Bill Gates and Warren Buffett

Posted on December 20, 2011, 10:08 pm, by Value Investor and received No Comments ».

Bill Gates and Warren Buffett are bridge partners and have worked together in many ways. Bill Gates sits on the board of Berkshire Hathaway, and although many years younger than Warren Buffett and in a completely different industry, is on very good terms with Buffett. Warren has also never invested in Microsoft, largely because as he notes, he never invests in companies he does not understand; software was out of Buffett’s circle of competence, and he carefully stayed away from making speculative bets despite the strong growth trajectory Microsoft was on.

Bill Gates Warren Buffett

The two developed a great friendship that eventually led to one of the biggest monetary gifts in history – in 2006, Warren decided to give away 85% of his wealth to five foundations: the Bill and Melinda Gates Foundation, the Susan Thompson Buffett Foundation, the Susan Buffett Foundation, the Howard Buffett Foundation, and the Peter Buffett Foundation. The bulk of his giving went to the Bill and Melinda Gates Foundation – some 31 billion dollars. Warren remarked of his gift to the Bill and Melinda Gates Foundation: ‘I’m not an enthusiast for dynastic wealth, particularly when six billion others have much poorer hands than we do in life’.

Warren Buffett Foundation

Warren Buffett chose the Bill and Melinda Gates Foundation because of his belief that the couple can do the job of giving money away much better than him. In his own words, “I’ve got some people who can give it away better than I can”.

This large gift of philanthropy was unprecedented in history and inspired others to follow Warren’s example. Jackie Chan, for example thereafter planned to donate half of his personal wealth to charitable causes. In 2010, 40 people including Ron Perelman, David Rubenstein, John Doerr, Jeff Skoll, George Lucas, Larry Ellison and Boone Pickens signed the Giving Pledge to give away more than half their fortune to philanthropic causes.

Warren Buffett Stocks

Posted on December 20, 2011, 10:04 pm, by Value Investor and received No Comments ».

Warren Buffett Stocks. Just what stocks does Warren Buffett own? Observing their characteristics can shed insight into what it takes to invest like Warren Buffett.

Investment Philosophy

Under the influence of good friend Charlie Munger, Buffett gradually developed his own approach to investment. The Warren Buffett stock holdings focuse on high quality businesses with a wide ‘moat’ – barriers to entry that distanced any possible competition. Perhaps the best example of a company with a wide moat is Coca-Cola, as the beverage commands a much higher value than similar-tasting beverages with no brand name.

This ‘wide moat’ investment strategy has become Berkshire’s defining investment style. Consequently, most of the companies owned by the holdings company are also dominant players in their respective industries. They monopolize particular niche markets and face almost no direct competition.

The other characteristic of Buffett’s investment approach is that he does not believe in wide diversification. According to him, “Wide diversification is only required when investors do not understand what they are doing”.

Warren Buffett Portfolio

The companies that Warren Buffett span a wide variety of industries. Buffett tries to stay within his circle of competence, but even within that space there is a large spectrum of compoanies that he can potentially invest in. However, there are some pre-dominant areas that Buffett invests most heavily in. These include:

  1. Insurance: Geico, General Re
  2. Utilities: MidAmerican Energy
  3. Jewelry: Borsheim’s
  4. Food: Dairy Farm, See’s Candies, Coca-Cola
  5. Financials: Wells Fargo

Warren Buffett Stock Holdings

What stocks has Warren Buffett bought into? The Warren Buffett stock portfolio includes many small changes from time-to-time, but here is a sampling of some of the evergreen names in his portfolio:

  • Coca-Cola Co
  • Wells Fargo & Co
  • American Express Inc
  • Procter Gamble
  • Burlington N Sante Fe
  • Kraft Foods Inc
  • Johnson and Johns
  • Wesco Financial Co
  • US Bank Corp

Warren Buffett Net Worth

Posted on December 20, 2011, 9:59 pm, by Value Investor and received 1 Comment ».

In 2008, Warren Buffett was the richest man in the world, with a net worth of almost 62 billion. Just how did he amass so much money? This article identifies some of the sources of wealth for Warren Buffett.

Insurance

Warren is a long-time veteran of the insurance business and owns insurance companies such as GEICO and reinsurers such as General RE.

Buffett bought GEICO on several occasions. His first interest in GEICO was piqued when he learned that his teacher Benjamin Graham sat on the board of the company. He invested heavily in GEICO in 1976, when GEICO reported staggering losses, with stock prices dropping to $2 a share. However, Buffett wisely perceived that GEICO’s problems stemmed not from problems in business fundamentals, but from an inept management. He eventually purchased the whole of GEICO, and proceeded to reap handsome returns from his investment.

However, one Warren Buffett quote on the insurance industry portended troubles that the industry will encounter after the collapse of the housing bubble: “That party is over. It’s a certainty that insurance-industry profit margins, including ours, will fall significantly in 2008.”

Coca Cola

This household brand name was also a big money-maker for Warren Buffett and contributed greatly to Warren Buffett’s networth In 1988, Buffett secretly purchased boatloads of Coca-Cola shares. The president then was Buffett’s old neighbor. Buffett owned 7% of the company within a few months. Coca-Cola became one of Buffett’s best investments: in less than three years, Buffett’s Coca-Cola stock was worth more than the entire value of Berkshire.

Dot Com bubble

During the turn of the century, technology startups were the hottest thing on the planet. Warren’s competitors speculated in the technology bubble with such wild maxims as ‘Earnings do not matter anymore’. Warren was sidelined for several years while everyone else seemed to make enormous profits investing in hot startups.

Confident that the technology bubble would burst, Warren Buffett continued to do what he did best: allocate capital into great businesses that were selling below intrinsic value – none of which, during the dot com bubble, were technology companies. When the bubble eventually collapsed, Warren Buffett was finally proven right.

Who is Warren Buffett

Posted on December 20, 2011, 9:56 pm, by Value Investor and received No Comments ».

Who is Warren Buffett? Warren Edward Buffett was born on 30th August 1930, in Omaha, Nebraska. His first wife was Susan Thompson Buffett, who passed away in 2004. His second wife is Astrid Menks, whom he married in 2006.

Buffett has three children: Susan Buffett, Howard Buffett, and Peter Buffett. In a recent announcement, Warren announced that Peter Buffett will succeed a third of Buffett’s current role upon Buffett’s death, and assume the role of non-executive chairman. The central role of CEO will be appointed by Berkshire’s Board of Directors.

Warren Buffett Education

Warren Buffett received a Bachelor of Arts and Science from the University of Nebraska Lincoln and a Master of Science from Columbia University. Attending Columbia was a turning point in his life, as it was there that he met his future teacher and mentor Benjamin Graham, who taught him the art of value investing.

To conquer his fear of public speaking, Warren Buffett attended a Dale Carnegie course in public speaking. One of the memorabilia he has in his office that he is most proud of is his certificate of completion for this course; he quips that this was arguably the best investment he made in his life.

Warren Buffett Address

Warren Buffett can be reached at the following mailing address:
3555 Farnam Street
Suite 1440
Omaha, NE 68131

He receives many letters a day, so it may not be easy to get a reply from him, but it is certainly worth a try if there is something you very much want to ask him about.

Warren Buffett Philanthropy

Buffett has long promised to give away his fortune posthumously. In 2006, he permanently earmarked the majority of his Berkshire shares to several charitable organizations, with the largest portion going to the Bill and Melinda Gates Foundation. The value of this gift stands at approximately 31 billion.

Biography Warren Buffett

Posted on December 20, 2011, 9:50 pm, by Value Investor and received No Comments ».

Biography: Warren Buffett has amassed a considerable fortune in his lifetime and an almost impeccable reputation as an honest investor with great integrity. He is a modest tycoon who likes the fun of making money more than the money itself.

The short biography of Warren Buffett that follows charts the life of Warren Buffett and marks some of its defining moments.

Buffett studying with Graham at Columbia

Studying under investment guru Benjamin Graham while Warren Buffett was at Columbia Business School was a defining moment. It helped Warren consolidate his raw knowledge and develop his own investment philosophy based on Graham’s teachings. Graham was a pioneer of value investment. Buffett later worked for Graham after graduating from Columbia, and dubbed Benjamin Graham the second most influential person in his life, after his father.

Acquisition of Berkshire Hathaway

Warren Buffett acquired textile firm Berkshire Hathaway in 1965. This would become one of his worst investments, as the textile industry faded away. It would serve as an important lesson for Warren – ‘cigarette butt investing’ is dangerous, for the seemingly undervalued company may be forever in secular decline and thus never be able to recover. This lesson led Buffett to shift away from the strict value investing discipline taught by his teacher Graham, and instead adopt a slightly different approach that emphasized buying great businesses at reasonable prices. Buying only average businesses at cheap prices appears doomed to failure.

Salomon Scandal

Any Warren Buffett bio will be remiss if it did not include Salomon, arguably one of the most important moments in Warren’s life. The Salomon bond-trading scandal received national television coverage and led to the near collapse of Salomon Brothers. Under the guise of one of its top traders, Solomon had been illegally manipulating the bid process for the purchase of U.S. government debt. As Berkshire was a major investor in Salomon, Warren Buffett stepped in as interim chairman and had to appease investors, clients and federal investigators. Despite the chaos, his handling of the situation and testimony before Congress affirmed his reputation as a business person who does first-class business in a first-class way.

Warren Buffett Apr 2011: Sokolgate

April 2011 marked an embarrassing moment for Berkshire Hathaway and Warren Buffett. Long seen as the top candidate to become Buffett’s successor, David Sokol was involved in an insider trading scandal involving Berkshire Hathaway’s acquisition of chemicals company Lubrizol. Sokol resigned from Berkshire Hathaway thereafter.

Quotes by Warren Buffett

Posted on December 20, 2011, 9:42 pm, by Value Investor and received No Comments ».

The following quotes by Warren Buffett are the most important quotes that best describe his thinking about many different areas of life.

Never Losing Money

“‘Never lose money’ is an unyielding standard; it forecloses the option of taking any speculative risks.”

Commentary: This is why Buffett has so outdistanced investors who earn impressive returns in many years but who, on occasion, succumb to speculation and suffer punishing losses. The effect of even an occasional severe loss on cumulative returns is devastating.

Do not try to predict the market

“We have no idea – and never have had – whether the market is going to go up, down, or sideways in the near- or intermediate term future.”

Commentary: Warren Buffett does not try to predict the market. He understands that the market is unpredictable and does not try to outsmart it. Instead, he buys when the company is sufficiently undervalued – that is, it has a strong margin of safety. To paraphrase one of his most commonly cited quotes, he is particularly cautious when others are euphoric; and euphoric when others are cautious.

Price Purchases

“We try to price, rather than time, purchases. In our view, it is folly to forego buying shares in an outstanding business whose long-term future is predictable, because of short-term worries about an economy or a stock market that we know to be unpredictable.”

Commentary: Like the previous quote, trying to time purchases is a greater fool’s game. No one can time the market, and those who pretend they can and stake big fortunes on this mysterious ability will eventually get swept away. A smarter approach is to stick to what you actually know and not to deviate from that iron discipline.

Read, read, read (*favorite Warren Buffett Quote)

“By the age of 10, I read every book in the Omaha Public Library with the word finance in the title, some twice.”

Commentary: Read everything you can. As this Warren Buffett quote suggests, a big reason for the success of Warren Buffett is the incredible amount of knowledge he has in his head. Most people chug along with only what they have learned from college; the people who have attained great success are continuous learners – they do not stop when they graduate from college.

Invest Like Warren Buffett: Investments Warren Likes

Posted on December 20, 2011, 4:33 pm, by Value Investor and received No Comments ».

To invest like Warren Buffett, first learn how he thinks about different categories of investments. At the 2011 annual Berkshire Shareholders’ Meeting, Warren Buffett suggested that all investments can be divided into three categories.

Currency-related Investments

The first category of investments is anything denominated in currency – bonds, deposits, money market fund, cash in pocket. If you reach into your pocket and pull out your wallet, you will see the words, ‘In god we trust’. It should actually say ‘In government we trust’, for any currency related investment is a bet on how government now and the future will behave. For example, if you decided to make currency related investments in Zimbabwee, it would have been a bad decision because of the terrible inflation that the government of Zimbabwee was not able to deal with.

Almost all currencies have declined in value over time – this is built in to any economic system, for it is easier to work with currency that declines in value than currency that increases in value. Thus, currency-related investments as a class do not make much sense unless you are paid extremely well.

Speculative Investments

This category of investments covers things that you buy that don’t produce anything but that you hope someone else will pay you more for later on. The classic example of this is gold. Warren Buffett muses that if you take all the gold in the world and put it in a cube, it will be measure approximately 70 feet by 70 feet by 70 feet, or 300,000 metric tons. You can get a ladder and sit on top of it, and say you’re sitting on top of all the gold in the world, but you are not doing anything; all you are doing is hoping that someone else will pay you more.

Betting on gold requires betting on not just how scared people are now, but also how scared people will be 2 yrs from now. This is a perverse kind of thinking that can be very difficult to master. As Charlie Munger quips, it seems peculiar to buy an asset that will go up if the world is going to hell. Like Keynes alludes to in Chapter 12 of the General Theory of Employment, Interest and Money, the game is not to pick out the most beautiful woman, but to pick the woman other people think is the most beautiful.

Investments with Intrinsic Value

This is the type of investment you want to focus on to invest like Warren Buffett. The third category of investments are investments that you value based on what it will produce – for example, you might buy a windmill because of the electricity that it can produce. With these investments, you decide how much to pay based on how much you think the asset will produce over time. This is the type of investment that appeals to Warren Buffett and Charlie Munger, for you make rational calculation of how valuable the item is.

When Warren Buffett bought Lubrizol, he didn’t want to run around and get a quote on it every week; he doesn’t care if the stock exchange closes for a few years. What he is looking for is what he thinks can be delivered from the productive assets that Lubrizol owns.

Over time, it is a good bet that good-producing businesses will outperform something that does not produce anything.

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