Warren Buffett is an admired stock investor of the modern world and the third wealthiest man of the world with the asset worth of more than $100 billion. That it is possible to get there he makes no doubt, but his story of how he got there is truly inspiring. Here is a point-by-point look at the key events and learnings that shaped his incredible investing career:
You could say that Warren Buffett had a head start being only 11 years old in 1941 when he made his first stock purchase. This got him an early exposure to the stock market and he got addicted. The moral of the story – you don’t need to be an adult to learn how to invest.
Warren Buffett was Consuming a large number of books about investors and firms were among the books that young Warren Buffett was interested in. That is why his passion for new knowledge influenced his investing activities. Key take away – get a wide range of newspapers to read so that can broaden your knowledge.
In 1951, young Warren Buffett attended Columbia ‘where he was introduced to the concepts of value investing from Benjamin Graham and Charles Dodd authors of the book ‘Security Analysis.’ This laid down the foundation to his investment beliefs of using models to find good stocks at a low price. Moral of the story: find a good mentor and the program that will fit your objectives best.
In fact, Warren Buffett worked for Benjamin Graham’s partnership for 2 years right after his graduate school and his idea about safety margin came from Graham. He learnt to invest in shares which were significantly lower than their book value. The lesson to learn here is that one should be able to work for an expert, this provides a unique opportunity for learning.
In 1956 after garnering $100k from his friends and families he created his own investment partnership. This he was able to do while beating the market on a year on year basis by practicing the principles he had developed. But this I have learned, that with right investment principles, that is, if one can get into the market and invest and continue to invest right, then one can succeed in the investing mission.
In the 1960s, he purchased from a textile company, Berkshire Hathaway and later turned it into an investment company. This he applied concepts of value investing whereby he was able to purchase good companies at such a cheap prices. Main point – smart investors invest in great companies at lower prices.
In the early 70s he realized that insurance had a very attractive business model. He bought National Indemnity and utilized the float I mean money from insurance that arrives upfront of the actual services to be rendered to be used for investment. Learning here is to look out for good business and which will produce float money for investment.
When stocks in the stock markets were depressed severely in 1974-76 this man kept buying while everyone else was panicking. So, he realised a lot of benefits once the market was experiencing a boom. It proved very profitable for him, as it does for any long term investor with loyalties to his or her investment approach.
For instance in the 1990s there was what we can call the dot com bubble where investors were highly inflating the price of technology stocks; Warren Buffett did not invest in them. When bubble finally burst, his net worth had no more consisted of blue chip stocks while others lost billions. Moral of the story and lesson all should learn – don’t follow the herd and most importantly don’t buy overpriced stocks.
Now holding onto stocks for very long periods during his over 60 years of investment career, the sage of Omaha has never bought stocks with a short-term perspective. This big picture thinking has resulted in compounding over the long-run affording one decades worth of gains. The essence here is that long term focus is the secret to the compounding process to take root.
And that, ladies and gentlemen, is the Charlie highlight reel and the Warren Buffett big-picture lesson courtesy of a half-century of learning at Berkshire. It contains some fantastic tips for anybody who invests in equities, from the amateur to the professional. That is why following Buffett’s philosophy, and a principled approach even a mediocre investor can make extraordinary long term results.
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