Sunday, August 16, 2009

Who is Warren Buffet?

He is the chief icon of Bershire Hathaway. About 30 years ago, Buffett spent $15.4 million to buy 46% of Berkshire (a textile entity) including 3% for his wife Susan, paying an average $32.45 per share. With Berkshire shares recently traded around $87,200, Buffett has grown his wealth nearly 3,000-fold in some 30 years.

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,
  • rationality,
  • 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.
Source - Alice Schroeder, Buffett: Rock Star of American Capitalism, Knowledge at Wharton

1 comment:

Anonymous said...

I'm Buffet's fans and have read his biography, it is very impress that people can as focus as him.
He is the model to learn.

Quite doubt abt "using seventh grade math" to pick stocks though.