If you gave him $100 in 1965, it would be worth ~$56,000 today.
Here’s the playbook he’s used to make his investors 20% a year, for the last 60 years. 👇
1/ Buy great businesses at cheap prices.
Investing is made out to be a super-complex task.
In reality, you just need to be great at one thing.
The art of buying a brilliant business at an even better price.
In 1963, American Express shares dropped 50% after the “salad oil scandal”.
But despite the noise, Warren Buffett saw a decades-old brand with millions of loyal customers.
While the entire market was selling, Buffett was buying.
His age old saying - “be fearful when people are greedy and greedy when others are fearful” has served him well!
2/ Invest in moats, not companies.
A moat is something that your business has which is extremely difficult for someone else to replicate.
Warren Buffett has never bought a moat-less business.
His biggest holdings -
- Coca Cola, massive branding and distribution power
- Apple, ecosystem and superior technology
- Bank of America, customer base and regulatory barriers
Building an irreplaceable business requires an insane amount of market knowledge.
Which is why Buffett buys them instead!
3/ Business wins > stock market wins.
In the short term, the market is a voting contest.
In the long term, the market is a weighing machine.
If you keep chasing businesses that are fueled by hype, you are bound to burn your fingers.
Never focus on market fluctuations - buy profitable companies that are playing the long game.
The easiest way to check this is to use the Closed Market Razor.
Ask yourself - “if the stock exchange closed tomorrow and re-opened in 5 years, would I still sleep comfortably?”
It is also another reason why Warren tells people to buy market trackers, and go to bed!
4/ Use debt wisely.
Buffett’s business partner Charlie Munger said it best.
“There are three ways that wise men go bankrupt.
Ladies, liquor, and leverage.”
Long-term value creation and risk aversion go hand in hand.
There are a very few companies who have built generational businesses by relying on continuous refinancing.
If you’re buying a business that’s recklessly playing with debt, you might want to think twice.
Bonus Point/ Reinvest ALL profits.
Little percentages matter on a big scale.
If you invested $100 into Berkshire Hathaway in 1965, you’d have ~$55k now.
But if Berkshire acted like a hedge fund and took a 2/20 profit structure home, you’d only have $2k.
Compound interest is the 8th wonder of the world.
Use it wisely.