Investing like Warren Buffett
By, Emma Burroughs
So just who is Warren Buffett?
Buffett is the second richest man in the world with a fortune of over $89.5 billion. (Forbes, 2018). Affectionately named the ‘Oracle of Omaha’, he is largely considered to be the best, most successful investor in the world.
Said to have a photographic memory with numbers, as a child Buffett would take great joy in memorising the population of different areas, most of which he can still remember now. This, he believes, enabled him to invest incredibly well (CNBC, 2016)
Buffett showed entrepreneurial traits very early on. Aged just 11 he bought his first shares in Cities Service, an oil company. Believing the stock was undervalued, Buffett paid $38 per share. Within weeks, the shares had seen their price slashed by a third. As with all heady investors, he held his nerve and waited for the stock price to rise to $40 per share, eventually selling up and making $2 per share (Investopedia, 2018). However, he then had to sit back and watch as the stock price rose to $200 per share, learning a very valuable lesson in the importance of timing, and investing for the long term.
Buffet stated that this experience, along with the many others he has encountered had taught him the following; being a good investor meant buying, holding and ironically not monitoring the markets too closely. His tactic? ‘Look for the companies will become valuable and stick it out with them’. (NCBC, 2018).
This is something that has largely shaped the investment strategy of Buffett over the years.
Currently, Buffett is the CEO and Chairman of Berkshire Hathaway, a multinational conglomerate that holds stocks in a huge variety of companies – from airlines to clothing, to oil and gas. Starting out as a textiles business, Berkshire Hathaway was struggling and share prices began to drop. Now, as investors we sometimes see this and hear alarm bells. But what did Buffett hear?
He heard the familiar knock of opportunity right at his door. He bought a majority stock in the business, injected some business acumen and life into the place.
This, in the industry, is often referred to as Value Investing. This is an investment approach that involves investors seeking out the stocks and businesses they believe to be undervalued. This could be for a number of reasons, from poor management at the helm, to a brand that’s crying out for a refresh. Now of course this requires a level of nerve, and a definite leap of faith, but it’s a risk assessment that for some has quite literally paid in dividends.
So what other tactics has the ‘Oracle of Omaha’ used to get to where he is today?
Invest in what you love
Aged just 14, he’d invested in a 40 acre farm in his hometown of Omaha, Nebraska, using the money he’d saved selling gum and Coca-Cola door to door, with this sugary concoction bringing us to point number two.
Buffett famously stated that at one point he’d get through a staggering five cans of cherry coca cola a day – someone say sugar tax?! So what merry little company do you think Berkshire Hathaway owns a major stake in? Why Coca Cola of course!
For Buffett, each day starts with a McDonalds breakfast – this guy really doesn’t do diet does he! He never spends more than $3.17 and chooses how much to treat himself depending on how his portfolio happens to be looking that morning. Back in 1997, Berkshire Hathaway acquired a majority stake in McDonalds (Business Insider). Although this is not currently listed on the portfolio of Berkshire Hathaway, it goes to show that the items Buffett enjoys every day are pretty likely at some point to join his ever-growing array of investments.
Look after the pennies, and watch the pounds add up
Now, when you consider his level of wealth, you’re probably imagining a ‘Wolf of Wall Street’ type cad – all slick hair and sports car right? Buffett may be an incredibly successful investor, but Wolf of Wall Street he ain’t.
- See above point regarding Buffett’s daily McDonalds budget – say no more!
- Buffett uses a flip Nokia phone and famously stated he 'only throws things out once he's had them for 20-25 years'.
- Despite his huge wealth, Buffett still lives in the same modest home he bought in 1957 for $31,500.
- Buffet famously stated that his number one rule was not to lose money. Rule number two? Remember number one.
- Using his wealth for more than just personal gain, he has pledged to give 99% of his fortune to the Bill and Melinda Gates Foundation, helping a variety of charitable causes across the globe.
Keep a clear head
Now as you’ve probably gathered from this article, Buffett isn’t one to have his head, or opinions swayed by others. Famously known to spend 80% of his working day reading, Buffett has a clear line on what he believes makes a successful investor.
‘I rely on the facts – not the opinion of others. I correlate facts and information and decide whether or not those facts may lead to action’.
I.e. it doesn’t really matter if your mate thinks a stock looks like a shower of sherbet – what really matters is what their finance sheet looks like.
So, there you have it, you really shouldn’t judge a book by its cover. But you should definitely read some if you want your investing game to step up its game and take the dizzy heights associated with the likes of Buffett.
Remember, with investing your capital is at risk, and the amount you get back may be less than you originally invest.
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