Often referred to as the “Oracle of Omaha,” Warren Buffet has been revered as one of the leading investors of our time. Buffet is the primary stockholder, CEO, and Chairman of “Berkshire Hathaway,” a conglomerate holding company managing such companies as Geico, Fruit of the loom, General Re, and Dairy Queen. It also has large stakes in GE, Goldman Sachs, The Coca-Cola Company, Moody’s Corporation, American Express, The Washington Post, and Wells Fargo.
Buffet, currently the third richest person in the world with an estimated net-worth of $45 billion, has also become known as one of the leading philanthropists, pledging to give away 99% of his wealth. However, it is his reign as a leading investor that has become what he is best known for. As head of Berkshire Hathaway for the last 44 years, he has provided 20.3% of annual growth in book value to shareholders. With these achievements, his investments are closely followed as investors try to emulate and benefit from his decision-making.
Despite his reverence, it is his financial strategy and philosophy that is often most questioned, since it undermines some of the most closely held assumptions about financial growth. For instance, he has routinely spoken out and supported investing in passive funds. This strategy is seen as antithetical to the “beat the market” strategy prevalent in finance. Buffet also leads by a “buy-and-hold” strategy, which given the speculative environment of finance and stature of his own investments, is viewed as overly safe and cautious. His long-term view of investing, and acknowledgment that timing the market is futile for most is what really irks investors learning to emulate his financial wizardry.
It is his comprehension of what makes a company successful that lies at the root of his brilliance. As simple as this formula sounds, it remains the most difficult thing for other investors to emulate. Buffet’s suggestion to others has been to invest in sectors you understand. While this strategy has clearly worked, it has also prevented him from investing early in some of the leading tech companies. Nevertheless, this strategy allows Buffet to examine and understand the intrinsic value of companies for which he profits from.
Buffet’s ability to remain calm and be unswayed by the sheer thrill of finding a good deal is contradictory to most investment approaches. While we are enticed and mesmerized by the wealth of others, we are somewhat blind when it comes to making an objective and sound investment decision. Clearly part of this is due to lack of resources to perform the necessary research, though most of us, unfortunately, seem to start investing by looking for a financial panacea. We aim for excitement and a sure-thing from the get-go, while Buffet is suspicious of the hype and glamor surrounding any investment. Whereas Buffet identifies the value and core competencies of a company, most of us look at an exciting deal and then confer added-value to a company in order to manage uncertainties with our investment decisions. We should instead, allow self-reflection on our investment decisions. Only after that, can we ask ourselves if a deal looks good on the surface or has solid fundamentals that will pay off.