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The irony of course is that Buffett became one of the world's richest people by being an active investor.

jacques_chester 10y ago
True, but he (and Munger) generally invest quite conservatively. He doesn't buy for capital gain, but to hold indefinitely. He buys businesses he understands, with financials he understands, for prices he figures reflect a fair discount on the economic value, plus a generous margin of error. When full ownership is taken (his preferred option), the original management is almost always left in place. No rules or guidance are given. The subsidiaries work however they worked before acquisition. That said, after reading through his 50 Berkshire Hathaway letters, the main lesson I drew was: own insurance companies which underwrite for profit under all economic conditions.
- pooper 10y ago
  > True, but he (and Munger) generally invest quite conservatively. He doesn't buy for capital gain, but to hold indefinitely. He buys businesses he understands, with financials he understands, for prices he figures reflect a fair discount on the economic value, plus a generous margin of error. The Bank of America deal shows how good a deal you can get when you can put $5B where your mouth is > In exchange, Berkshire Hathaway received $5 billion worth of preferred stock yielding 6% a year plus warrants to purchase 700 million shares of Bank of America common stock at an exercise price of $7.14 per share. apologies in advance for linking to fool.com http://www.fool.com/investing/general/2015/08/19/how-much-is-warren-buffetts-5-billion-investment-i.aspx http://www.fool.com/investing/general/2015/08/19/how-much-is...
  - jacques_chester 10y ago
    Right. In fact the financial crisis was a busy few years for Berkshire-Hathaway. Like everyone else they took a drubbing, but they also unleashed a lot of their unused cash to make deals on generous terms. It helped that they were structurally inclined to build up cash. As Buffet explains, a booming share market is bad for him: everything is too expensive to buy. So cash piles up, waiting for good deals of sufficient magnitude to arise. When a bust arrives, there are bargains everywhere and a lot of money to buy into them.
    - spitfire 10y ago
      As Buffet puts it - Be greedy when others are fearful and fearful when others are greedy.
yborg 10y ago
Precisely by being an investor in the old sense, the sense of being a businessman who allocates capital. He buys entire companies based on his analysis of their financials and management, and then operates them as businesses. He tries to take stakes in companies in deals where he holds an advantage, such as his Goldman Sachs investment. I don't consider him a stock picker, he's a very shrewd businessman.
- billmalarky 10y ago
  In that sense his strategy is more aligned with private equity, but at the public scale...
- nstj 10y ago
  Buffett does very little business as you describe. He takes no real active role in the companies which he purchases and definitely doesn't "operate" them. The advantage he had in the GS preferred stock offering in 2008 was his ability to provide liquidity and his name - if GS told people that Warren was investing in them then it was a real vote of confidence.
- akiselev 10y ago
  He's absolutely a stock picker, not a businessman. That's the definition of value investing, which is his self proclaimed mode of investment. He looks for undervalued (by the stockmarket) companies with good cash flow, competent management, room to grow, etc. and waits until the market price catches up to his expectations. Meanwhile, he leaves the management alone to do their best work while reinvesting the cash flow (from dividends) into other undervalued companies. Most financial institutions were probably undervalued after the 2008 collapse so if Buffet saw an undervalued cash flow positive business, that's why he invested.
  - namlem 10y ago
    Berkshire Hathaway is more involved and hands on than mutual funds. They don't really micromanage, but they do at least a little bit of basic management.
- 10y ago
wtvanhest 10y ago
Investing successfully is all about adding value. Buffett is an active investor, but he makes his money managing the businesses, not just picking stocks.
gist 10y ago
Often overlooked is the fact that Buffett has used celebrity to his advantage. [1] Buffett gets to do deals (on better terms no less) that others can't as a result of his celebrity and this has been the case for a long long time. [1] In the same way Trump has but with a much better track record.
- harryh 10y ago
  Yup. http://www.mercenarytrader.com/2015/03/we-prefer-the-original-warren-buffett/ http://www.mercenarytrader.com/2015/03/we-prefer-the-origina...
- aczerepinski 10y ago
  His returns were better in his early days before he was famous enough to benefit from this, so its hardly the reason he got so rich.
tim333 10y ago
Buffett's main argument against the hedge funds was that their fees are too high and services too poor rather than active investment never works. He started running the Buffett Partnership which was basically a hedge fund and did great for his investors and charged modest fees by modern standards - zero on the first 6% of return and 25% above that. Try finding a modern fund that doesn't charge anything if they only make a 5% return. Your typical 2 and 20 fund would charge 3% out of the 5 splitting the real return after inflation approx 100% to the manager and 0% to the investor.

True, but he (and Munger) generally invest quite conservatively. He doesn't buy for capital gain, but to hold indefinitely. He buys businesses he understands, with financials he understands, for prices he figures reflect a fair discount on the economic value, plus a generous margin of error. When full ownership is taken (his preferred option), the original management is almost always left in place. No rules or guidance are given. The subsidiaries work however they worked before acquisition. That said, after reading through his 50 Berkshire Hathaway letters, the main lesson I drew was: own insurance companies which underwrite for profit under all economic conditions.

pooper 10y ago
> True, but he (and Munger) generally invest quite conservatively. He doesn't buy for capital gain, but to hold indefinitely. He buys businesses he understands, with financials he understands, for prices he figures reflect a fair discount on the economic value, plus a generous margin of error. The Bank of America deal shows how good a deal you can get when you can put $5B where your mouth is > In exchange, Berkshire Hathaway received $5 billion worth of preferred stock yielding 6% a year plus warrants to purchase 700 million shares of Bank of America common stock at an exercise price of $7.14 per share. apologies in advance for linking to fool.com http://www.fool.com/investing/general/2015/08/19/how-much-is-warren-buffetts-5-billion-investment-i.aspx http://www.fool.com/investing/general/2015/08/19/how-much-is...
- jacques_chester 10y ago
  Right. In fact the financial crisis was a busy few years for Berkshire-Hathaway. Like everyone else they took a drubbing, but they also unleashed a lot of their unused cash to make deals on generous terms. It helped that they were structurally inclined to build up cash. As Buffet explains, a booming share market is bad for him: everything is too expensive to buy. So cash piles up, waiting for good deals of sufficient magnitude to arise. When a bust arrives, there are bargains everywhere and a lot of money to buy into them.
  - spitfire 10y ago
    As Buffet puts it - Be greedy when others are fearful and fearful when others are greedy.

yborg 10y ago

Precisely by being an investor in the old sense, the sense of being a businessman who allocates capital. He buys entire companies based on his analysis of their financials and management, and then operates them as businesses. He tries to take stakes in companies in deals where he holds an advantage, such as his Goldman Sachs investment. I don't consider him a stock picker, he's a very shrewd businessman.

billmalarky 10y ago
In that sense his strategy is more aligned with private equity, but at the public scale...
nstj 10y ago
Buffett does very little business as you describe. He takes no real active role in the companies which he purchases and definitely doesn't "operate" them. The advantage he had in the GS preferred stock offering in 2008 was his ability to provide liquidity and his name - if GS told people that Warren was investing in them then it was a real vote of confidence.
akiselev 10y ago
He's absolutely a stock picker, not a businessman. That's the definition of value investing, which is his self proclaimed mode of investment. He looks for undervalued (by the stockmarket) companies with good cash flow, competent management, room to grow, etc. and waits until the market price catches up to his expectations. Meanwhile, he leaves the management alone to do their best work while reinvesting the cash flow (from dividends) into other undervalued companies. Most financial institutions were probably undervalued after the 2008 collapse so if Buffet saw an undervalued cash flow positive business, that's why he invested.
- namlem 10y ago
  Berkshire Hathaway is more involved and hands on than mutual funds. They don't really micromanage, but they do at least a little bit of basic management.
10y ago

wtvanhest 10y ago

Investing successfully is all about adding value. Buffett is an active investor, but he makes his money managing the businesses, not just picking stocks.

gist 10y ago

Often overlooked is the fact that Buffett has used celebrity to his advantage. [1] Buffett gets to do deals (on better terms no less) that others can't as a result of his celebrity and this has been the case for a long long time. [1] In the same way Trump has but with a much better track record.

harryh 10y ago
Yup. http://www.mercenarytrader.com/2015/03/we-prefer-the-original-warren-buffett/ http://www.mercenarytrader.com/2015/03/we-prefer-the-origina...
aczerepinski 10y ago
His returns were better in his early days before he was famous enough to benefit from this, so its hardly the reason he got so rich.

tim333 10y ago

Buffett's main argument against the hedge funds was that their fees are too high and services too poor rather than active investment never works. He started running the Buffett Partnership which was basically a hedge fund and did great for his investors and charged modest fees by modern standards - zero on the first 6% of return and 25% above that. Try finding a modern fund that doesn't charge anything if they only make a 5% return. Your typical 2 and 20 fund would charge 3% out of the 5 splitting the real return after inflation approx 100% to the manager and 0% to the investor.