Warren E. Buffett's investment approach is seemingly simple.
“Forget what you know about buying a fair business at a great price. Instead, buy a great business at a fair price,” he wrote to shareholders of his business conglomerate, Berkshire Hathaway.
Known as value investment, this method existed long before Buffett, now 94, began his career. But he didn't do it as long as he did. And along the way, he influenced several generations of financial operators, including Wall Street hedge fund Mogul, promoting current investment advice over the long term.
Over the 60 years when Buffett ruled Berkshire Hathaway, he used value investments to transform a broken textile maker into a 1.1 trillion conglomerate, corporate takeover machine and a microcosm of the US economy. One of the largest railways in America? Owned by Berkshire. The biggest shareholders of American Express and Coca-Cola? Berkshire too.
Buffett accumulated personal fortunes like Midas worth around $168 billion, and in the process became an avant-class avatar of American-style capitalism, which was sought after by both corporate executives and government officials during the 2008 financial crisis.
His unparalleled success has earned Buffett millions of praise worldwide. Tens of thousands declared at Berkshire's annual meeting in Omaha on Saturday that he would eventually step down as CEO.
His announcement was greeted with surprise, followed by minutes of thunderous applause from shareholders. Many of them became billionaires by owning Berkshire stocks and sticking to all his financial adages.
“I'll tell people everything I know about the investment I learned from Warren Buffett,” Bill Ackman, a billionaire hedge fund manager in the crowd, said in an interview after Buffett's announcement.
Mr. Buffett admitted that his enormous fortunes do not owes small debts to pure luck. As he put it, he won the “ovarian lottery” by being born in the United States when the stock market was ready to create one of the biggest economic booms in modern history.
He learned about stock picking from Benjamin Graham, a pioneer in value investment, who was his professor at Columbia University. With key advice from longtime Nebraska fellow Charles T. Munger, Buffett turned Berkshire, who bought control in 1965, into the best argument for discipline.
But few people, like he did, trained them, read the corporate balance sheet for research, and the corporate balance sheet for work from dawn to dusk.
Buffett then used that knowledge in several ways. Berkshire has purchased a huge number of successful businesses including Sea Candy, Fruit of the Room and Private Jet Service NetJet. But the most transformative were the acquisitions of insurance companies like National Compensation and GEICO, which were sitting at premiums that customers paid but had yet to claim.
The cash, known as the “float,” became the first financial engine for Buffett's deal machine. He purchased the money, along with profits from other companies in the company, which is now a collection of 189 companies. Among the biggest is the BNSF Railway, which was acquired in 2010 for around $26 billion. Power producer Berkshire Hathaway Energy was also purchased for $2 billion in 2000 and was subsequently expanded through the company's acquisition.
As of March 31, that cash pile that Buffett calls his “elephant gun” was nearly $348 billion.
People who have sat face-to-face with Mr. Buffett for years to negotiate tables have said he is friendly and polite, but he is indomitable when it comes to numbers. When he is involved, no rounds hugging beyond the price are included in the card. He is ready to leave.
“Warren is the most disciplined investor I've ever known and the clearest thinker,” said Byron Trott of Merchant Bank BDT & MSD, who became one of the few bankers Buffett trusts as a deal maker at Goldman Sachs. “His ability to clarify complexity and guide it with humility and conviction is unparalleled.”
Buffett also used Berkshire cash to buy stocks with a portfolio that includes American Express, Bank of America, Cola, Chevron, and one of his most profitable investments, Apple. For these companies, Berkshire ownership tended to amount to a good housekeeping seal of approval.
And with Berkshire's huge balance sheet and Mr. Buffett's unparalleled control, the conglomerate could plummet at the right time, and bought it when others had to sell.
Buffett “is an extraordinary investor and a personal friend to me,” American Express CEO Stephen Souri said after the Berkshire announcement.
Another key to his success was to maintain his age investment. “Our favorite retention period is eternal,” he said. (The biographies that Buffett cooperated with, but later criticised, were named after the phenomenon.)
Another advantage for Berkshire investors is that unlike mutual funds and hedge funds, they are not charged. In fact, Buffett criticizes the size of the fees that Wall Street vehicles were charged.
That said, Buffett admits he has made many mistakes over the years. One was to pass early investment opportunities in technology giants like Amazon and Microsoft.
Still, despite the unprecedented performance of several periods, especially in recent years, Buffett's track record is surprising. According to his calculations, Berkshire scored 5,502,284% between 1964 and 2024, compared to 39,054% of the S&P 500 at the same time. His average annual profit was 19.9%, while the S&P was 10.4%.
Buffett's approach has influenced countless other investors, including Ackman and mutual fund tycoon Mario Gabelli. (Others are trying to copy more directly, such as their financial instruments, Biglari Holdings, Berkshire initials, website design, and Sardar Biglari, who shares their investment focus.)
But Buffett portrayed a folk Nebraskan persona that transcended business, gained real celebrities and avoided the usual traps of rich wealth. Fans have made a pilgrimage to his longtime home in Omaha, citing favorably his preferences for mainstream products such as Cherry Cola, Dairy Queen Blizzard and Sea Fudge. (In particular, everything is associated with Berkshire.)
He also became known for pop culture by making cameo appearances on television shows such as “All My Children” and “The Office.”
He plunged into what he saw as a regular disregard for professional brokers and traders in order to turn the business world and Wall Street failures, particularly the “gambling parlors” that could tempt the average investor to economic ruin.
He took a more serious stand against the Wall Street excess in 1991, as a major shareholder of the Salomon Brothers. when he was forced to bail out investment banks after a trading scandal. It was a low moment in Buffett's career.
Called before Congress to testify about Salomon, Buffett delivered a steely message to company employees. “Lost money for the company. I understand. I'll lose a piece of company's reputation.
His fame also gave him a unique shaking in Washington, adding weight to his declarations on political and financial issues. Ackman said policymakers also followed Buffett's comments and the annual letter, and acted on ideas such as treating management stock options as corporate expenses.
Though he was a Democrat who approved Hillary Clinton for the president and adorned the Obama-era proposal for higher taxes on wealthy people, Buffett advised the president from both parties. It was most notable in 2008 when he was begged by corporate executives and the George W. Bush administration to help the global financial system blend in.
Buffett ultimately agreed to invest billions in Goldman Sachs and General Electric, and Ackman moved in comparison to JP Morgan's efforts to save the banks in the early 20th century. However, he charged both companies with 10% of the then Austronomy interest rate.
“Warren Buffett represents everything good about American capitalism and America itself,” JP Morgan Chase chief executive Jamie Dimon said after the announcement Saturday.
While Berkshire's future looks financially solid, Ackman calls the company “the rock of Gibraltar,” but says that longtime Buffett's followers may not hold a seemingly mythical position without a major architect.
Berkshire's next CEO, Gregory Abel, is considered a business's top operator and a well-versed contract maker, and Buffett hired Todd Combs and Ted Weschler as high-level investment executives over a decade ago.
Buffett “gives Berkshire the best chance possible for the next chapter” to Lawrence Cunningham, director of the Weinberg Corporate Governance Centre at the University of Delaware.
However, other investors are worried that the company will not become a little more special and will not revolve around picking stocks they place on the map. Bill Smeade, whose investment company owns Berkshire stock and attends this year's annual meeting, said the conglomerate is already unambitious and is eschewing potentially transformative deals.
“It's the end of the times,” Smead said.
