Warren Buffett is widely considered one of the most successful investors of all time, with a net worth of over $100 billion. So, what is the secret to his success? We check out Buffett’s track record and spotlight buys and sells that highlight how he became so wealthy.
Berkshire Hathaway’s Returns Since Buffett Took Over as CEO
Since Buffett took over as CEO in 1970, the company’s per-share book value has grown at a compound annual rate of 19.7%, outpacing the S&P 500’s 9.9% return over the same time period. This means that an investment in Berkshire Hathaway in 1970 would have grown over 17 times in value by the end of 2020, compared to a seven-fold increase for the S&P 500.
But Berkshire Hathaway’s returns go beyond just its share price appreciation. The company also generates significant income through its various subsidiaries and investments, which has helped to boost overall returns.
For example, in 2020 Berkshire Hathaway reported $24.8 billion in net income, with over 60% coming from non-insurance businesses. This diversified income stream has helped to cushion the company’s performance during market downturns and has contributed to its long-term success.
Buffett’s Investment Philosophy and Strategies
So, what is behind Berkshire Hathaway’s impressive returns? Much of it can be attributed to Warren Buffett’s investment philosophy and strategies.
Buffett has long been a proponent of value investing, which involves seeking out undervalued companies with strong fundamentals and holding onto them for the long term. This approach has helped him to identify undervalued opportunities that others may have missed and to benefit from the eventual market recognition of a company’s true worth.
Buffett is also known for his discipline and patience, qualities that have served him well in his investment career. He has famously said that “the stock market is a device for transferring money from the active to the patient“. This means that he is willing to wait for the right investment opportunities and is not swayed by short-term market fluctuations or investor fads.
One of the keys to Buffett’s success has been his ability to identify and invest in companies with strong, sustainable competitive advantages. He has famously said that he looks for companies with “moats,” or sustainable competitive advantages that protect their profits and market share from competitors.
These moats can come in the form of brand recognition, cost advantages, distribution networks, or other factors that give a company a lasting edge in its industry.
Buffett has also been successful in part because he is not afraid to admit when he has made a mistake and to move on from an investment. For example, in 2020 Berkshire Hathaway reported a $9.8 billion loss on its investment in airline stocks, which had been hit hard by the COVID-19 pandemic. Rather than holding onto these underperforming investments, Buffett recognized the mistake and sold off the airline stocks, showing that he is not afraid to cut his losses when necessary.