Learning from Warren Buffett

Humble Beginnings

It started with Coca-Cola: as a boy, Warren Buffett bought six-packs from his grandfather’s Omaha grocery store for 25 cents, then sold the bottles for 5 cents each. By age 11, he had learned to analyze stock price charts and bought his first shares; at 12, he worked two paper routes; and, at 14, he claimed deductions ($35) for his bicycle and watch on his first-ever tax return.

Fast-forward a few years. At 19 he graduated from college; at 25, he launched his limited investment partnership firm; and, by 35, had control of a New England textile company named Berkshire Hathaway. The rest, as they say, is history.

Warren Buffett did not make our recent list of history’s 10 richest-ever individuals, what with his mere $68.5 billion fortune. However, no one has ever achieved greater rock-star status in the investment world. When he speaks, people the world over cling to every syllable. 

So how does he do it?

He does it the same way he did when he was 11—he analyzes the intrinsic value of companies (like Coca-Cola, in which he has taken large positions over the years). He looks for companies which make or deliver something that is virtually always in demand, that employ sound management and have good balance sheets, and which appears likely to gain even greater value in several years. Sounds easy enough, right? 

You can sum up his method in two words: value investing (or, as it is sometimes called in Buffett’s case, the focus investment strategy). But this only works if you rigorously analyze your data (price patterns, net assets, cash flow, price-to-earnings ratios, liabilities, etc.) and have patience. If you think you have picked a winner, he believes, stick with it over the long term. He learned when he was just 11 years old: after tumbling 30%, then rebounding to the point where he could sell it all at a modest profit, Buffett saw his first-ever stock soar 500%! Ouch.

That did it: no more nail-biting during stock downturns for him. Ever since, he has bought only stocks he has researched from every angle, and of whose underlying value he has become convinced despite marketplace turmoil. Then, he buys and hangs on like a bulldog (unless, as with Disney in the 1990s, the company’s management becomes erratic, which changes the equation and signals the need to exit).  

Research pays. For example, during his days in his 1960s limited partnership, Buffett saw American Express lose over 50% of its stock value. But he also discovered that the company’s credit card and Travelers Cheques were still being widely used in Omaha, since he went snooping to find out. The result of his research was a $13 million buy-in that netted a $20 million profit over the next two years.

Likewise, Peeptrade is all about research. Today there is a resource Buffett didn’t have available when he was a lad: the ability to leverage other people’s research by seeing what buys they make. You don’t have to reinvent the wheel or go it alone: seeing what high-profile investors favor can give you a shortcut to promising stocks, which you can and should then vet yourself through rigorous research right on the Peeptrade platform.  

It’s unlikely one of us will become the next Warren Buffett. But, then again, none of us thought the best childhood Christmas present ever was a clip-on coin changer to wear on a belt. Buffett has done things his way: we can learn from him, but still do things our way with the aid of new research capabilities.

 

Written by Ali Bakir

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