Warren Buffett: The Most Successful Investor in History


I will tell you how to become rich.
….Close the doors.
Be fearful when others are greedy. Be greedy when others are fearful.

-Warren Buffett, Billionaire

Out of all the investors that have ever lived, there are none that are more prolific and influential than Warren Buffett, and yet the simple strategy described in his above quote is what fueled his success. He is most well-known for leading his company, Berkshire Hathway, through several decades of enormous compounded growth. He’s one of the richest people in the world, and at one point in time was listed as number one in wealth. In addition, his persistent likable and down-to-earth personality has grown his fame even beyond what it otherwise would have been based on his financial achievements alone.

Biography

Buffett was born in 1930, and there are stories about his investing and money-making prowess starting at an early age. He bought and sold Coca Cola for a profit, delivered newspapers, and began buying stock as a child. Buffett attended a few colleges and eventually settled at Columbia where he met the person who would influence him most: Benjaman Graham. After a while, Buffett began working for Graham analyzing stock reports.

In the 1950s, Buffett began an investment partnership with several people, where he received a portion of the profits above 4%. He began accumulating large amounts of wealth as he massively outperformed the Dow for a long period of time. This leverage allowed him to get awesome returns: the portfolio itself had outstanding performance, but because Buffett was entitled to a portion of the returns over 4%, his personal rate of return was even better. That’s how he accelerated his early relatively modest net worth into huge riches. It was during the 50s that Buffett married and had kids as well.

In the 1960s, Buffett began investing in Berkshire Hathaway, and eventually became its Chairman. Up until the present, Buffett has been running the public company while also holding much of his personal fortune in Berkshire stock.

Over the decades since then, Berkshire Hathaway, with Buffett at the helm, has drastically outperformed the broader stock market. His investments, ranging from Coca Cola stock to See’s Candy to Geico have been extremely lucrative, and Buffett’s reputation grew to famous levels. The book value, along with the market value of Berkshire shares has absolutely skyrocketed over the decades, turning himself into one of the richest people in the world and making millionaires out of many of his investors.

During the tech boom, Buffett was criticized for being antiquated and refusing to invest in tech stocks, but he was vindicated when the tech bubble crashed and his investments, as always, continued performing very well. From one era to the next, Buffett continued doing what he does best: investing in fairly simple businesses that he understands at attractive valuations.

Although Buffett doesn’t write books, his annual shareholder letters are regarded as impressive financial writings. He has shared much of his wisdom with his shareholders and the world over the years through the medium of letters and public lectures.

Later in his career, he began contributing billions of dollars to charity, and encouraged other billionaires to sign a pledge to donate at least half of their wealth to charity. For Buffett, 99% of his wealth is planned to go to charity. Despite being a billionaire, and even being the richest person on earth for one year before he began giving piles of it away, he lives a comparatively frugal lifestyle. He drives a Cadillac, has lived in the same upper-middle type home for most of his life, and his primary hobby is playing the card game bridge. “Splurging” for him includes things like owning a vacation home in California worth a few million dollars, a fraction of 1% of his total wealth.

It’s clear that for his whole life, money was a game. He never had much use for it personally, but he realized early on that he had immense talent and interest in investing, so that’s the path he took.

Investing Strategy

The most impressive thing about Buffett’s investing record is not just the annualized return rate; it’s the incredible length of time he’s been able to maintain it. Since taking the helm at Berkshire in the 1960′s, Buffett has absolutely destroyed the returns offered by the market. And before then in the 1950s he was outperforming as well. There are several investors out there, such as Peter Lynch, that have fantastic track records over significant amounts of time, but nobody can compare with the six decades or so of Buffett’s outperformance.

Buffett is not just a stock-picker, but a company-buyer. As the Chairman, Chief Executive Officer, and Chief Investment Officer at Berkshire Hathaway, this means he oversees not only Berkshire’s stock portfolio, but Berkshire’s collection of wholly-owned companies such as Geico and Dairy Queen. This enormous operation provides him with both advantages and disadvantages to the individual investor. Due to dealing with such a large amount of capital, Buffett is limited to investing in large companies. But his prestige, influence, and power of capital allow him to receive specific deals that smaller individual investors don’t have access too.

Whether it’s stock or an entire company, Buffett invests as though he’s buying the whole company. He finds valuable, high-quality businesses trading at a discount to what he thinks they are worth, and then typically holds onto his investment for a very, very long time. He usually purchases relatively simple companies, like insurers, candy makers, consumer products, retailers, and banks.

Notable Quotes

Buffett’s wisdom is often summarized into well-known quotations lifted from his shareholder letters and from his lectures.

Quotes Regarding Strategy

I don’t look to jump over 7-foot bars: I look around for 1-foot bars that I can step over.

Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.

Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.

Price is what you pay. Value is what you get.

Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value.

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.’

Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.

Quotes Regarding Quality

I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.

If a business does well, the stock eventually follows.

It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.

Time is the friend of the wonderful company, the enemy of the mediocre.

Why not invest your assets in the companies you really like? As Mae West said, “Too much of a good thing can be wonderful”.

Quotes Regarding Independence

A public-opinion poll is no substitute for thought.

Wall Street is the only place that people ride to in a Rolls Royce to get advice from those who take the subway.

If past history was all there was to the game, the richest people would be librarians.

Let blockheads read what blockheads wrote.

The business schools reward difficult complex behavior more than simple behavior, but simple behavior is more effective.

Quotes Regarding Confidence

I always knew I was going to be rich. I don’t think I ever doubted it for a minute.

If I was running $1 million today, or $10 million for that matter, I’d be fully invested. Anyone who says that size does not hurt investment performance is selling. The highest rates of return I’ve ever achieved were in the 1950s. I killed the Dow. You ought to see the numbers. But I was investing peanuts then. It’s a huge structural advantage not to have a lot of money. I think I could make you 50% a year on $1 million. No, I know I could. I guarantee that.

I am a huge bull on this country. We will not have a double-dip recession at all. I see our businesses coming back almost across the board.

In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.

Quotes Regarding Humility

I buy expensive suits. They just look cheap on me.

It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.

It’s better to hang out with people better than you. Pick out associates whose behavior is better than yours and you’ll drift in that direction.

Take me as an example. I happen to have a talent for allocating capital. But my ability to use that talent is completely dependent on the society I was born into. If I’d been born into a tribe of hunters, this talent of mine would be pretty worthless. I can’t run very fast. I’m not particularly strong. I’d probably end up as some wild animal’s dinner.

You know, people talk about this being an uncertain time. You know, all time is uncertain. I mean, it was uncertain back in – in 2007, we just didn’t know it was uncertain. It was – uncertain on September 10th, 2001. It was uncertain on October 18th, 1987, you just didn’t know it.

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Comments

  1. Great post. Warren Buffet is an all time legend, and his humble attitude adds to his popularity, as many wealthy investors are flashy. One investor and hedge fund extraordinaire that I never let be forgotten is George Soros. Soros is the 35th richest person in the world, 32 spots behind Warren Buffet, and helped the Soros Fund/Quantum Fund grow immensely in the past several decades. Both men with incredible talent and investment knowledge, Soros and Buffet are one of a kind.

  2. Soros is another legend.

    As the title implies, I intend to make this into a series of investing legends where I profile people like Buffett, Lynch, Soros, and others. Maybe I’ll be profiling one per month or so.

  3. Sounds like a great idea, can’t wait to read the upcoming posts. Read “More Money Than God,” its a great novel that highlights the hedge fund industry and all the greats.
    I’d love to read what what you think about Julian Robertson, and his “stock picking” investment strategy.

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