Warren Buffett is consistently one of the richest people in the world, with a net worth of $ 80,8 billion as of October 2019. This makes him the third richest person in the world. Buffett holds his net worth predominantly in stocks in Berkshire Hathaway and Berkshire Hathaway, the investment company he founded. Berkshire Hathaway acts as your investment vehicle, investing in things like stocks, real estate, and renewable energy.
However, Buffett had modest beginnings, which has shaped the way he views money management. He was born in Omaha, Nebraska, in 1930, and the city has been his home ever since.
Working as an investment salesman, he had a knack for investing and eventually built Berkshire Hathaway into the company it is today. He still lives in the house he bought in 1958 for $ 31.500.
Berkshire Hathaway
Most of Warren Buffett's wealth is tied to Berkshire Hathaway's investment portfolio. Reports from 2004 to 2019 show that Buffett's stake in Berkshire Hathaway shares is 350.000 Class A shares and 2.050.640 Class B shares. In recent years Buffett has donated a considerable amount of his shares to charity. . Its most recent 13-D records show its holding in class A shares at 259.394 shares and its class B shares at 65.129. As of March 13, 2020, BRK.A was trading at $ 289.000 and BRK.B at $ 196,40.
Buffett's net worth was just $ 1 million when he was 30, consisting largely of Berkshire Hathaway stock. Through smart institutional investments, he raised the company's stock from $ 7,60 in the 1960s to today's level. This exponential rise in share price is the main driver of Buffett's rise in net worth in recent decades.
Warren Buffett bought his first shares at age 11, six shares at $ 38 each in a company called Cities Service Preferred, which he sold a few years later at $ 40 a share.
Stock portfolio
In addition to serving as Berkshire Hathaway's president and chief executive officer (CEO) and being one of its largest shareholders, Buffett uses the company as his primary investment vehicle, conducting many of his sales and stock purchases as business transactions. This portfolio makes up the majority of your equity investments.
The investor is known for his income and value approach to investing, and his portfolio reflects his ideology. As of December 31, 2019, Berkshire Hathaway's portfolio was worth approximately $ 194.910 billion. The largest portfolio weights were in Apple (AAPL), Bank of America Corp (BAC), and Coca-Cola Company (KO). Combined, these three companies accounted for 56% of the stakes.
As a percentage of equity investments, Berkshire Hathaway is the largest investor in finance at 38%, followed by 26% in technology and 15% in consumer advocacy. Other sectors in the portfolio include industrials, consumer cyclicals, healthcare, energy, communication services, basic materials, and real estate.
Subsidiary companies
In addition to stocks, Berkshire Hathaway is also well known as a holding company. The company has 65 subsidiaries with a focus on insurance and real estate. Some of its subsidiaries include GEICO Auto Insurance, Clayton Homes, and See's Candies.
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Warren Buffett's investment advice is timeless. I've lost count of the number of investment mistakes I've made over the years, but almost all of them fall into one of the 10 investment advice buckets Warren Buffett gives below.
By keeping Buffett's investment advice in mind, investors can avoid some of the common pitfalls that hurt returns and jeopardize financial goals.
Investment advice from W. Buffett
After much deliberation, I settled on my 10 favorite investment tips from Warren Buffett from the list below. Every nugget of wisdom is backed by at least one of Warren Buffett's quotes and is useful for investors looking to find safer stocks. Let's dive in.
1. Invest in what you know… and nothing else.
One of the easiest ways to make an avoidable mistake is to get involved in overly complex investments.
Many of us have spent our entire careers working in no more than a handful of different industries.
We probably have a reasonably strong understanding of how these particular markets work and who the best companies are in the space.
However, the vast majority of publicly traded companies are involved in industries where we have little or no direct experience.
"Never invest in a business you can't understand." - Warren Buffett
This does not mean that we cannot invest capital in these areas of the market, but we must approach with caution.
In my opinion, the vast majority of companies operate businesses that are too difficult for me to understand. I'll be the first to tell you that I can't predict the success of a biotech company's drug line, predict the next big fashion trend in teen apparel, or identify the next technological advance that will fuel the growth of semiconductor chips.
These kinds of complex issues materially affect the profits generated by many companies in the market, but it is arguably unpredictable.
When I come across such a business, my answer is simple:
There are too many fish in the sea to obsess over studying a company or industry that is very difficult to understand. This is why Warren Buffett has historically avoided investing in the technology sector.
If I can't get a reasonable understanding of how a business makes money and the main drivers affecting their industry in 10 minutes, I move on to the next idea.
Of the 10.000+ publicly traded companies out there, I estimate that no more than a few hundred companies meet my personal standards for business simplicity.
Peter Lynch once said, "Never invest in an idea that you cannot illustrate with a pencil."
Many mistakes can be avoided if we stay in our circle of competence and come up with a plan to carry it out.
2. Never compromise the quality of the business
While saying "no" to complicated businesses and industries is fairly straightforward, identifying high-quality businesses is much more difficult.
Warren Buffett's investment philosophy has evolved over the past 50 years to focus almost exclusively on buying high-quality companies with promising long-term opportunities for continued growth.
Some investors might be surprised to learn that the Berkshire Hathaway name comes from one of Buffett's worst investments.
Berkshire was in the textile industry, and Buffett was tempted to buy the business because the price seemed cheap.
He believed that if you bought a stock at a low enough price, there would usually be some unexpected good news that would give you the opportunity to unload the position at a decent profit - even if the long-term performance of the business is still terrible.
With more years of experience under his belt, Warren Buffett changed his position on investing in "cigarette butts." He said that unless you're a liquidator, that kind of approach to buying business is dumb.
The original "bargain" price probably won't turn out to be a steal after all. In a tough business, as soon as one problem is solved, another surfaces. These types of companies also tend to obtain low returns, which further erodes the value of the initial investment.
These insights led Buffett to coin the following well-known quote:
"It is much better to buy a wonderful company at a fair price than a fair company at a wonderful price." - Warren Buffett
One of the most important financial ratios I use to measure business quality is return on invested capital.
Companies that get high returns on the capital invested in their businesses have the potential to grow their profits faster than lower-performing companies. As a result, the intrinsic value of these companies increases over time.
"Time is the friend of wonderful business, the enemy of mediocre." - Warren Buffett
High returns on equity create value and are often indicative of an economic doldrums. I prefer to invest in companies that generate high (10% -20% +) and stable returns on invested capital.
Instead of giving in to the temptation to buy a dividend stock with a 10% yield or to buy shares in a company that trades for "only" 8 times its earnings, make sure everything is done right.
At the other end of the spectrum, some investors over-diversify their portfolios out of fear and / or ignorance. Owning 100 shares makes it virtually impossible for an investor to keep abreast of current events affecting their companies.
Excessive diversification also means that a portfolio is likely to be invested in a number of mediocre deals, diluting the impact of its high-quality holdings.
Diversification is a protection against ignorance. It makes very little sense to those who know what they are doing. " - Warren Buffett
Diversification
Perhaps Charlie Munger summed it up better:
"The idea of excessive diversification is crazy." - Charlie Munger
How many shares do you own? If the answer is more than 60, you might seriously consider thinning your portfolio to focus on your higher quality holdings.
5. Most news is noise, not news
There is no shortage of financial news reaching my inbox every day. Although I am a notorious headline reader, I get rid of almost all the information that has been given to me.
The 80-20 rule states that about 80% of the results can be attributed to 20% of the causes of an event.
When it comes to financial news, I'd say it's more like the 99-1 rule - 99% of the investment stocks we take should be attributed to only 1% of the financial news we consume.
Most of the news headlines and conversations on television are there to generate buzz and trigger our emotions to do something - anything!
“Shareholders, however, too often let the capricious and often irrational behavior of their fellow owners cause them to behave irrationally as well. Because there is so much talk about the markets, the economy, interest rates, the behavior of stock prices, etc., some investors believe that it is important to listen to the experts - and, even worse, it is important to consider acting. according to your comments. " - Warren Buffett
The companies in which I focus to invest have so far withstood the test of time. Many have been in business for more than 100 years and have faced virtually every unexpected challenge imaginable.
Imagine how many grim "news" spawned throughout their corporate lives. However, they are still standing.
Does it really matter if Coca-Cola missed quarterly earnings estimates by 4%?
Should I sell my position in Johnson & Johnson because the stock is down 10% since my initial purchase?
With falling oil prices driving Exxon Mobil's profits down, should I sell my shares?
The answer to these questions is almost always a resounding "no," but stock prices can move significantly as these issues arise. The financial media also has to blow up these topics to stay in business.
"Remember the stock market is a manic depressive." - Warren Buffett
As investors, we must ask ourselves if a news story really impacts the long-term earnings power of our company.
If the answer is no, we should probably do the opposite of what the market does (for example, Coca-Cola falls 4% on a disappointing earnings report caused by temporary factors - consider buying the stock).
The stock market is a dynamic and unpredictable force. We have to be very selective about the news we choose to hear, let alone act. In my opinion, this is one of the most important investment tips.
6. Investing is not rocket science, but there is no "easy button"
Perhaps one of the biggest misconceptions about investing is that only sophisticated people can successfully choose stocks.
However, it can be said that raw intelligence is one of the least predictive factors of the success of an investment.
You don't have to be a rocket scientist. Investing is not a game where the guy with an IQ of 160 beats the guy with an IQ of 130. " - Warren Buffett
It doesn't take a rocket scientist to follow Warren Buffett's investment philosophy, but it is remarkably difficult for anyone to consistently beat the market and avoid misbehavior.
Equally important, investors should be aware that there is no magic set of rules, a formula or an "easy button" that can deliver results that beat the market. It does not exist and will never exist.
Investors should be skeptical of models based on history. Built by a nerdy sounding priesthood… these models tend to look impressive. Yet too often, investors forget to examine the assumptions behind the models. Beware of nerds who wear formulas. - Warren Buffett
Anyone who claims to have such a system for the sake of further business is either very naive or no better than a snake oil salesman in my book. Beware of the self-proclaimed "gurus" who sell you a hands-free, rules-based investment system. If such a system really existed, the owner would have no need to sell books or subscriptions.
"It is easier to fool people than to convince them that they have been fooled." - Mark Twain
Adhering to a general set of investing principles is fine, but investing is still a difficult art that requires thinking and shouldn't feel easy.
8. The best moves are often boring.
Investing in the stock market is not a way to get rich quick.
If anything, I think the stock market is better at moderately growing our existing capital over long periods of time.
Investing is not meant to be exciting, and growing dividends by investing in particular is a conservative strategy.
Rather than trying to find the next big winner in an emerging industry, it is often better to invest in companies that have already proven their worth. Owning 100 shares makes it virtually impossible for an investor to keep up with current events.