Average Annualised Return: 19.8% over 46 years (1965 – 2011)
The ‘Oracle of Omaha’ Warren Buffett is without a doubt one of the most recognisable and well know investors in the financial world and beyond. From humble beginnings in Newbraska, Buffett has build his investing empire through years of shrewd investments that has culminated on Berkshire Hathaway, the hedge fund he is in control of, have averaged a 19.8% compounded annual gain in per-share book value from 1965-2011.
In terms of how he decides on which stocks to invest in, Buffett once said, “I’m 15 percent Fisher and 85 percent Benjamin Graham. The basic ideas of investing are to look at stocks as business, use the market’s fluctuations to your advantage, and seek a margin of safety.” The three most important concepts conveyed by Graham in “The Intelligent Investor” were the investor’s attitude toward the market, the “margin of safety”, and the practice of looking at companies as businesses, not stocks. The pursuit of high return businesses usually leads to companies with minimal book values. Buffett’s basic understanding of companies to invest in is simply to read everything out there on the business and understand the industry, so that is why Buffett only invests in businesses he understands. He believes the most important knowledge in learning how to invest could be summarized in two college courses. The first would obviously be an investing class about how to value a business. The second would be how to think about the stock market and how to deal with the volatility. Buffett simply puts that a quality business always has a great product at a fair price, and with honest reliable management, and a quality manager is honesty, smart, and a hard worker. He mentions that when you buy a stock, you need to imagine that the stock market will be closed for 20 years and you will not be able to look at its price, so you won’t be distracted by the short term ups and downs. A company will be successful if it offers good products and services at a fair price while being run by honest, capable managers. Over the long run, such companies tend to appreciate and go up in value. As a result of this Buffet has never placed stocks on an economic trend and therefore there should be a reduced risk.
YOY Fund Performance Vs. S&P500 1965 – 2011