The world has to stop and take notice when Warren Buffett speaks about investing or really anything at all. This is because he is the second wealthiest person on the planet (trailing behind only his good friend Bill Gates). Buffett made his fortune through careful and intentional stock picking that no one has been able to match on his level.
Buffett would come to earn the nickname “The Oracle of Omaha” because of his roots in the city of Omaha, Nebraska. In fact, despite his billions of dollars in net worth, Buffett still lives in the home that he grew up in as a child.
He believes in saving money whenever possible, and he simply loves the home in which he was raised. He was just a child of 11 years of age when he technically made his first investment. He bought 3 shares of a company named Cities Services Preferred. The stock was $38 a share at the time. Quickly after he purchased it the price fell to $27 per share. This was a small setback for the young child, but he was one who was not willing to give into fear. He held on until the stock came back to a price of $40 per share.
The Oracle has come a long way since those days. Smart and savvy investments in his early adult years led Buffet to get to a place where he now commands a huge fortune. He can buy anything he wants, even entire businesses when he believes the move makes sense.
He does this through his company that he founded and is the CEO of called Berkshire Hathaway. This is a widely respected institution that is looked up to by many investors all over the world.
Buffett’s Philosophy On Investing
“Price is what you pay. Value is what you get.” -Buffett
Warren Buffett has been one of the most influential investors to ever live but he attributes his success to Benjamin Graham and his approach of value investing. Through this method of value investing, Buffett has been able to successfully pick undervalued stocks for decades while accumulating a massive amount of wealth for himself and his investors.
Value investing consists of locating stocks that are well below their intrinsic worth by comparing their assets and financials to their competitors. Good value investors will find companies that are off the radar and buy them up before the majority of traders and investors realize that the company is worth much more.
This is a lot harder than it sounds and takes a lot of patience and due diligence to make the right decisions.
Buffet has mastered the art of value investing and even thrown in some aspects that he has found to be of great importance. When he looks for undervalued companies he has a checklist that he goes through that includes items like:
- Profit margins – are they good compared to their competitors and are they on the rise or declining?
- Company’s debt levels – does the company have a lot of debt or have they been able to avoid it?
- Historical performance (Return on Equity) – how has the company performed in the past for its investors?
- Understanding of the company – Buffett will not invest in companies that he doesn’t understand
After evaluating all aspects of the company, Buffett will then look to see if it is trading at a discount. He usually likes to see it trading 25% below what he thinks the fair value of the company is. If everything lines up, Buffett is a buyer and usually a big one. Investors all around the world follow his lead and are always looking for clues on what he will be buying.
These days Buffett is saying that investors should look at issues such as Apple to put their investment dollars to work today. He believes that a stock like this represents a strong American company that has been beaten down and is now at discount prices.
Concerns such as declining iPhone sales and the like have caused some shareholders to sell. Buffett sees this as the chance to get in at a great price. This bottom feeding philosophy has helped Buffett amass his wealth and those who follow his lead are often rewarded for it.
Generosity Goes A Long Way
During the crisis of 2008-2009 the world turned to Warren Buffett to help out as well. With bank after bank in huge financial distress and some of them even failing completely, it was Buffet who would be called upon to help out.
He was one of the only individuals in the entire country with a high enough net worth to make it possible for him to use his own funds to help out. Goldman Sachs was in some serious trouble at the time and needed someone who could give them a loan. They went to Buffet.
Buffett was not willing to give out a billion dollar loan without getting some very favorable terms for himself. That is exactly what he did when he negotiated a deal by which he received a 10% dividend on his billion dollars and also got the option to purchase Goldman stock at a ridiculously low price on the hopes that it would rebound following his investment. That is exactly what happened as the bank got healthier and once again the Oracle came out on top.
Warren Buffett has become an icon for investing and will go down as one of the greatest to ever live. He has changed how fund manages invest and has inspired up-and-coming investors looking to start their own fund. He is a true genius when it comes to finances and investing and has set the bar high for future generations.