How does Warren Buffett invest?

Warren Buffett:

First, let’s look at who is Warren Buffett at all?

He is one of the best-known value investors, born in Omaha with a very strong connection to his homeland, which is why he is also called the “Oracle of Omaha”.

With a fortune of USD 84.3 billion, hecurrently ranks third in the Forbes ranking (source).

How does he earn his money?

  • Money as a teenager up to young adult age:

He made his first money by buying cola cans, which he got for 25 cents per 6 pieces and resold for 5 cents, thus making a profit of 5 cents per six-pack.

In the further course he has bought objects that someone likes to use but either does not want to buy or can, bought broken, restored and rented.Hard to imagine what I mean?
An example were old pinball machines, which he bought with defective ones and then rented out.

He even bought a scrappy Rolls-Royce with a friend, restored it and then rented it out on a daily basis.

  • Investment in shares

Many know Warren Buffett as a stock investor, but as we’ve seen, he was a businessman as a child.

He had a knack and understanding and a sense of investment from a very early age.But he got the great interest in equities and in the value investing area through Benjamin Graham, who can also be called his mentor.

Benjamin Graham’s books, especially the book “The Intelligent Investor” or “Intelligent Investing” form the basis for value investing, which is now the biggest trademark for Warren Buffett.

Value Investing

But let’s make a brief excursion, what is the value investingat all?

As the translation tells us, it’s investing in values, mhm well, isn’t everything a value?

Let us specify that value investing means investing only in values that the real market economy also works or is successful, i.e. make a profit.

Just because there is a company, it doesn’t have to make money right away.

A recent case we currently have at Tesla, the company is assigned a certain value, by the value of what a stockis worth to be exact Tesla has made about a billion loss in 2018 ( source, page 7) compared to a “Total Stockholders” equity of 4.9 billion.

We see that confidence in the company is so strong that despite the loss, it is worth a lot more.

In value investing, this company would rather fall out of our focus because we don’t have enough confidence in the values.

Evolution from acquisition of shares [Shares to Companies)

A share is a “share” so a (to) part of a company, and yes you are a co-owner of a company when you buy shares.Warren Buffett, of course, first started buying shares when one company was successful and another wasn’t, of course he adjusted his portfolio accordingly and over time bought more and more parts of companies.

However, he always has the golden basic rules

  • Invest only in something you understand
  • Invest in something that has a value (Value Investing)

At some point he got to the point where he had the most shares as a single shareholder and the then textile company gradually joined his holding company (a company that has many companies under it, for example, Alphabet is the mother of Google, a holding company, Berkshire Hathaway.

In the meantime, Warren Buffett has such a large fortune that he has limited himself in terms of pure stock trading, so he has to buy entire companies, which he then adds to his portfolio under the name “Berkshire Hathaway”.

Result

Warren Buffett has made his money as an entrepreneur and shareholder, but he is so successful that he now has to buy entire companies, rather than just stocks, which currently somewhat limits his mobility.

Useful

By the way, it is possible to profit from the success of Warren Buffett, there are shares of his holding company for sale as shares, but there is something to distinguish here, there are A and B shares.

What is the difference?

Quite simply, first of all in the price

  • A-share: 307,120.00 USD (22.03.2019)
  • B-Share: 204.43 USD (22.03.2019)

If you don’t have the B-share, you don’t have the right to attend the annual meeting, which is certainly one of the most interesting points for most Berkshire Hathaway investors to talk to others and hear the visions of the oral.

You also have to forgo dividend payouts if you choose the B share.

Nevertheless, one could live quite well with the return, for example if we had invested on 01.02.2000, then we would now have a return of 624%, which corresponds to an annual return of about 10.15% per year (with interest rate).

For those interested there is meanwhile also a biography of Warren Buffett “Life is like a snowball” for the readers of course also about Audible, here you have a free trial subscription

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