How has Warren Buffett managed to grow his wealth year after year having a net worth of over $80 billion dollars as of today, when he had around $6,000 dollars at 15? This while other investors, who often started out with more money, has struggled to even come close to grow their wealth to the same extent as Warren. Some people say it’s luck, and that might have played a part of growing his fortune, but it’s far from the reason for why he’s gone to become one of the wealthiest people in the world. So I’ve been digging deep to really find out his investment strategies and what triggers him to open that fat wallet and invest in certain companies while turning down others. So in this video I’m going try to explain the principles he follows that has made him filthy rich, and how you can do copy him and grow your own investments to new heights.
So let’s start off with the basics, we need to know where he got his knowledge from and dig into that wealthy mind of Warren Buffett and understand his reasons before investing. And we can go back to the early stages of his career where he was quoted saying “I’m 85 % Benjamin Graham.” And the reason for this is because Warren was a student of Graham at Columbia University and later became his employee and Warren thought his concepts of value investing really made sense to him, and that intelligent investing is more of a mental approach than a practical one. Warren has also called Graham’s book “the intelligent investor” the book that changed his life and investing philosophy forever, and the concepts discussed in that book are still as useful today as they were then.
So Before Warren Buffett decides to make an acquisition or invest in a company he studies them heavily and concludes that it has a significant economic moat. And a moat is a term coined by Buffett himself that basically means that a company has a competitive advantage over other other companies in that industry. This advantages can be factors such as having a well-known brand, having a large portion of market demand, certain patents, cutting edge technologies etc. The wider the moat the more attractive the company becomes to invest in, especially if you have an extra few billion dollars to your disposal.
So if we take a look at some of the companies in the Berkshire Hathaway portfolio, you’ll see that most of them are pretty big, worldwide companies with some kind of moat and most of these companies have been around for some time. Some examples are Wells Fargo, Walmart, Visa, Mastercard, Coca-Cola, Goldman Sachs, and General Motors to name a few.
However a business that has a moat doesn’t necessarily make it a good investment, but it’s definitely a good start. So what is it that makes Warren splash the cash and invest in certain companies while neglecting others? Well he actually revealed what he looks for when he evaluates a business in his 1977 shareholder letter for Berkshire Hathaway and he’s got 4 investing principles that he follows almost religiously before making the decision to invest.
The first principle is simply to invest in a business that he understands. His advising to stay within your circle of competence and invest your hard earned money within industries that you have some knowledge in. And if you don’t know shit about the markets and industries, then simply start learning about only one specific industry that interests you somewhat and go from there. Warren intentionally stays aways from investing in tech companies simply because he doesn’t understand them or that market, probably because that wasn’t really available when he grew up.
The second principle is that the business should have favorable long-term prospects. This is where the moat becomes important and can be a deciding factor of whether a company will be able to grow and increase in value year after year. He’s said if you’re not comfortable holding a stock for 10 years, you shouldn’t own it for 10 minutes.
The third principle is that it should be operated by competent and honest people. This is another reason for Warrens excessive studies he makes before investing. Is the management run by competent people? Has any of the executives been involved in some fraudulent activities? Would the business collapse if the CEO left?
The fourth principle is that it should be available for a very attractive price. This is the only principle that he has adjusted since 1977, and instead of “very attractive price”, it’s now “sensible price”. Here’s where Benjamin Graham’s value investing comes into play and if the business is somewhat undervalued and ticks all the other principles, then Warren Buffett will have a hard time turning this opportunity down.
This might seem to be a lot of information to study before investing and if you want to become the next warren Buffett I suggest you start opening some books and read a few newspapers daily to stay in the loop at all times. Warren Buffett is known for spending 80 % of his awaken hours reading about businesses and plows through 600 to 1,000 pages a day. I think it’s fair to say that one of greatest investors of all time didn’t earn his wealth only through luck, although it might have played a part, but it’s through his immense ability to understand and grasp how a business operates in that industry, that has brought him his huge success.
Now I am saying that I believe you, just like Warren Buffett will acquire 80 billion dollars if you follow these principles? Of course I do, I believe in you mate and so should you!