How did he do it?
Technically, he learned this massive capital accumulation discipline from Benjamin Graham, investment GURU of Columbia University in 1951.
Buffett's approach to investment involves using seventh grade math and common sense to analyze a company's underlying economics ie.
1. “buying a business not a stock”,
2. “ignoring the fluctuations of the stock market”; and,
3. most importantly, Graham’s main principle “maintaining a margin of safety.”
In frothy bull markets, Buffett is fearful while others are greedy, taking profits on some holdings and piling up the cash generated by businesses. Example - Berkshire sold its stake in PetroChina for $4 billion in 2007 amid rapidly rising oil prices and the craze for investing in emerging markets, having bought it in 2002 and 2003 for $488 million.
Then, during severe stock market or industry declines, he is greedy when others are fearful, buying good businesses at attractive prices. Example - Berkshire secured favourable terms in deals with Goldman Sachs and General Electric during last year's stock market panic.
Buffett's three rules of portfolio management are:-
1. Don't lose money;
2. Don't forget rule one and;
3. Don't go into debt.
Buffet’s personal traits required do the job:-
- His focus,
- an intellect which is a perpetual learning machine,
- an ambition from childhood to become rich,
- family is secondary,
- he attracts talented people to work, partner and deal with him due to his honesty, fairness, letting them do their job without interference and crediting them for success and;
- he freely acknowledges making several errors.