Warren Buffett is perhaps the greatest investor of all time. He practices “value investing,” which means that he decides to buy stock in companies that he believes have intrinsic value to them, not just a rising stock price. The “Oracle of Omaha,” as Warren Buffett is sometimes referred to, wants to own a stake in companies that he sees are good businesses run by good people with smart business sense. And he wants to own them for the long run. Buffett is not interested in making a quick buck and selling weeks, months, or even years later. He wants to own stock in a company for decades.
At Columbia, where he attended graduate school, Warren Buffet studied under his mentor Benjamin Graham, who taught him to buy stock in strong companies that are undervalued. The underpinning of his teachings was to find the intrinsic value-the actual tangible value of the company’s physical assets and the people running it-and buy below that value to guarantee an immediate return on investment. This philosophy of maximizing the value of a purchase fit right in with Warren’s studious approach to finding investment opportunities. While regarded as a genius whose every uttered word is eaten up by investors all over the world, Buffett is a down to earth and folksy man, who refuses to work out of his “circle of competence.” It is his practical economic sense, his genius in assessing value, and his conservative investment style that has made him one of the richest men in the world.
In 1956, a young Warren Buffett started an investment partnership with $100 of his own money. Thirteen years later, he closed out the partnership with total personal profits of $25 million. During these thirteen years, Buffet received average returns on his investments of 29.5%. That is an unheard of return on investment average today. In 1962, Buffett started to invest in a faltering textile company named Berkshire Hathaway. One of Buffet’s most successful early investments was his purchase of American Express stock. In American Express, Buffett saw the perfect opportunity to put his and Benjamin Graham’s shared philosophy to work in the marketplace. The company was facing a scandal, and as a result its shares dropped from around $65 to $35 in one day’s time. Understanding that American Express was a strong company trading at well under its intrinsic value, Buffett quickly invested 40% of his partnership’s funds into the company. A few years later, the stock price tripled and Buffett’s partnership booked a $20 million profit.
Years later, after he disbanded his partnership, Warren became more heavily invested in Berkshire Hathaway, and eventually took over the company. In the over forty years with Buffett at the helm, the value of Berkshire’s stock has grown from $20 to $50,498, an average rate of return of 23 percent. Enough said. Today the company, which is really an investment vehicle that owns many other companies and investments, is worth an estimated $70 billion.
Warren Buffett is a different kind of investor with a philanthropic view of money and investing. He believes that the value he creates in his investments is precious and refuses to waste any of his wealth on anything that does not add value to his portfolio. He is know to have driven the same car for 8 years and has lived in the same house for forty. He sees the value of every dollar in terms of what it could be next year and the year after that. Warren Buffett’s view is that the value he creates through his investments will be a benefit to society as a whole.
Buffett has recently put his money where his mouth is, promising to give most of his $43.2 billion fortune away for philanthropic causes. Most of his donations will go to the Bill and Melinda Gates Foundation.
Warren Buffett is truly a remarkable investor. His philosophy is a worthwhile study for anyone who invests any amount of money in the market, or in anything really. Throughout his career, he has looked for the closest things to sure bets that he could possibly find. He always tried to buy predictable and strong companies below their intrinsic value. He likes to find discounts, never wanting to overpay for anything, but rather wanting to underpay and ride on the economic upswing and success of a company.
The “Oracle of Omaha” refuses to look at stocks as anything but businesses. His investment style has served him-and Berkshire’s investors – well.