Investing legend Warren Buffett turned 92 today. The billionaire investor, whose fortune stands at $100.20 billion, is the world's seventh richest man, as per Forbes.
Buffett first invested in stocks on March 11, 1942. On that day, he purchased three shares of Cities Services preferred stock. Their cost was $114.75 and required all of his savings. The Dow Jones Industrial Average that day closed at 99. Today, it trades above 32,000.
After Buffett's initial plunge, he always kept at least 80 per cent of his net worth in equities. His favoured status throughout that period was 100 per cent – and still is. Buffett has time and again advised first-time investors to not act as gamblers. Buffett said at Berkshire AGM: Investing is not as easy as it sounds.
The Chairman of Berkshire Hathaway has millions of followers globally. For value investors, Buffett’s words are like gospel. The Oracle of Omaha even inspired many market gurus in India. Over the years, his words of wisdom, the annual letter to shareholders of Berkshire Hathaway and views on stocks and sectors have earned him a cult status among investors.
In November 2020, market veteran Raamdeo Agrawal at an event revealed that he did not know who Buffett or his company Berkshire was until 1994. But once Agrawal's friend asked him to study Berkshire's balance sheet, and those 30 pages, Agrawal said, opened his eyes.
Raamdeo said he used to read one Berkshire balance sheet of the 1965-1994 period every day. "That changed me completely. If one reads Buffett’s annual letters from 1965 to 1994, that is where the actual Buffettology lies,” Agrawal said.
Here are his top five investing mantras:
‘Be fearful when others are greedy, and greedy when others are fearful’
While the markets globally were fearful of what was going to happen to Ukraine amid Russia's 'special operations' and its impact on food and energy supplies globally, Buffett made the best of the cash he held. Berkshire bought more than $51 billion worth of stocks during the period, including sizable investments in Chevron, HP and Occidental in the January-March quarter. A climate of fear is the best friend of investors!
'Whether we're talking about socks or stocks, I like buying quality merchandise, when it is marked down'
Quality comes at a cost, and growth is good only when the return on equity is greater than the cost of capital. Buffett believes one should buy stocks when they are available at cheap valuations. A host of domestic auto and banking stocks gained momentum recently even when the market was concerned about the Fed rate rate and its impact on domestic interest rates. That recent weakness gave some investors "the marked-down prices" they were looking for.
'You only find out who is swimming naked when the tide goes out'
To simplify it, investors can only see a head in a high tide. It means everything looks fine in a bull market, while a bear market differentiates robust companies from the ones which have done accounting frauds etc. Therefore, investors should always invest in companies with robust financials and sound management.
'The stock market is designed to transfer money from active to patient'
Many investors sell their high-quality stocks after experiencing a lengthy period of price consolidation. Not getting immediate returns on existing high-quality growth stocks builds antifragility. Patience plays a critical role during such times. In the long term, quality stocks tend to outperform the market.
‘Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble’
Buffett says don't hesitate when you see a great opportunity. At last count, Berkshire still held $70 billion in cash. Buffett in his 2022 annual letter to Berkshire shareholders said Charlie and he endured similar cash-heavy positions from time to time in the past. These periods are never pleasant; they are also never permanent, he said. March 2020 was one such time when even the domestic bluechips were trading at huge discounts to their historic averages. What happened next is history.
(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)
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Warren Buffett's journey as an investor is a fascinating testament to long-term value creation and prudent decision-making. His strategies and philosophies have significantly shaped the investment landscape globally. I've followed Buffett's career closely and delved into his investment principles, which I'll now break down in connection to the article.
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Investing Strategy:
- Buffett's Initial Investment: His first stock purchase of Cities Services preferred stock in 1942 shows his early entry into the market and the long-term vision he's maintained throughout his life.
- Asset Allocation: Keeping a significant portion (at least 80%) of his net worth in equities, often favoring a 100% allocation, emphasizes his unwavering trust in the power of stocks for wealth creation.
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Investing Philosophy:
- Value Investing and Patience:
- Buffett's Mantra: "Be fearful when others are greedy, and greedy when others are fearful." This encapsulates his value-based approach to investing during market fluctuations.
- Quality Over Price: He emphasizes the importance of buying quality stocks at discounted prices, highlighting the significance of value and the importance of recognizing market opportunities during periods of fear or uncertainty.
- Value Investing and Patience:
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Risk Management:
- Company Assessment: Buffett's advice on understanding companies' financial robustness and management integrity resonates with his principle of identifying businesses that can weather market storms.
- Long-Term Perspective: His belief in patience and enduring market volatility underscores the need for a long-term view in investing, especially when dealing with high-quality stocks.
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Capital Deployment:
- Seizing Opportunities: Buffett's notion of not hesitating when great opportunities arise aligns with his actions during significant market downturns, such as in March 2020, where he capitalized on discounted blue-chip stocks.
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Continuous Learning:
- Buffettology: The concept of studying Buffett's annual letters and Berkshire's balance sheets from 1965 to 1994, as advocated by Raamdeo Agrawal, emphasizes the importance of continuous learning and understanding fundamental aspects of investing.
Buffett's principles are not just about making money; they're about creating sustainable wealth through informed decisions, patience, and a profound understanding of businesses. His teachings have had a profound impact globally, guiding countless investors toward successful investment journeys.
