Warren Buffett just turned 93. Now is the time to take stock. The Berkshire Hathaway chairman and chief executive has built considerable acclaim over his 70-plus years as a professional investor, turning a once-struggling textile business into one of the largest conglomerates in history , worth nearly $800 billion.
Buffett, known as the “sage” or “Oracle of Omaha” for his prescient stock picking, has helped Berkshire Hathaway acquire dozens of businesses since taking over in 1965 — from insurance giant Geico to the BNSF Railroad, America’s largest railroad company — and often made incredible profits from his stock picks.
As a result, Berkshire stock has soared 3,787,464% from 1965 to the end of 2022, far outpacing the S&P 500’s gain of 24,708%. That means if you had invested $10,000 in Berkshire in 1965, you would have had $378 million by the end of last year. Along the way, Buffett learned hundreds of things about the difference between “cigar butts” and something truly worth investing in.
Berkshire Hathaway’s historic rise has made Buffett the seventh-richest person in the world, but the Oracle man is known to prefer a relatively modest lifestyle with his wife in Omaha, where he has pledged $120 billion All of his wealth is donated to charity. Co-create the Giving Pledge and his close friend Bill Gates.
Buffett is undoubtedly a unique, once-in-a-lifetime genius, but like anyone, he needed some help to become who he is today.
Back in the early 1950s, he enlisted the help of Benjamin Graham, the “father of value investing.” Buffett was fortunate enough to work at Graham’s investment firm, Graham-Newman Corp., after being inspired by Graham’s seminal book on value investing in the mid-50s. smart investor, 1949.
Graham taught Buffett to focus on the fundamentals of the businesses he bought and to always invest with a “margin of safety,” which meant looking for stocks that traded for less than their intrinsic value. Of course, these aren’t the only lessons. Buffett says Graham taught him the importance of being willing to stand out from the crowd, even if it makes you look stupid, and, perhaps more importantly, be endlessly curious and generous.
“Walter Lippmann talked about people planting trees and letting other people sit on them. Ben Graham was one of those people,” Buffett wrote in an essay. 1976 Tribute After Graham’s death.
Buffett has always regarded Graham’s advice as a mantra, both in life and in investing, and this was evident early in his career.
cigar butt start
A value investor, Buffett spent his youth hunting down the streets for used cigar butts. Of course, not literally cigar butts. Before founding Berkshire Hathaway, the “Oracle of Omaha” was known for finding dying businesses that most investors hated. In those days, Buffett wasn’t looking for a great company the way he is today, he was looking for a bargain.
this is his Tell In 1989, Berkshire shareholders talked about this idea:
“If you buy a stock at a low enough price, there is often a hiccup in the company’s fortunes that gives you the opportunity to sell at a decent profit, even though the company’s long-term performance may be dire. I call this a “cigar butt” “Investment approach. A cigar found on the street with only one puff left may not produce much flavor, but the ‘bargain’ will make the puff all profitable.”
Buffett has since called this approach to investing in cigar butts “a mistake.”exist a speech In 2001, at the University of Georgia, he told students that “while you can make money doing this…it’s much easier to buy great businesses.”
However, one investment of this era has arguably become Buffett’s greatest. In 1965, while hunting for cigar butts, Buffett discovered Berkshire Hathaway, a troubled but undervalued New England textile business, and bought a 49% stake in the company. After taking ownership and researching the company, he realized the purchase was “a mistake” and called it “the dumbest stock he ever bought.” Berkshire’s old textile business was slowly dying, so instead of wasting cash propping it up, Buffett started plowing the company’s cash into the stock market. Over time, this helped Berkshire outgrow the textile industry and slowly grow into the international conglomerate it is today.
stock market guru
Buffett may have started by hunting for cigar butt stocks, but he has since become known for his preference for long-term buying and holding of quality companies. This strategy has yielded some amazing results over the past few decades.
Two of his most notable investments, Coca-Cola and Apple, show how strategy has changed over the years. As Berkshire Hathaway grew in size, Buffett shifted from hunting for bargains to finding “wonderful businesses,” as he found it increasingly difficult to find enough stock of cigar butts to turn a reasonable profit.
“It’s not going to scale,” said Charlie Munger, Buffett’s longtime right-hand man at Berkshire. Tell Yahoo Finance Cigar Butt Strategy at the 2019 Annual Meeting.
Munger helped Buffett shift to a focus on buying the best businesses, rather than the old investing approach sometimes called extreme value investing. “When he started looking for investment value in great businesses that were temporarily under pressure, it all got better,” Munger said. “Now we can scale and reach the pinnacle.”
Which brings us to Coca-Cola, perhaps the ideal representation of Buffett’s focus on buying great businesses rather than hidden gems or discarded cigar butts.
Buffett, known for his childlike eating habits and sweet tooth, first bought Coca-Cola stock in 1988, and the company has long been one of Berkshire Hathaway’s key holdings. The company’s initial investment was $1.3 billion, but Berkshire now receives more than half of its annual dividends from Coca-Cola alone. The group will receive $704 million in dividend income from the soft drink maker in 2022, and its stake is now worth about $24 billion.
Apple is another example of Buffett’s focus on strong, stable businesses. The Oracle was a bit late when it bought Apple in 2016. The iPhone has become a dominant force around the world, and Apple stock has soared over the past decade. But when its stock price fell in late 2015 and early 2016, Buffett used it as an opportunity to spend $36 billion on a stake in the company. The investment is currently valued at more than $150 billion.
go all out
While Buffett has made a fortune buying public stocks, he has also acquired dozens of private companies that are critical to the U.S. economy. Berkshire now owns 65 businesses in various industries, including Acme Brick Company, RV maker Forest Rivers, insurance giants Geico and Allegheny, battery maker Duracell, clothing companies Fruit of the Loom and Garanimals, and even Dairy Queen.
But then there’s his famous sweet tooth.
One of Buffett’s best investments is confectioner See’s Candy.In a famous 1994 essay, the billionaire wrote letter He told investors he’d love to increase his investment in See’s but hasn’t “found a way to increase his holdings to 100 percent.” In 2019, at Berkshire’s annual meeting, he revealed why. In 1972, the candy maker earned Berkshire “well in excess” of $2 billion in profits on an initial investment of just $25 million.
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