Warren Buffett, Richer Than All His Tribe
By Ravi Perera
“I have never met a man who could forecast the market” — Warren Buffett
With many over night “experts” predicting a sustained rally of a few years for our soaring stock market, it may be an appropriate time for the Sri Lanka investor dabbling in the tiny market here to reflect on the methods and wisdom of Warren Buffett, the greatest investor the world has seen.
Buffett has famously compared bull market runs to a beach party at high tide. Everyone is having a good time, the mood is exuberant and all is well with the world. “It is only when the tide goes down that we find out who has been swimming naked”
Although the fluctuations in the stock prices changes the order frequently, there is no doubt that his estimated worth of around US$ 60 billion makes the legendary American investor Warren Buffett the richest man on the planet frequently, a position challenged only by Bill Gates, who held the position for more than 13 years and the Mexican business magnate Helu. Incidentally, breaking the pattern hitherto, there are four Indians, Mittal, the Ambani brothers and K.P. Singh among the ten richest, although trailing the top three by a considerable margin.
For a single human being to have accumulated this kind of wealth in a life time is mind-boggling. As a comparison, Sri Lanka, with a population of about 20 million, has an economy of approximately US$ 60 billion. The most expensive commercial plane the A380 goes for about US$ 325 million. It is estimated that the Queen of England has a worth of about US$ 500 million.
Now 79 years old, to the devoted wealth creators of the world, Buffett is the world’s greatest investor. Living modestly in distant Nebraska in the State of Omaha, occupying the same four bed roomed house he bought more than four decades ago, the uninitiated can be excused for taking Buffett at first glance for a University Professor pre-occupied with the unworldly. But that woolly image will only last till he begins to talk. One is then left breathless by the sweep and intelligence of a mind, which has fashioned a whole new way of looking at business and investing therein.
In the words of Jack Welch, the famous ex-CEO of General Electric, “ Which ever room Buffett walks into, he is the cleverest among those present”. Buffett’s writings, speeches and witticisms are avidly studied and analyzed by a world-wide following, giving life to a credo commonly referred to as Buffetolgy.
Now that you are the richest man in America, asked a shareholder at a Berkshire Hathaway annual meeting, what is your next goal? “ That is easy” Buffett replied, “ To be the oldest man in America.”
Warren Buffett is unique among those who have worn this crown, for his wealth has been built up on investments made on businesses not his own. The riches of the Gates, Waltons, Rockefellers and Fords were based on enterprises they created and controlled. They more or less had some expertise in their chosen domains, owing the ensuing success to fortuitous timing when those industries came of age.
Ford came out at the time when we were abandoning the horse driven carriage in preference for the motorcar. The exploding internet made Gates and his Windows system possible. Walton envisioned that the time conscious American consumer would want to do all his regular shopping at one time under one roof and built up Wal-Mart, the huge discount marketing empire, to cater to this need.
The extraordinary success of Buffett on the other hand is not based on any particular business, but on a series of uncannily successful investments. In a period spanning five decades, he has built up an epochal fortune by patient and consistent investing in a wide range of businesses. From insurance to hamburgers, shaving blades to furniture, Buffett has been able to time after time choose eventual winners when other investors were shying away from them. And what an investor he has been!
“ All there is to investing is picking good stocks at good times and staying with them as long as they remain good companies”
There are thousands of investors, hedge fund managers and other ‘so called’ stock experts who would wish investing was as easy as Buffett makes out. But his success as an investor has been so remarkable, it may well be that he sees things very differently from other mortals. Buffett’s unique skills and insight has enabled him to hugely outperform the notoriously volatile stock markets year after year for an incredible 40 years, a performance which has now made him the richest man on Earth.
“ You don’t need to be a rocket scientist. Investing is not a game where the guy with 160 IQ beats the guy with 130 IQ. Rationality is essential.”
In 1965, Buffett bought Berkshire Hathaway, a struggling cotton mill in Massachusetts. After an unrewarding effort at reviving its fortunes he began converting the company to an investment vehicle. Its singular success since has been such that today a single share of Berkshire Hathaway goes for about US$ 120,000. Those early investors who sensed the unusual brilliance of the young Buffett and put their money in the company in the 1960s are millionaires many times over today. Even the latecomers to the party have not done too badly.
Buffett is a disciple and devotee of Ben Graham, the revered teacher of investments and the author of Intelligent Investor, the Bible of value investors. “Graham wasn’t about brilliant investments and he wasn’t about fads or fashion. He was about sound investing and I think sound investing can make you very wealthy if you are not in too big of a hurry. And it never makes you poor, which is better.”
As a major shareholder of several large corporations Buffett often has a say in choosing senior managers. “Somebody once said that in looking for people to hire, you look for three qualities: integrity, intelligence and energy. And if they don’t have the first, the other two will kill you.”
Buffett is always on the look out for businesses that cannot go wrong, “You should invest in a business that even a fool can run, because someday a fool will.”
Buffett has no hesitations in acknowledging the role historical circumstances have played in his success. The United States with an economy of about US $ 15 Trillion and a stock market with a capitalization even larger than that provides him with an almost endless landscape to search for sound investments. “I personally think that society is responsible for a very significant percentage of what I have earned. If you stick me down in the middle of Bangladesh or Peru or someplace, you’ll find out how much this talent is going to produce in the wrong kind of soil. I will be struggling 30 years later.”
Buffett’s philosophy is not relaxed when it comes to his children, who will inherit very little of his enormous wealth. His partner Charles Munger explains “Warren doesn’t believe that if you love somebody the way to do him good is to give him something he is not entitled to.” In the words of Buffett “They have all gone their own ways to accomplish a lot. They are productive, and they don’t expect to just be some rich guy’s kid”.
In fact, 85% of his wealth is already pledged to five major foundations, including a whopping US$ 30 billion to Bill & Melinda Gates Foundation focused on world health. Meanwhile, Buffett maintains his grueling pace, repeatedly proving to his amazed admirers that the world’s greatest investor can continue beating the volatile markets year after year.