On August 30, one of the largest investors in the world, Warren Buffett, turned 89. He says that the main quality that an investor should have is not intelligence, but temperament, and asks young people not to invest in a business that they do not understand. “You have to separate your mind from the crowd,” he also advises.
Wizard of Omaha
On August 30, 1930, one of the most successful investors of all time, Warren Buffett, was born. With a fortune of $ 79.1 billion, he is ranked third in the Forbes ranking of the most prosperous people in the world.
Buffett operates Berkshire Hathaway, which holds more than 60 organizations, including the insurer Geico, battery producer Duracell, and the Dairy Queen restaurant chain.
Nicknamed the “visionary”, the talented investor has become famous not only for his skill in investing and receiving benefits but also for his charitable activities. Buffett annually transfers about $ 3 billion to funds. In 2018, it was reported that he had already donated $ 31 billion to charities.
In 1956, one of the most affluent people in the world founded his first investment fund, investing only $ 100 in it. Thirteen years later, his capital was already $ 25 billion.
Buffett showed a penchant for investing as a child. At the age of eleven, he was engaged in writing stock prices on a quotation board on the trading floor of the brokerage firm where his father worked. As a teenager, he attended classes at the University of Nebraska Business School.
It was then that he got carried away with the idea of investing, inspired by the book of Columbia University professor Benjamin Graham “The Intelligent Investor”.
After graduating from Columbia University with a master’s degree in economics, Buffett gained experience at the Graham-Newman Corporation until he returned to his native Omaha with only $ 100 in savings.
Another milestone – Buffett founded an investment limited partnership when he was 25 years old. Soon it was time for the first truly unusual purchase, which may have predetermined Buffett’s rise in the investment world.
He made one of the fateful decisions in 1963. Then the American Express stock price began to plummet due to the scandal with the client. Almost overnight, the market value of the company’s stock fell from $ 65 to $ 35. Buffett took decisive action and made the brave decision to invest 40% of all the partnership’s assets in buying American Express stock. Over the next two years, the company’s share price tripled, and the Buffett Partnership partners received $ 20 million in net profit.
The right investment
Early in his legendary investment career, Buffett said, “I’m 85% Benjamin Graham.” Graham is considered the godfather of financial analysis of securities. However, if the teacher preferred to find undervalued, mid-sized companies and diversify their assets among them, then his student Buffett prefers quality businesses that have reasonable ratings and the potential for significant growth.
Buffett uses twelve investment principles that sound simple enough but can be very difficult to follow. Everyone wants to invest like Buffett, but few have been able to replicate his success.
For example, an investor limits himself to a “range of competencies,” in other words, to a business that he can understand and analyze.
Buffett believes that a deep understanding of the business is a prerequisite for reliably predicting future performance. Therefore, first of all, he advises analyzing the industry, and not the market, economy, or investor sentiment.
In addition, before investing money, it is necessary to assess the quality of management. Buffett always estimates whether management is “rational” and “whether management is fair to shareholders.”
Plus, Buffett ignores short-term market volatility and focuses on long-term returns.
These are just a few examples of the rules that a businessman tries to follow at all times. It is no coincidence that the experts believe that it was the discipline that largely determined Buffett’s success.
Despite his impressive wealth, Buffett is not inclined to buy luxury mansions. The investor, who has been called the greatest in history, still lives in the house he bought in Omaha for $ 31,500 in 1958.
Warren Buffett always says that knowledge accumulates in the same way as interest in a bank and advises young investors and students to keep abreast of events. Otherwise, you may not keep up with the rapidly changing world. Back in the 50s, Buffett said that “today’s investor does not profit from yesterday’s growth” and cannot be satisfied with what has already been achieved.
In addition, the businessman believes that adopting a herd mentality is a sure way to get average results.
“You must free your mind from the masses,” he advises. “To be a prosperous investor, you have to leave from the fears and greed of the people around you, although this is practically unattainable,” says Buffett.
Everything about Buffett’s investment has a tremendous impact on the market. Business Insider recently drew attention to the fact that Berkshire Hathaway had $ 122 billion in cash in the bank at the end of June 2019. It is 60% of the portfolio with shares of public companies.
For 32 years of its existence, the company held a similar amount of cash only on the eve of the explosion in 2001 of the dot-com bubble and the financial crisis of 2008.
Analysts have concluded that Buffett keeps the conglomerate’s funds in the bank for a reason. Most US public companies are overvalued and the market may face another sell-off.
