What’s the Secret to Buffett’s Success?
Given Warren Buffett’s success, you’d think “that more people would try to emulate his approach to investing,” said Joe Nocera in The New York Times. After all, the stock price of Berkshire Hathaway has increased an “astounding” 1,826,163 percent since Buffett took the reins 50 years ago—for an average annual gain of 21.6 percent. And it’s “not as if he hasn’t tried to explain how he does it.” Every year, the Oracle of Omaha publishes a veritable “Buffett tutorial” in his letter to shareholders “that the rest of us would do well to absorb—and practice.” Especially since his winning strategy is pretty simple: Buy stock in great companies and hold it “not just for years, but for decades”; diversify your holdings; avoid approaches that “add risk,” like active trading or trying to time the market; and don’t pay high or unnecessary fees.
“There’s a bit more” to it than that, said Neil Irwin in NYTimes.com. There are thousands of investors “who can match Buffett’s talent for evaluating the prospects of a business and deciding which should get more investment and which less.” But they aren’t worth $72 billion. Part of Buffett’s magic comes down to his acquisition strategy. If you have a successful, family-owned business and are looking to cash out, but you want to “leave the company intact and keep longtime employees in place to run it, selling to Berkshire Hathaway looks mighty attractive”—even at a discount. That’s because Buffett has built a reputation of “buying good companies and more or less leaving them alone.”
Buffett “famously does not micromanage” his portfolio’s companies, said Matt Levine in BloombergView.com. But he’s also mastered the art of driving “a hard bargain by looking like a teddy bear.” He rigorously studies the fundamentals of firms before he buys or sells, all the while using his reputation for folksy, “all-American pluck” to his advantage. The octogenarian who “eats ice cream for breakfast” can be ruthless when it’s time to cut his losses. That combination of sentimentality and rigor pays off: It’s how you “can minimize taxes with frequent cash-rich split-offs, or fund a famous American company’s tax inversion into Canada, without raising too many eyebrows.”
Still, every investor, no matter how small, can learn from his example, said Lex Haris in CNN.com. Be patient and willing to ride out the market’s ups and downs over the long term. Learn to tune out TV talking heads and other self-proclaimed “experts.” And have faith in the health of the American economy. “The preachers of pessimism prattle endlessly about America’s problems,” Buffett said recently, but “most assuredly, America’s best days lie ahead.”
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