Some say Warren Buffett is a better philosopher than investor. As tempting it may be to agree with them, the answer would still be no.
There are people who have done much better philosophising than him in the matters of life but none who made as much money as he did while doing so.
Warren Buffett is a man of focus, commitment, sheer will, and long term money-making investment analysis prowess.
To quote him “We believe that according to the name ‘investors’ to institutions that trade actively is like calling someone who repeatedly engages in one-night stands a ‘romantic’.”
He stands by this statement of his and buys stakes into games he plays in the long run. In the short run he likes to read over 500 pages a day of corporate reports along with half a dozen newspapers just to keep a tab on the nerve of the market.
Warren Buffett believes in Investing in such a manner as if the aim isn’t to buy a portion of their shares but rather the whole companies themselves and on this day, there are only a handful of companies he can’t buy.
The Beginning of Warren Buffett
Warren Buffett started out as the son of an investor/congressman Howard Buffett, a Conservative-Liberal politician with deep rooted beliefs and aim of improving the society along with available human liberty.
Warren started making money from a very early age, he started investing by the age of 11, and by the age of 14 he bought a farm from his own savings and used to deliver newspapers on a bicycle earning more than $175 monthly and had filed his first income tax return, he even started a new venture (pinball machine) in his high school at 15 years of age that expanded and was later sold at $1200 to a war veteran.
By the time Warren completed his college he already had $9800 in savings which if adjusted for inflation amounts to about $105,000.
What’s amazing and worthy of being noticed is that Warren wasn’t some lowlife trying to make it big, he was the son of a respectable politician trying to find himself and his passion.
Warren was smart and mature beyond his years, by the age of 13 he had declared that he’d become a millionaire before turning 30 or he’d jump off the tallest building in Omaha. On August 30th of 2020, as he turned 90, he has not only been a millionaire but also the richest man on the planet for about a year(2008-09). He has brought around a revolution through his style of investing.
Warren Buffett and his Style of Investing
It would have been easier to mention the most notable deals of Warren Buffett in his entire career but as the saying goes the lightning never hits the same spot twice. The same circumstances will never unfold again, neither will the same results. The best we can do is analyse what he did and how he did it and then chalk out a mantra for ourselves on how the richest investor out there manages his money. Luckily for us, apart from being the most terrific investor, a philosopher, an avid reader (reading more than 500 pages a day sometimes even a thousand); he’s a prodigious writer and frequently vocalises his beliefs and policies. His annual shareholder letters are the stuff of legends, often being treated by utmost awe by his criticisers and fans alike.
Warren Buffett believes in Value investing and is also a vocal critic of Wall Street hedge funds and short term trading.
To shed further light onto Value Investing, I’ll explain it more lucidly.
If I had to put into words, how Warren Buffett looks at Value investing in normal words, I’d say it refers to dealing with securities having a lower market value than what it should have by fundamental analysis (the intrinsic value) of the company. If such a company has a great idea and a clear objective with a good conscious, then its securities should be chosen to invest in.
In a more formal and traditional sense, Value investing refers to seeking out those stocks whose intrinsic Value is higher than the market value and then holding onto those stocks for a longer period of time to reap the maximum benefits possible off of it.
In an even easier language, the mantra is that you have to use your own technical skills and stock market knowledge to judge a company based on its performance, assets and future prospects, ignoring the market bias towards it. If you find it likely to make profits in the long run, you have to check if it’s being sold at a lesser price than it should have. If it is, then it gives you a safety margin and you ought to seal the deal.
Warren Buffett was instantly captured by this idea from Professor Benjamin Graham and became his disciple and staunch supporter of his philosophy. In the long run, this philosophy did provide him better results than anyone else.
Research plays the most important role in Value Investing: you have to know through and through what you are getting into. If the business is profitable or not, if it’s in an inchoate stage and if the financial structures and the management team are capable enough to handle the whole business or not and most importantly if they’d pay back their earnings in dividends or keep retaining those investments.
It’s equally important to realise that Investing has more to do with emotions than with actual figures. You gotta keep your emotions in check. One has to learn to not fear losses, to not get too greedy, to not lose hope and to not become overconfident. Stock market may be a game which gets its result from the outside world but the winners of this game are the ones who play it well internally and not externally. Value investing is for small and mid cap companies with a bright future and not for large cap firms who have already reached their prime.
Warren Buffett has been often caught quoting “It’s better to buy a great company at a fair price, than a fair company at a great price.”
If it’s already making headlines then you’ve lost your opportunity to get on the winning boat. You gotta find new boats that’ll sail, not boats that are already seasoned and require expensive tickets to get onto them. You gotta get in early and slowly watch your boat explore the entire world and grow into a cruise.
Value investing has its fair share of supporters as well as critics. The point to be kept in mind after listening to both the points is that this method is only suitable for conventional easy-to-understand business models and not new and upcoming industries where constant technological upgradation plays a major role.
Warren Buffett also advises Investors to put more faith into index funds than managed hedge funds on the Wall Street, once even betting against several hedge funds that they’ll be unable to outperform index funds. And he won, further proving his point that investment managers just add to the cost and don’t add much value.
At the end of it all, I’d like to mention that Warren Buffett himself once discussed his rise to success and gave a large credit of his success to the American tailwind. He says that America faced unprecedented decades of growth and all his holistic investing would have been for nothing if the general economy wasn’t booming and America wasn’t as great as it is today.