wells Fargo, Warren was born in 1930 in Omaha, Nebraska. His father, Howard Buffett, was a broker and Warren took to money-making from an early age. The post-war teen fixed up an old pinball machine and struck a deal with a local barber to keep the machine in his shop. Soon Buffett and his partner had enough to buy more pinball machines and build a small empire. The early taste of business success was intoxicating. 🎰

Buffett read Ben Graham’s book The Intelligent Investor at 19 and immediately decided he would work for Graham. He enrolled at Columbia University, where Graham taught, to get his attention. Denied a role, Buffett worked at his father’s investment firm for a few years before Graham eventually relented and employed him. Graham had a huge impact on Buffett’s philosophy in possibly the most formative job in Buffett’s career.

In 1956, Buffett struck out on his own, starting the investment partnership which would become Berkshire Hathaway: the seventh most valuable company in the world.

Why should I know this? Buffett’s investment decisions have been hugely influenced by his life. Pinball wizardry taught Buffett to reinvest earnings in businesses when that will increase returns over the long run. His first investments in stocks as a child aged 11 in 1942, where he lost out on big profits because he sold too soon amid World War Two, taught him to buy and hold. And the finer points of his investment ideology (often termed “value investing”) come from his mentor Ben Graham.

The provenance of Buffett’s ideas is the key to his mindset today. And by understanding that, you can attempt to invest like him. By following in his footsteps, you could make a lot of money yourself. Below are the highlights of Buffett’s writings, picking out his practical wisdom that you can use in your own financial decisions. Now: it’s time for you to consult the oracle... 🏆

What is Warren Buffett's investment philosophy?

"The art of investing in public companies successfully is little different from the art of successfully acquiring subsidiaries. In each case you simply want to acquire, at a sensible price, a business with excellent economics and able, honest management."

– Warren Buffett

Warren Buffett is a “value” investor: he looks for businesses with a price tag less than their actual value. Value lies in assets, a strong expectation of good earnings in future, and management that is competent and trustworthy. He then either buys the entire company (if it’s affordable) or buys a significant stake and holds onto it, often forever.

But Buffett wouldn’t call himself a value investor: he thinks all investing should be like this. And he abhors trading – he would say that buying shares simply because you think their price will rise in the short term is speculation, not investing.

"We believe that according the name ‘investors’ to institutions that trade actively is like calling someone who repeatedly engages in one-night stands a romantic."

– Warren Buffett

Isn’t this obvious? Not really! It was trendy to teach “efficient-market theory” (EMT) for much of the 20th century. EMT holds that markets are perfectly efficient, with all information about a company’s value factored into its stocks – so a stock’s current price exactly reflects the true value of a company. But EMT is incompatible with Buffett’s evidently successful strategy since you would never find a company trading for less than its value.

Buffett agrees prices may often be rational. But that’s a far cry from them always being rational. He points to his and Ben Graham’s investing record as evidence of the ability to find prices below a company’s value – and the falsity of EMT. Proponents of EMT, however, would say Buffett has just been lucky. Very, very lucky. 🍀

How does Buffett approach investments?

He approaches them in the same way he’d size up an acquisition, and he repeatedly reminds investors they are the owners of companies. He’ll try to understand the underlying mechanics of the business as best he can so he can find bargain prices. So how does the Oracle of Omaha divine value? Read on to find out! 🔍