We’ve all heard about Warren Buffett, the 87-year-old multibillionaire known for his friendly demeanor, modest style of living in Omaha, and remarkable ability to create wealth. How does he make so much money? How does Warren and his long-time associate, Charlie Munger, choose their investments? And what do they make of today’s market environment, including hot topics like becoming a great investor, the U.S. and China, and Apple?
And was Bitcoin really compared to a turd?
Buffett and Berkshire Hathaway
Warren Buffett is chairman of Berkshire Hathaway, a multinational conglomerate holding company. What does this mean? Well, in simple terms, the company invests in or owns a variety of other corporations that make products sold all over the world.
In the 1950s, Berkshire, which made linings for men’s suits, and Hathaway, a cotton milling company, merged. Buffett began investing in Berkshire Hathaway in 1962, becoming its Chairman and CEO in 1970. Munger is Vice Chairman. The company abandoned the textile business in 1985.
In the early 1990s, Buffett began to focus on actually owning companies, and today Berkshire owns quite a few. In fact, Berkshire has 100% ownership in 65 major companies, the majority share of several other major publicly-traded companies and minority holdings in dozens more.
Berkshire’s ownership in the insurance industry is well known because of GEICO, but Berkshire also owns household names like Dairy Queen, Duracell, Fruit of the Loom, Pampered Chef, and Garanamils, among others. Additionally, Berkshire owns and operates quite a few power plants, natural gas lines, hydroelectric dams, wind firms, and solar projects.
But it was Berkshire’s recent announcement that it had purchased additional shares of Apple that generated most of the press coverage. As of the end of March 2018, Berkshire disclosed that it had bought an additional 75 million shares of Apple, bringing its Apple share count to about 240 million. This recent purchase also means that about 20% of Berkshire’s public stock holdings are in Apple – which is 5% of the Cupertino-based tech giant.
Annual Shareholder Meeting Quotes
On Saturday, May 5th, Berkshire held its Annual Meeting and there were quite a few memorable lines from Buffett and Munger. Here are a few:
Buffett’s opinions about the markets:
“I never have an opinion about the market because it wouldn’t be any good and it might interfere with the opinions we have that are good.”
“If we’re right about a business, if we think a business is attractive, it would be very foolish for us to not take action on that because we thought something about what the market was going to do. … If you’re right about the businesses, you’ll end up doing fine.”
Buffett’s comments on Apple
“We’re betting on the success of Apple products like the iPhone, and I see characteristics in that that make me think it’s extraordinary….And I didn’t go into Apple because it was a tech stock in the least. I went into Apple because I came to certain conclusions about both the intelligence with the capital they deploy but more important the value of an ecosystem and how permanent that ecosystem could be. And what the threats were to it and a whole bunch of things. And I don’t think that required me to take apart an iPhone or something and figure out what all the components were. It’s much more the nature of consumer behavior, and some things strike me as having a lot more permanence than others.”
On the U.S. and China
“I’m bullish on the future of the United States, but I’m bullish on the future of China, and to a significant extent the rest of the world. People are going to be living better 10, 20, 50 years from now, and I don’t think that’s something that can be stopped, absent weapons of mass destruction.”
“The United States and China are going to be the two superpowers of the world economically and in other ways for a long, long, long time. We have a lot of common interests and like any two big economic entities, there are times when there will be tensions, but it is a win-win situation when the world trades basically in China and the U.S.”
On becoming a great investor
“What we do is not a complicated business. It’s got to be a disciplined business, but it does not require a super high IQ or anything of the sort. And there are a few fundamentals that are incredibly important. And you do have to understand accounting, and it helps to get out and talk to consumers and start thinking like a consumer in many ways and all of that, but it just doesn’t require advanced learning.”
Buffett on today’s standard of living
“Everybody in this room essentially is living better in multiple ways than John D. Rockefeller senior was, who was the richest person in the world during my early years. And we’re all living better than he could live. So this is a remarkable, remarkable country and we’ve found something very special. And I would love to be a baby being born in the United States today.”
Buffett and Munger’s Comments on Bitcoin:
Before the Berkshire Annual Meeting even started, Buffett said Bitcoin was “probably rat poison squared.”
Munger was even more caustic when he said, “I like cryptocurrencies a lot less than you do. To me, it’s just dementia. It’s like somebody else is trading turds and you decide you can’t be left out.”
Financial Success
Berkshire Hathaway has been an overwhelmingly successful company. In all the years that Buffett has controlled the company (1965-present), this is how Berkshire has performed:
| In Per-Share Book Value of Berkshire | In Per-Share Market Value of Berkshire | In S&P 500 with Div. Included | |
| Compounded Annual Gain 1965-2017 |
19.1% |
20.9% |
9.9% |
| Overall Gain 1964-2017 | 1,088,029% | 2,404,748% | 15,508% |
Source: Berkshire 2017 Annual Report
Buffett doesn’t just beat the market – he smashes it.
So, what are Buffett’s strategies for growing this wildly successful company?
Strategies of the Oracle of Omaha
Probably the most successful investor in history, Buffett is known as the “Oracle of Omaha” for his ability to predict an investment success through evaluating whether to buy or invest in a company.
So what’s his strategy? In a nutshell, Buffett is a value investor. A bargain hunter, he searches for stocks that are valuable but not recognized as being valuable by most other buyers. Thus, he can buy a company when it stock prices are unreasonably low.
However, Buffett isn’t especially interested in how
the market treats his new stock. He chooses stocks based on the overall potential of the company to generate earnings. He buys and holds stocks and companies for the long term. His primary concern
is how well the company can make money for its shareholders. If the company does well, of course,
its share value will also increase.
Essentially, Buffett waits until a great opportunity presents itself, as opposed to wheeling and dealing all day with his holdings. His investment philosophy reflects his practical, down-to-earth, Nebraska attitude about life in general. He lives in a nice house, not a mansion. He is one of the wealthiest people in the world (over $84 billion dollars), but he doesn’t take a limousine to work.
Can Buffett’s strategy of long-term, value investing work for you?
Long Term
Buffett’s strategy requires patience, a long-term focus, and buying low (the value investing approach). The first thing to know about long-term, value investing: It’s very difficult to determine whether a company is undervalued by the market, with greater intrinsic worth than most investors see. To make good decisions, you have to be able to analyze a massive amount of financial data, the market for a company’s product, its management, and the future.
Recognizing this difficulty, Buffett advises other investors not to consider themselves “know-it-alls”.
He has said, “There is nothing wrong with a ‘know nothing’ investor who realizes it. The problem is when you are a ‘know nothing’ investor but you think you know something.”
–Jared
