What style of investing did Warren Buffett use?
Buffett follows the Benjamin Graham school of value investing which looks for securities with prices that are unjustifiably low based on their intrinsic worth. Buffett looks at companies as a whole rather than focusing on the supply-and-demand intricacies of the stock market.
Buffett uses compound interest, dividend reinvestment, and the power of constantly reinvesting the operating cash flow generated by Berkshire's businesses to his advantage. How powerful is this? Berkshire has averaged a 20.1% annualized return since Buffett took over in 1964, compared with 10.5% for the S&P 500.
The Bottom Line
Beyond his value-oriented style, Buffett is also known as a buy-and-hold investor. He is not interested in selling stock in the near term to reap quick profits, but chooses stocks that he believes offer solid prospects for long-term growth. His record as an investor speaks for itself.
| Stock | Number of Shares Owned | Value of Stake |
|---|---|---|
| Apple (NASDAQ:AAPL) | 905,560,000 | $154.6 billion |
| Bank of America (NYSE:BAC) | 1,032,852,006 | $36.8 billion |
| American Express (NYSE:AXP) | 151,610,700 | $33.9 billion |
| Coca-Cola (NYSE:KO) | 400,000,000 | $23.8 billion |
Warren Buffett once said, “The first rule of an investment is don't lose [money]. And the second rule of an investment is don't forget the first rule.
At a young age, Buffett became fascinated with money and getting rich, which led to his interest in investing. While still in his 20s, Buffett set up an investment partnership, which today would be considered a hedge fund, with money from friends and family.
Warren Buffet's 2013 letter explains the 90/10 rule—put 90% of assets in S&P 500 index funds and the other 10% in short-term government bonds.
The percentage may shock you.
Part of the cash would go directly to his wife and part to a trustee. He told the trustee to put 10% of the cash in short-term government bonds and 90% in a low-cost S&P 500 index fund.
Indeed, the Oracle of Omaha has said that he spends “five or six hours a day” reading books and newspapers. And while it may be difficult to set aside nearly a full work day's worth of hours to read, it recently got a little bit easier to consume information like Warren Buffett.
A classic Buffett quote indicates that he is no fan of day trading: “If you aren't willing to own a stock for 10 years, don't even think about owning it for 10 minutes.” This emphasis on holding a position for the long term means a very low level of trading activity.
Does Warren Buffet use a stock broker?
No, Warren Buffett, the renowned investor and Chairman and CEO of Berkshire Hathaway, does not personally use a traditional broker for his investments. He has a different approach to investing.
Although old-guard favorites such as American Express (AXP) and Coca-Cola (KO) still form the core of the portfolio, Buffett & Co. have taken a shine to names such as Apple (AAPL) and Amazon.com (AMZN), and even to lesser-known firms such as Snowflake (SNOW) and Nu Holdings (NU).
| Warren Buffett Portfolio | ||
|---|---|---|
| All time Stats (Since Jan 1871) | Return | +8.75% |
| Std Dev | 14.85% | |
| Max Drawdown | -79.29% | |
| Last Update: 31 March 2024 |
A 70/30 portfolio is an investment portfolio where 70% of investment capital is allocated to stocks and 30% to fixed-income securities, primarily bonds.
“The first rule of investment is don't lose. The second rule of investment is don't forget the first rule.” Buffett famously said the above in a television interview.
Buffett uses the average rate of return on equity and average retention ratio (1 - average payout ratio) to calculate the sustainable growth rate [ ROE * ( 1 - payout ratio)]. The sustainable growth rate is used to calculate the book value per share in year 10 [BVPS ((1 + sustainable growth rate )^10)].
Lowenstein traces Warren's life from his birth in Omaha, Nebraska in 1930 to his first stock purchase at age 11, and from his study of the securities profession under Columbia University's legendary Benjamin Graham to his founding of the Buffett Partnership at age 25.
His IQ is clearly >> 145 and possibly as high as 160 or so. Warren Buffett graduated high school at 16 ranked in the top 5 percent of his class despite devoting substantial effort to entrepreneurial activities. Most people who know him well refer to him as brilliant, that folksy quote above notwithstanding.
By his mid-40s, Buffett faced financial challenges, with his net worth dropping to $19 million at age 44. However, his resilience and investment acumen allowed him to recover, increasing his net worth to $67 million by age 47. In 1986, at age 56, Buffett's net worth had grown to the point where he became a billionaire.
Warren Buffett is no fan of the bond market. At a time when every professional fixed-income investor and strategist seems to be recommending the purchase of bonds, Warren Buffett isn't buying that view.
What ETF does Buffett recommend?
Warren Buffett has long recommended the S&P 500 index fund and ETF, and through his holding company Berkshire Hathaway, he also owns two of these types of investments: the Vanguard S&P 500 ETF (NYSEMKT: VOO) and the SPDR S&P 500 ETF Trust (NYSEMKT: SPY).
Imagine you wish to amass $3000 monthly from your investments, amounting to $36,000 annually. If you park your funds in a savings account offering a 2% annual interest rate, you'd need to inject roughly $1.8 million into the account.
While Buffett's children will not be receiving a massive fortune for their personal use after his death, they're by no means cut out of the estate. In 2012, Warren pledged to his children Berkshire Hathaway stock valued at about $2.5 billion to be paid out to each of his children's foundations.
There are no set ages to get into or to get out of the stock market. While older clients may want to reduce their investing risk as they age, this doesn't necessarily mean they should be totally out of the stock market.
At age 60–69, consider a moderate portfolio (60% stock, 35% bonds, 5% cash/cash investments); 70–79, moderately conservative (40% stock, 50% bonds, 10% cash/cash investments); 80 and above, conservative (20% stock, 50% bonds, 30% cash/cash investments).
