Warren Buffett’s approach to investing is misleadingly simple.
“Forget what you know about buying fair business at wonderful prices; instead, buy wonderful business at fair prices,” he wrote once to the shareholders of Berkshire Hathaway, his conglomerate.
This method – known as an investment in value – existed long before Buffett, now 94, starts his career. However, no one practiced him as well – or for so long – as he. And in this process, he influenced generations of financiers, including Wall Street Hedge Funds, and promoted the now Common Board of Investing in the Long Term.
Over the 60 years Buffett controlled Berkshire Hathaway, he used the value investment to turn a bankruptcy manufacturer into a $ 1.1 trillion conglomerate, a corporate acquisition machine and a microcosm of the US economy. One of the largest railways in America? It belongs to Berkshire. The biggest shareholder of American Express and Coca-Cola? It is also Berkshire.
As a Midas, Buffett has accumulated a personal fortune valued at about $ 168 billion, and along the way, it became the affable avatar of American capitalism, being sought by corporate executives and government authorities during the 2008 financial crisis.
This unique success earned him millions of admirers around the world. Dozen thousands of them were present at the Berkshire annual meeting in Omaha on Saturday, when he stated that he finally planned to walk away as CEO.
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His announcement was received with surprise, and then minutes of stamping shareholders’ applause – many of whom became millionaires when they have Berkshire actions and pay attention to each of their financial aphorisms.
“I tell people that everything I know about investments I learned from Warren Buffett,” said Bill Ackman, the billionaire hedge background manager who was in the audience in an interview after Buffett’s announcement.
Buffett acknowledged that his huge fortune owes a significant part of pure luck. As he himself placed, he won “Ovarian lottery” for being born in the United States at a time when action markets were ready to create one of the greatest economic booms in modern history.
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He learned about shares selection with a value pioneer, Benjamin Graham, who was his professor at Columbia University. With crucial advice from Charles T. Munger, a countryman from Nebraska who became his longstanding business partner, Buffett turned to Berkshire, which he began to control in 1965, in the best possible argument for the discipline of value investment.
But few lived and breathed this discipline like him, reading corporate balance sheets for research – and fun – from dawn to twilight.
Buffett then put this knowledge into practice in many ways. Berkshire bought a wide range of successful business, including See’s Candy, Fruit of the Loom and the Netjets private jet service. But the most transformative acquisitions were those of insurers like National Indemnity and Geico, who had prizes that customers paid, but had not yet been claimed.
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This money, known as Float, became the first financial engine of the Buffett business machine. He used this capital, along with the profits of other businesses in the company, to buy what is now a collection of 189 companies. Among the largest are the BNSF railroad, acquired in 2010 for about US $ 26 billion; and Electricity Producer Berkshire Hathaway Energy, bought by 2000 to $ 2 billion and which was expanded through its own acquisitions.
On March 31, this pile of money, which Buffett called his “elephant hunting weapon” was almost $ 348 billion.
Those who sat at negotiation tables with Buffett over the years say he is friendly and courteous – but adamant when it comes to numbers. When he is involved, price rounds are not in the plans; He is ready to move away.
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“Warren is the most disciplined investor and the clearest thinker I have ever known,” said Byron Trott of the BDT & MSD investment bank, who, as a Goldman Sachs negotiator, became one of the few bankers Buffett said. “Its ability to distill complexity in clarity and to lead with humility and conviction is incomparable.”
Buffett also used Berkshire’s cashier to buy a variety of actions, with a portfolio that includes American Express, Bank of America, Coca-Cola, Chevron and-in one of his most lucrative investments-Apple. For these companies, Berkshire property tends to be the equivalent of a quality approval seal.
And with Berkshire’s huge balance sheet and Buffett’s unmatched control, the conglomerate managed to act at timely times, buying when others needed to sell.
“Warren Buffett is an extraordinary investor at American Express and a personal friend for me,” said Stephen Squeri, CEO of American Express, after the Berkshire announcement.
Another key factor for his success was to maintain investments for long periods-“our favorite holding period is forever,” he said-allowing the returns to accumulate repeatedly, a process that he compared to a snowball rolling down the slope below. (A biography with which Buffett cooperated, but later criticized, is named in honor of this phenomenon.)
Another advantage of Berkshire for its investors is that it does not charge fees, unlike mutual funds or hedge funds. In fact, Buffett criticized the size of the fees charged by Wall Street vehicles.
That said, Buffett admitted that he has made many mistakes over the years. One of them was to let opportunities to invest early in technology giants like Amazon and Microsoft, whose business he said did not understand at the time.
However, despite several below -expected performance periods, especially in recent years, Buffett’s history is impressive. According to its calculations, Berkshire gained 5,502,284% from 1964 to 2024, compared to the 39,054% of S&P 500 in the same period. Its average annual gain was 19.9%, while S&P was 10.4%.
Buffett’s approach inspired numerous other financiers, including Ackman and the Mario Gabelli mutual funds. (Others tried to copy it more directly, including Sardar Biglari, whose financial vehicle, Biglari Holdings, shares the initials, site design and Berkshire’s investment focus.)
However, Buffett transcended business fame and reached the real celebrity, taking advantage of a folklore of Nebraska that avoided the usual ornaments of plutocratic wealth. Fans make pilgrimages to their home in Omaha and cite favorably their preferences for popular products such as Cherry Coke, Dairy Queen Blizzards and SEE’s Fudge. (All, notably, are associated with Berkshire.)
He also became known in pop culture through special appearances on television shows, including “All My Children” and “The Office.”
He mocked what he saw as the faults of the business world and Wall Street, in particular, often ridiculing professional brokers and traders for turning markets into a “casino” that could lead common to financial ruin investors.
He adopted a more serious position against Wall Street’s excesses in 1991, when, as one of Salomon Brothers’ main shareholders, he was forced to rescue the investment bank after a negotiating scandal. It was a low time in Buffett’s career.
Called to witness to Congress about Salomon, Buffett sent a firm message to the company’s employees: “Loss of money to the company, and I will be understanding; loss of a piece of the company’s reputation, and I will be relentless.”
His fame also gave him a unique influence in Washington, adding weight to his statements on political and tax issues. Ackman said policy formulators were also closely followed by Buffett’s annual comments and letters, and acted according to their ideas, such as treating actions for executives such as corporate expense.
Although he is a Democrat who supported Hillary Clinton for president and whose name was associated with an Obama era proposal to increase taxes on the rich, Buffett advised presidents of both parties. This was more visible in 2008, when it was requested by corporate executives and the administration of George W. Bush to help avoid the collapse of the global financial system.
Buffett ended up investing billions in Goldman Sachs and General Electric, movements Ackman compared JP Morgan’s efforts to save banks in the early 20th century. Faithful to his style, however, he charged both companies a 10% astronomical interest rate – a burden that executives said they were willing to pay their approval and survive.
“Warren Buffett represents all the good in American capitalism and America itself,” said Jamie Dimon, CEO of JPMorgan Chase after Saturday’s announcement.
Although Berkshire’s future seems financially solid, with Ackman calling the company “The Rock of Gibraltar,” Buffett longtime followers say it may not maintain its apparently mythical status without its main architect.
Berkshire’s next CEO Gregory Abel is considered an excellent business operator and a cunning negotiator, and Buffett has hired Todd Combs and Ted Weschler as high -level investment executives for over a decade.
For Lawrence Cunningham, a former legal teacher at George Washington University and shareholder, Buffett “gave Berkshire the best possible chance for the next chapter.”
But other investors fear that the company becomes a little less special and no longer revolves around the selection of actions that put it on the map. Bill Smead, whose investment fund has Berkshire shares and participated in this year’s annual meeting, said the company has already become less ambitious, avoiding potentially transformative businesses.
“It’s the end of an era,” said Smead.
