Warren Buffett became the richest man in the world through practicing his own edge in investing. Few can duplicate his process because it requires incredible discipline and patience and compounding of returns over decades. He also went from simply investing in stocks through his partnership when he was younger to acquiring whole companies through his holding company Berkshire Hathaway. What is also amazing is that his acquisition of textile company Berkshire Hathaway turned out to be a failure but he was able to convert it to an insurance holding company. With his change in business plans he was able to grow the value of the company from $7.60 a share when he purchased it in 1962 to the stock being worth $212,000 in 2016. Warren Buffett will go down as the greatest investor of all time. Here are the principles he used.
- Mr. Buffett bought companies that had competitive moats around them. It is very difficult to compete with Apple, Visa, MasterCard, Coca Cola, Kraft, Heinz, or AT&T. The cost of entry into those industries is expensive. They have a huge competitive edge through their production abilities and industry position.
- Warren Buffett makes purchases with a great margin of safety. He buys the best companies during bear markets and recessions. He judges his downside as limited and his upside much greater on entry.
- Warren Buffett is interested in buying companies with strong growing cash flow for a discounted price.
- He likes companies with high turnover demand for their products, shoes, candy, cola, food, disposable razors, and cell phones. He likes dependable and steady demand for products.
- Warren Buffett creates great risk/return ratios through the high value of a company that he is getting for a great price and he is willing to hold it long enough for the true value to be recognized and the stock price adjusted.
- He buys extreme fear and sells extreme greed.
- He does not buy concept stocks with hoped for future earnings. He buys strong cash flow, gets a good price for book value, likes strong brands and wants excellent management.
Warren Buffett won the investment game.
