Warren Buffett


Warren Buffett is one of the most respected and popular investors of all time. He was born in Omaha on August 30th, 1930. He developed an interest in the world of investing at an early age of 11. As of April 2021, his net worth is over the US $100.6 billion.

The exciting part that appeals to people is his ability to consistently beat the stock market for over 60 years. He was nicknamed the Oracle of Omaha for his brilliancy in investment selections.

What is his secret to success? What made him an investment legend?

Let’s find out!

Buffett’s First Investment and First Investment Lesson

Buffett made his first investment in a stock at an age of 11. He said, ‘I was wasting my life up until then’ when he was asked about his first investment.

In 1941, he purchased six shares of Cities Service preferred stock at a cost of US $38 per share. Shortly after, the share price fell to US $27. Buffett started to panic as the price declined. But soon, the share price climbed back to US $40 and he immediately sold all his shares.

Soon after he sold his investment, the share price shot up to more than US $200 per share.

This was when Buffett learned his first investment lesson of the virtue of patience.

The stock market is designed to transfer money from the active to the patient.’ – Warren Buffett

To pursue his higher studies, Buffett applied for Harvard Business School but was turned down. He eventually enrolled at Columbia University after learning that Benjamin Graham, the father of value investing, taught there. Buffett had read Graham’s book Security Analysis multiple times and looked at this as an opportunity to learn more from his idol.

Buffett was a successful student and this gave him an opportunity to directly work with Graham. He later claimed this to be one of the most valuable experiences of his lifetime.

Buffett Partnership Years

After his stint with Graham, Buffett started setting up investments focused on bargains. 

He soon discovered companies that were trading at a discount to their net asset value. This is popularly known as the Cigar-butt approach. Buffett adopted this approach from his mentor Benjamin Graham. 

Describing this approach, Buffett said –

‘Cigar Butt approach to investing is where you try and find a really kind of pathetic company but it sells so cheap that you think there is one good puff left in it. Though the stub might be ugly and soggy the bargain purchase would make the puff all free.

In this approach, Buffett would buy a large stake at bargain prices and wait for market sentiments to improve. Improvement in market sentiments would drive the share price up. Buffett would immediately sell this stake to earn profit.

During his partnership years, Buffett would write a letter to his partners every year. These letters would convey his investment rationale, philosophy along with partnership performance.

These letters are available in the public domain and are a must-read for investors. They withhold invaluable investment rationales and philosophies.

Warren Buffett Investment Strategies – Value Investing

Warren Buffett strongly advocates for value investing. He focuses on identifying undervalued quality stocks and investing in them for the long term.

Buffett’s two investment ground rules are –
  1. Buy what you understand 
  2. Invest only for long term

Buffett became one of the wealthiest men in the world by following these two simple rules.

He invests in companies only if he understands their business operations. This habit saved him from suffering massive losses during the dot com bubble burst.

Between 1995 to 2000, internet and technology companies were new and untested. Buffett did not understand the tech and stayed away from investing in such companies. When the markets came crashing down during the bubble burst, Buffett safely avoided the crash  by simply staying away from what he did not understand.

‘Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.’

#DidYouKnow Warren Buffett holds stocks of Coca-Cola, Wells Fargo, and American Express for more than 20 years. He once said that he has no intention to sell them.

You might be wondering, what is the point of holding it for this long? Why not instead indulge in short term and make quick money?

The simplest answer is that the power of compounding needs time and patience to do wonders.

Buffett learned this the hard way when he failed to earn higher returns from his first investment. He never dared to repeat the same mistake again and we all know how well it has paid off. Every year his investment compounds and adds value to his portfolio. All he had to do is research quality companies, invest in them and hold.

When you buy a stock, your intention should be to hold it no matter what. Look beyond the negative news. Most of them are speculations and are short-lived. If the company’s fundamentals are strong, they will outlive all their bad days and fetch you returns in the long run.

Impatient investors let anxiety and emotion control their decision-making. The best way to improve your patience is by ignoring the outside noise.

These two rules seem easy to follow, right?

As easy as they might seem, lot of investors fail to follow them. They normally end up not earning much or even worse losing their capital. 

Every investor tries and wishes. But many fail to follow the route.

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Warren Buffett’s Investment Philosophy –

Buffett started focusing on Berkshire Hathaway, a textile manufacturing company. He originally bought it as a value investment in 1964.

He then realised that the company was getting stiff competition from domestic as well as foreign plants. The future was not very bright. So, Buffett turned Berkshire Hathaway into a holding company for his investments which he operates as a hedge fund. 

Expensiveness in stocks made Buffett shift his investment philosophy. He no longer relied on the idea of bargains to stocks that were merely cheap and had wonderful business prospects. But in fact, he adopted a philosophy which believes that it’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.

Warren Buffett and his Circle of Competence

Buffett says that it is important to know one’s circle of competence and stick with it. He added that the size of that circle of competence is not very important. But knowing the boundaries is very vital.

He says, ‘what an investor need is the ability to correctly evaluate selected businesses. Note that word ‘selected’: You don’t have to be an expert on every company or even many. You only have to be able to evaluate companies within your circle of competence.’

Watch this video to learn how you can develop your own circle of competence with the help of a very practical example –

Here are few Warren Buffett stocks by the number of shares held based on Berkshire Hathaway’s most recent 13-F filing.
 SymbolHoldingsMkt. priceValueStake
AbbVie IncABBV2,05,27,861$120.57$2,475,044,2011.20%
Amazon.com, Inc.AMZN5,33,300$3,421.57$1,824,723,2810.10%
American Express CompanyAXP15,16,10,700$164.26$24,903,573,58219.10%
Aon PLCAON43,96,000$285.34$1,254,354,6401.90%
Apple IncAAPL90,75,59,761$153.12$138,965,550,6045.50%
Bank of America CorpBAC1,03,28,52,006$41.66$43,028,614,57012.30%
Bank of New York Mellon CorpBK7,43,46,864$55.18$4,102,459,9568.60%
Bristol-Myers Squibb CoBMY2,62,94,266$67.21$1,767,237,6181.20%
BYD Co. LtdBYDDF22,50,00,000$33.60$7,560,000,0008.20%
Charter Communications IncCHTR52,13,461$814.20$4,244,799,9462.80%
Chevron CorporationCVX2,31,23,920$98.39$2,275,162,4891.20%
Coca-Cola CoKO40,00,00,000$56.18$22,472,000,0009.30%
DaVita IncDVA3,60,95,570$131.14$4,733,573,05034.40%
General Motors CompanyGM6,00,00,000$49.17$2,950,200,0004.10%
Globe Life IncGL63,53,727$95.98$609,830,7176.20%
Itochu CorporationITOCF8,13,04,200$29.56$2,403,352,1525.10%
Johnson & JohnsonJNJ3,27,100$173.66$56,804,1860.00%
Kraft Heinz CoKHC32,56,34,818$36.12$11,761,929,62626.60%
Kroger CoKR6,17,87,910$46.20$2,854,601,4428.30%
Liberty Global PLC Class CLBTYK18,76,522$28.58$53,630,9990.50%
Liberty Latin America Ltd Class ALILA26,30,792$14.22$37,409,8625.20%
Liberty Latin America Ltd Class CLILAK12,84,020$14.36$18,438,5270.70%
Liberty Sirius XM Group Series ALSXMA1,48,60,360$49.50$735,587,82015.30%
Liberty Sirius XM Group Series CLSXMK4,32,08,291$49.40$2,134,489,57519.20%
Marsh & McLennan Companies, Inc.MMC41,96,692$156.41$656,404,5960.80%
Mastercard IncMA45,64,756$353.05$1,611,587,1060.50%
Merck & Co., Inc.MRK91,57,192$76.50$700,525,1880.40%
MONDELEZ INTERNATIONAL INC Common StockMDLZ5,78,000$62.16$35,928,4800.00%
Moody’s CorporationMCO2,46,69,778$381.09$9,401,405,69813.20%
Organon & CoOGN15,50,481$33.72$52,282,2190.10%
Procter & Gamble CoPG3,15,400$142.93$45,080,1220.00%
Restoration Hardware Holdings, Inc common stockRH17,91,967$716.75$1,284,392,3478.50%
Sirius XM Holdings IncSIRI4,36,58,800$6.27$273,740,6761.10%
Snowflake IncSNOW61,25,376$297.85$1,824,443,2422.10%
SPDR S&P 500 ETF TrustSPY39,400$452.23$17,817,8620.00%
StoneCo LtdSTNE1,06,95,448$49.50$529,424,6763.40%
Store Capital CorpSTOR2,44,15,168$35.89$876,260,3809.00%
Teva Pharmaceutical Industries LtdTEVA4,27,89,295$9.40$402,219,3733.90%
T-Mobile Us IncTMUS52,42,000$137.90$722,871,8000.40%
United Parcel Service, Inc.UPS59,400$194.01$11,524,1940.00%
US BancorpUSB14,65,17,349$57.08$8,363,210,2819.90%
Vanguard 500 Index Fund ETFVOO43,000$415.76$17,877,6800.00%
Verisign, Inc.VRSN1,28,15,613$216.15$2,770,094,75011.50%
Verizon Communications Inc.VZ15,88,24,575$54.77$8,698,821,9733.80%
Visa IncV99,87,460$231.23$2,309,400,3760.50%
Wells Fargo & CoWFC6,75,054$48.41$32,679,3640.00%
TOTAL   $323,861,361,225 
Source: CNBC (as of August 2021)

Buffett created this portfolio by religiously following value investment strategies which we discussed above. But there is one more thing which one cannot ignore which played an important role in the making of The Oracle of Omaha.

Buffett, His Books, and His Reading Habit

One common habit amongst all successful people is their habit to read. Warren Buffett reads more than 500 to 600 pages every day. He reportedly spends almost six hours a day reading books. 

Surprisingly, he has never written a book but infact has more than 47 books with his name in the book’s title. His annual letters to his shareholders always include a couple of book recommendations.

Two very famous books which the Oracle of Omaha has mentioned at multiple occasions are –

  1. The Intelligent Investor by Benjamin Graham, and
  2. Security Analysis by Benjamin Graham and David Dodd

Both these classic investment books majorly focuses on value investing. Benjamin Graham, also known as the Father of Value Investing, led the foundation of this investment style.

So, before anything else, make sure you read at least these two books to understand Buffett’s investment strategy in a better way. We have listed down seven books that Warren Buffett says are a must read for every investor here.

End Note:

Buffett has developed an expertise in looking for quality and fundamentally rich businesses. He selects companies solely based on their overall potential. 

He places a great deal of importance on investing in companies having an economic moat. These are companies with an advantage, legal or operational which prevents competitors from entering and affecting margins of the business. 

There is an ocean of wisdom with this billionaire investor. Few things that I would love my readers to inculcate in their investment philosophy is –

  1. Start investing as early as you can.
  2. Always invest in wonderful businesses with an economic moat
  3. Invest in your circle of competence
  4. Invest for the long term.

This will help you start your wealth compounding journey in the right direction.

If you start investing Rs. 1,000 today, every month, for the next 40 years, you will be able to create a wealth of approximately Rs. 72,788,853.

How did I calculate that? How can your monthly investment give you a return in lakhs?

Warren Buffett made the best of this secret. It is your turn now!

Read what is the power of compounding and how Warren Buffett compounded his wealth over all these years.

The best investment approach is to buy quality stocks after analysing the company’s fundamental aspects.

Invest in the companies who has the potential to give superior returns in the long term. StockBasket operates on the exact same principle. It has various expert-curated portfolios or basket of stocks to suit varied investment requirements.To enjoy these expert services and to invest in StockBasket, open a FREE Samco Account today. It is time for you to start investing smartly!

If you are sure that you want to start investing but are not aware of when to start or when the right time to start investing is, let this blog guide you. Studies have shown that the earlier you invest, the better it is. So the ideal time to invest would be right now. Read more to know why.

Before beginning, we would like to introduce you to the concept of Compound interest to understand the role it plays in long term investing. Compound interest is basically earning interest on interest which will make the total sum grow faster than simple interest. To give you an example:

If you had invested Rs. 100 at an interest rate of 10%, then the Compound interest would earn you:

Rs 10 (10% * 100) in the 1st year.

Rs 11 [(10% * 100 + 10% * 10)] in the 2nd year.

Rs 12.1[(10% * 100) + (10% * 10) + (10% * 11)] in the 3rd year.

Whereas in case of simple interest it would only earn you Rs 10 (10% * 100) for all the three years.

This concept plays on a much bigger scale when looking at 5, 10, 15 years or even more which is precisely why you should start investing as early as possible due to the longer time horizon. Your first goal in investing should be to earn more than the inflation rate and beating inflation requires you to invest in risky securities like Equity. Studies over the past several years have shown that Equities has been the best performing asset class. However, daily volatility of prices could worry a lot of beginners if not the experienced ones. However, on a long term basis, equities have tended to be on the positive side beating inflation. Having a long term horizon when investing in risky securities does help considerably and hence investing early will be beneficial in addition to the following benefits:

  •  More time to recover from any losses compared to an investor who starts at a later stage in life. Since equities or any risky security carry the risk of a downside, an investor should be cautious regarding which securities he chooses to invest in. However, there can never be any guarantee regarding capital protection. Starting early means if there is a loss, the investor has more time to recover from those compared to an investor who starts late.
  • When starting early, you develop a discipline towards savings and investments which will stay with you for the rest of your life. Youngsters have the habit of spending on luxurious goods as soon as they get some money in hand. Investing early means that they have to save some money automatically reducing expenses on unnecessary items. Regular investing will make them disciplined from a very young age and discipline is the one thing that separates the best investors from the rest. 
  •   Early investing lets you pick risky companies which could grow exponentially rather than sticking to safer or low return options. Such a strategy allows many people to achieve financial independence at a young age and take early retirement.
  • If you start investing in your 20’s means that by the time you turn 50, you would have invested a considerable amount which coupled with the Power of Compounding, will have turned into a huge sum. This sum can be used to spend during retirement. Every new generation retiring is more active than the previous ones. Retirees generally prefer to travel or start a new hobby or any other interest. These activities require more spending. Also, retirement is getting expensive due to inflation, and the advancement of medicine means people at least 20-30 years after retirement. Being able to afford an active retirement is a huge benefit of early investing. Each year of early investing brings you closer to retiring on your terms and puts you ahead of most of your peers.

Warren Buffett too started investing at a very young age, from the age of 11 to be precise and his investing philosophy is well known all over the world. He has earned a compounded annual growth rate of 20-25% for the whole of his investing career showing that you don’t need supernormal returns to become wealthy. All you need is regular investing and staying invested for a long time. Do check out our blog about Warren Buffett and his investing principles to know more about him. 

One thing which Warren Buffett insisted on is investing in quality companies with good management, brand value, historical growth, strong market share in the industry. Investors find it intimidating to identify such companies given the amount of information available today. We’ve made that job simple for you by identifying a set of companies we have researched with the help of our vast experience in this field so that you don’t have to worry about the safety of your capital. Check out our product Stockbasket for more information.

If you have invested early, your retirement might just be around the corner. If you haven’t, sooner is always better. Start planning today to enjoy the 20-30 years post-retirement. You can retire comfortably knowing that your early investments have paid off.

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