Warren Buffet and his proven startegies for Investing Essay Example

University of Nebraska-Lincoln when Howard was defeated in the 1948 Congressional race. Despite working full-time, he managed to graduate in only three years, displaying the same resistance towards graduate studies as before. Although rejected by Harvard Business School for being "too young," he was eventually accepted into Columbia where he was taught by famed investors Ben Graham and David Dodd. It was an experience that would forever change his life, as Ben Graham had become well known during the 1920s.

Despite the world treating investing as a risky game, this individual looked for undervalued stocks with minimal risk. Notably, he recommended investing in the Northern Pipe Line, an oil transportation company owned by the Rockefellers. Despite being sold at $65 per share, Graham discovered that the company had bond holdings with a value of $95 per share on their balance sheet. Graham advised the management to sell their portfolio but they declined.

Following a successful proxy war and securing a position on the Board of Directors, the company sold its bonds and distributed a dividend of $70 per share. At the age of 40, Ben Graham authored Security Analysis, an esteemed piece on stock market investments during a period where equities were viewed as a joke, with the Dow Jones having plummeted from 381.

Ben Graham developed the concept of "intrinsic" business value, which allowed investors to determine a company's true worth regardless of its stock price. He became a admired role model to Warren Buffett when the latter was 21 years old, due to Graham's impactful investment principles. Graham's ideas were formulated during a period of 3-4 years after the 1929 stock market crash, during

which he observed stocks fluctuate from 17 to 41.

Warren stumbled upon the information that his guide was in fact the head of a lesser-known insurance organization called GEICO while browsing through an older version of Who's Who. Determined to explore this new potential opportunity, he took a train to Washington D.C. on a Saturday morning in search of their headquarters. Upon arrival, he discovered that the doors were securely locked. However, he refused to be deterred and proceeded to repeatedly knock until a janitor appeared to unlock the entrance.

Buffett inquired about the presence of anyone in the building, and fortune proved favorable as an individual was still working on the sixth floor. The individual happened to be Lorimer Davidson, who held the position of Financial Vice President. Warren was accompanied to meet with him, and their dialogue, which delved into the company's operations and policies, spanned four hours. This encounter left a lasting impact on Buffett's life.

Warren Buffett, the only student to earn an A+ in one of Ben Graham's classes during his graduate studies at Columbia, acquired the complete GEICO company through his corporation, Berkshire Hathaway. Despite receiving discouragement from both Ben Graham and his father to not pursue a career on Wall Street, Buffett persevered and even offered to work for free at the Graham partnership, which was ultimately declined by Graham.

Instead of giving spots to Jews who were already employed at Gentile firms, he chose to reserve them for Jews who were not employed at the time. This was devastating for Warren, who then decided to work at his father's brokerage firm and started dating Susie Thompson.

Eventually, they got married in April 1952. In just six years, from 1950 to 1956, Warren increased his personal capital from a humble $9,800 to $140,000.

After accumulating a significant amount of funds in 1956, Warren Buffett concentrated on formulating his next plan in Omaha. He brought together seven limited partners, including his Sister Doris and Aunt Alice, and obtained $105,000 on May 1st of that year. Using his own $100 investment, he founded the Buffett Associates, Ltd. As of the end of that year, he supervised assets valued at approximately $300,000.

Despite the small amount of funds, the owner had grand intentions for it and acquired a property at a cost of $31,500 which he fondly dubbed as "Buffett's Folly". He conducted his business partnerships from this location and experienced prosperity in his personal life by starting a family with a spouse and three children. In ten years' time, the assets of the Buffett Partnership saw an incredible growth rate of 1,156%, whereas the Dow only rose by 122.9%.

Warren Buffet took on the role of managing assets worth $44 million and expressed concern about the increase in stock prices. In 1968, the partnership achieved a significant success with a 59.0% increase in value, resulting in assets worth over $104 million. After acquiring 49% of the common stock, Buffett appointed himself Director of Berkshire Hathaway on May 10, 1965.

Following substandard management that nearly destroyed the company, Mr. Buffett perceived potential for improvement through modifications and thus assigned Ken Chace as President with complete organizational authority. Despite refusing to allocate stock options to the President due to its unfairness towards shareholders, Mr. Buffett did approve co-signing an $18,000

loan for Mr. Chace's purchase of 1,000 shares of the company's stock.

In 1970, Buffett took over as Chairman of the Board at Berkshire Hathaway and personally wrote the shareholders' letter for the first time. This responsibility had previously been managed by Ken Chace. Despite textile profits being a mere $45,000 that year, Buffett's wise strategy for allocating capital was evident in banking and insurance profits reaching $2.6 million and $2.1 million dollars, respectively.

The capital needed to begin building Berkshire was obtained by utilizing the failing looms in New Bedford, Massachusetts. After one year had passed, Warren Buffett was given a chance to acquire See's Candy, which specialized in producing high-end chocolate treats with its own exclusive flavor profile at prices well above those of typical sweets. Although the owners of See's initially demanded $30 million for the business, Berkshire ended up purchasing it for $25 million in cash because Californians were willing to pay more for the unique taste associated with "See's" products.

In the late 1970s, Warren Buffett's reputation was such that a mere rumor of his interest in a stock could cause its price to increase by 10%. Berkshire Hathaway's stock rose above $290 per share during this time, resulting in Buffett's personal wealth totaling almost $140 million. Despite his substantial assets, he kept all of his company shares and only had access to his salary of $50,000 as liquid assets. Nevertheless, he engaged in unrestricted speculation with copper futures and earned a quick profit of $3 million.

When his friend suggested investing in real estate, he questioned why when the stock market is simpler. Munger introduced a new charitable plan during the

era of greed in 1981 and Warren approved it at Berkshire. The plan required shareholders to choose charities that would receive $2 for every share of Berkshire they owned as a response to CEOs choosing where company funds go, usually to schools, churches, or organizations affiliated with executives on Wall Street. This successful plan grew in value over time and resulted in millions of dollars being donated by Berkshire shareholders annually to their preferred causes.

Due to discrimination against associates of The Pampered Chef, a subsidiary of Berkshire, the program was ultimately terminated. The discrimination was a result of the controversial pro-choice charities selected by Buffett for his pro-rated portion of the charitable contribution pool. Additionally, in 1982, Berkshire's stock price reached $750 per share, largely due to the company's stock portfolio being valued at over $1.3 billion.

After owning 250,000 shares, Buffett sent a message to the company proposing a merger and they called back right away. Berkshire offered $60 per share in cash, resulting in a quick deal. Berkshire Hathaway acquired a new cash-generating powerhouse worth $315 million, adding to its vast collection of valuable assets. This successful outcome proved that even the small cash flow from the struggling textile mill could lead to the creation of one of the world's most dominant corporations.

In the upcoming years, greater feats would be accomplished. During the 1990s, Berkshire observed an escalation in its stock value from $2,600 to an incredible $80,000. At the time, Buffett procured a second-hand Falcon airplane for $850,000 as he no longer felt at ease traveling via commercial aviation due to his growing recognition. While adjustment to luxury was challenging for him, he

adored his aircraft a great deal. His enthusiasm for planes eventually played a role in his acquisition of Executive Jet during the 1990s.

Buffett began accumulating Coca-Cola stock in 1988, purchasing it in large quantities. The President of Coca-Cola, who happened to be his former neighbor, became suspicious after noticing these significant share purchases. Conducting further research, he discovered that these trades were originating from the Midwest. He immediately contacted Buffett about the matter.

Warren took ownership of his actions and requested that nobody mention them until he needed to disclose his holdings at the 5% threshold. Within a few months, Berkshire gained authority over 7% of the enterprise, valued at $1.02 billion. In merely three years, Buffett's Coca-Cola shares surpassed the entire worth of Berkshire from when he first invested.

Warren Buffett's personal wealth exceeded $3.8 billion in 1989 when the value of Berkshire Hathaway shares reached $8,000 per share. In the subsequent decade, his net worth increased by a factor of ten.

During the late 1990's, Warren Buffett's stock price reached a staggering $80,000 per share. However, despite this remarkable accomplishment, he faced criticism amid the dot-com bubble for allegedly losing his exceptional investment skills. Several articles claimed that Berkshire had only experienced a modest increase of 0.5% per share in 1999, leading to accusations of failure. Nonetheless, Buffett's efforts were not without justification.

After experiencing a drop to $45,000 per share, Warren Buffett once again became an investment icon when the markets improved and Berkshire Hathaway's stock returned to its previous levels. Despite not revealing his personal investments for himself or the company, he does disclose their holdings in other corporations annually. These holdings offer

limited insight into his investment approach as he frequently discusses fundamental principles of wise investing.

These have a uniform concept and can be summarized as follows. When investing in stocks, it is crucial to view it as purchasing a business. The stockholder is essentially acquiring a small portion of ownership and should implement the same principles used in buying a business, according to the Benjamin Graham approach. These principles include: 1. The company should have competent management. Factors that indicate good management include share buybacks, effective use of retained earnings, and staying within one's areas of expertise. 2. The company should have proven earning capability with a probability of ongoing success.

Within tests of earning capacity, one must consider various factors such as company growth, dealing with inflation, capital expenditure, look through earnings, and brand names. Additionally, it is important to examine the company's consistently high returns on equity and capital, as favored by Warren Buffett. The company should also maintain a prudent approach to debt and ensure their business practices are straightforward, allowing for a clear understanding by investors.

Assuming all thresholds are met, investing should only occur at a fair price, with a margin of safety. The investor should consider various factors such as price/earnings ratios, earnings and dividend yields, book value, and comparative rates of return. A long-term approach is necessary for investors, using techniques such as value investment which involves purchasing a stock or business below its intrinsic value.

Benjamin Graham, widely regarded as the father of securities analysis, pioneered a method of investment that has been further developed by legendary investors such as Warren Buffett and Peter Lynch. Graham believed that value investment was

the only true form of investment, perceiving anything else as speculation. Despite this, there exist other investment theories including modern portfolio theory, which seeks to diversify a portfolio with unrelated stocks to minimize volatility, efficient market theory, which assumes that the market price reflects available information about an investment, and the random walk model. As for Warren Buffett's advice, it's best to gain actual investment experience and learn through investing, an assumption shared by the Investment Challenge Program.

Gain knowledge and implement a solid investment philosophy modeled after Warren Buffett's approach. Prior to investing, evaluate whether the stock would align with Buffett's buying strategy by asking, "Would Buffett buy this stock?" If the answer is negative, neither you nor TVAIC should invest in it. Create a beneficial investment mindset, such as considering investing as an enjoyable game, as Buffett does.

Warren Buffett prioritizes clear thinking over financial gain, which has enabled him to acquire extensive knowledge about various companies and industries. A broader understanding of different industries expands investment opportunities and increases the likelihood of discovering profitable investments. However, regardless of size, Buffett emphasizes the importance of defining one's circle of competence. He advises acknowledging both areas of expertise as well as limitations in knowledge.

Not comprehending a company can lead to negative financial outcomes. Warren Buffett emphasizes the importance of gaining knowledge about companies before investing, as this knowledge can be valuable throughout one's lifetime. While some may consider his contributions to his children's foundations as insignificant compared to those made by Bill Gates, these amounts would have been considered significant only a few decades ago.

While not achieving the same level of philanthropy as Buffett, there

has been an increase in individuals starting or supporting foundations. In the US, grant-making organizations have more than doubled from 1992 to 2005, reaching 71,000 (excluding donor-advised funds set up at for-profit entities like Fidelity). Although most donations still come from individual contributions, foundation donations have grown faster than overall giving. According to Giving USA reports, 12.

In 2006, charitable donations in the United States amounted to almost $300 billion, and 4 percent of that was contributed by foundations. The number of foundations has been increasing, along with large direct gifts to nonprofit organizations. Generous donations from individuals have also been on the rise in recent years. For instance, Joan Palevsky pledged $200 million to the California Community Foundation; Stanley W. Anderson donated $150 million to the Presbyterian Church of the USA; and Mortimer B. Zuckerman gave $100 million to the Memorial Sloan-Kettering Cancer Center - at least 19 groups received donations of $100 million or more in that year alone. These types of contributions were rare before the mid-1990s.

Renowned for his practical investment advice, Warren Buffet is a wealthy man who advises against following market trends. He recommends simple and logical strategies that can be used even by financially inexperienced investors. Despite the various methods of selecting stocks, Buffet's success proves the effectiveness of his tactics. Emphasizing the importance of investing in companies that one understands, he stresses on common sense principles.

According to Buffet, it is not wise to invest in technology-focused stocks solely based on popular trends as it may lead to illogical decisions. Rather, he suggests investing in companies where one has personal experience as it provides insights into the company's value. He

advocates for buying stocks of companies with low market interest and price levels but high quality based on personal knowledge. Buffet also offers investment advice for those familiar with financial statements.

Warren Buffet advises investors to prioritize companies that have a track record of steady growth and reinvestment, rather than those that consistently offer high dividend payments. Berkshire Hathaway, Buffet's own company, has distributed dividends only once as he believes there are more beneficial ways to utilize funds. Buffet stresses the significance of identifying businesses with low debt-to-equity ratios and manageable upkeep expenses in order for them to endure fluctuations in the economy. Timing is also a critical element in Buffet's investment approach.

Warren Buffet's wise investment advice has allowed him and others to enjoy returns above the market average even during dull financial markets. Although many stock pickers believe they can outperform the market after accounting for costs, they often rely on the inspiration of investment legends like Warren Buffet and Benjamin Graham. Nonetheless, investors may not be aware that even Buffet advocates for the purchase of low-cost index funds as the best strategy for most. Despite this, Buffet boasts savvy investment skills and is renowned for his ability to elevate the price of a company's shares by simply buying them. This intriguing book focuses on Buffet's life and his innovative, highly lucrative investment theories and strategies, which encourage investors to become owners and rebuild companies rather than stripping and selling them.

Robert Hagstrom's Second Edition of The Warren Buffett Way provides insight into how one of the most successful value investors, Warren Buffett, consistently performs so well in the market. Despite Buffett stating that his

practices are attainable by others, there are those who still question his success. This updated edition covers Buffett's investments and achievements from the past decade, while also highlighting the proven investment strategies and techniques he has used to achieve market success.

Miles (2004) wrote about Warren Buffet's wealth in his book. Robert Hagstrom also wrote about investing as "the Last Liberal Art" in another book.

Benjamin Graham authored The Intelligent Investor, while Roger Lowenstein wrote Buffet, and Mary Buffet and David Clark co-wrote another book.

The books "The New Buffettology" by Robbert G. Hagstrom and "Warren Buffet Way" by Timothy Vick are available.

Get tips on stock selection in the style of Warren Buffet from James Alticher's book "TRADE like Warren Buffet" available at www.

buffettsecrets.com and www.investingmag.com are both mentioned here.