|In this article:1. Warren Buffett's background 2. About Buffett and Graham 3. Buffett's two investment rules 4. Warren Buffett's Investment Strategy 5. Buffett and Coca-Cola 6. Best books about Warren Buffett 7. Warren Buffett's Portfolio 8. End note|
Warren Buffet’s Background:Warren Buffett is considered to be one of the most successful investors in the world. He is popularly known as the Oracle of Omaha. Forbes named him the sixth richest man in the world in 2020.He developed an interest in business and investing when he was just nine years old. He spent time at a regional stockbroking firm near his father's own brokerage office.He applied for Harvard Business School but was rejected. He later secured admission in the Columbia Business School after learning that Benjamin Graham taught there. He earned a Master of Science in Economics in 1951.Benjamin Graham authored the book The Intelligent Investor in 1949. It is Buffett’s favorite book. He considers it to be the best book ever written on investment even after 70 years of publication.Buffett learned a very basic but important lesson of investment when he was 11. He purchased three shares of Cities Service for $38 per share. Shortly after buying the stock, it fell to over $27 per share. Buffett panicked but held his shares and waited for them to bounce back. As soon as the price went up to $40, he sold his shares immediately. Shortly after, he regretted his impulsive decision of selling them. The share price had shot up to $200. This taught him how important it is to have patience while investing for long term.Today, at the age of 90, he is the chairman and CEO of Berkshire Hathaway. It is an American multinational conglomerate that owns a diverse range of businesses. As of March 31, 2021, it is the tenth-largest public company in the world.The company owns more than 60 companies. In 2018, Forbes named him to be the 16th most influential person in the world.One of the reasons behind Buffett’s fortune is his investing approach. Let's understand what is Warren Buffett's investment strategy and what he looks for before buying a stock.
Buffett & Graham:Warren Buffett was Benjamin Graham's student at the Columbia Business School. He was the only student to earn an A+ in Graham's classes. He followed and look up to Graham and wanted to work for him. Sadly, Benjamin Graham had turned Buffett down many times. But he was absolutely determined to work with Graham. He looked up to his investment approach and philosophy.. He even offered to work for Graham for free. Finally, Graham agreed and invited Buffett to join him.Buffett spent his days searching for investment opportunities and reading S&P reports. Soon after, differences between the Graham and Buffett philosophies began to emerge.Benjamin Graham solely relied on and believed in quantitative methods to analyse a company. But Buffett believed that we must look beyond the financial numbers. He looked for quantitative as well as qualitative methods.Graham was only interested in the balance sheet, income statement, and cash flow statement. Whereas Buffett was interested in how a company operates.
- What made it better than its competitors?
- How much manpower does the company have?
- Where is the company located?
- Who manages the company at the top level?
- What is their business model?
- Do they have any economic moat?
Two Investment Rules:
- Buy what you understand
- Buy and Hold
Buffett’s Investment Style and Strategies:Warren Buffett strongly advocates and follows value investing. This means identifying and buying stocks that are trading at a price lesser than their intrinsic value. He focuses on purchasing stocks of a company that are fundamentally strong. The ones that show a persisting growth potential with strong earning power.The parameters Buffett involves while selecting the stocks of the companies are listed below: -
- Management Strategy
Warren Buffet and Coca-Cola:When Buffett was only six years old, he used to buy six packs of Coca-Cola from his grandfather's store. Each pack used to cost him 25 cents which he resold for 30 cents, pocketing a five-cent profit.However, he did not invest the earned money buying their shares. Later, he started collecting bottle caps from the street. He collected over 8,000 caps and observed that the highest number of caps were of Coca-Cola. He concluded that it perhaps is people's most preferred drink. He immediately began researching and analysing quantitative aspects of the company.In 1988, he started buying a significant number of Coca-Cola shares. He bought more than $1 billion of their shares, roughly equal to 6.2% of the company. After more than 30 years of his first Coca-Cola purchase, he still holds the stocks in his portfolio.One share of Coca-Cola costed approximately $2.45 in 1988. Its share price today is $53.98. That is an approximate increase of 2,246% over the years.
Best Books about Warren Buffett:Surprisingly, Warren Buffett has never written a book. But there are more than 47 books with Buffett's name in the title. The only other living people with such records are world political figures and Dalai Lama.Here are four books that can help you closely understand Buffett and his investment philosophies.
- The Essays of Warren Buffett: Lessons for Corporate America by Warren Buffett & Lawrence Cunningham
- The Warren Buffett Way by Robert G. Hagstrom
- How to think like a long-term investor.
- Analysis of Buffett’s acquisition of H.J. Heinz and his investment in International Business Machines (IBM) stock.
- Importance of behaving rationally during the ups and downs of the market. This is the key to Buffett’s investing success.
- The philosophy of why loss aversion is one of the biggest obstacles that investors must overcome.
- The Warren Buffett CEO by Robert P. Miles
- The Snowball: Warren Buffett and the Business of Life by Alice Schroeder
Warren Buffet’s Portfolio:Here are few Warren Buffett stocks by the number of shares held based on Berkshire Hathaway's most recent 13-F filing.
|American Express Company||15,16,10,700||$153.35||$23,249,500,845||18.90%|
|Axalta Coating Systems Ltd||2,34,20,000||$31.89||$746,863,800||10.10%|
|Bank of America Corp||1,03,28,52,006||$40.53||$41,861,491,803||12%|
|Bank of New York Mellon Corp||7,43,46,864||$49.88||$3,708,421,576||8.50%|
|Kraft Heinz Co||32,56,34,818||$41.29||$13,445,461,635||26.60%|
|General Motors Company||7,25,00,000||$57.22||$4,148,450,000||5.00%|
|Johnson & Johnson||3,27,100||$162.73||$53,228,983||0.00%|
|Liberty Sirius XM Group Series C||4,32,08,291||$45.23||$1,954,311,002||18.9%|
|Procter & Gamble Co||3,15,400||$133.42||$42,080,668||0.00%|
|Verizon Communications Inc.||14,67,16,496||$57.79||$8,478,746,304||3.50%|