Invest like Buffett

[Graemsay]

Boffins have figured out how Buffett makes his money.

The professors found that the returns from his investment company Berkshire Hathaway, which far outweigh those achieved by any rival that has operated for 30 years or more, were ?neither luck nor magic?.

Instead, the success hinged on a clever use of borrowing money ? or ?leverage? ? in order to make large purchases of ?cheap, safe, quality stocks?. In addition, they said Mr Buffett?s returns were ?more due to stock selection? than any effect on management of the companies he owned.

Effectively, by using a leverage of around 1.6-to-1 ? other words investing ?1.60 for every ?1 of capital held by borrowing money ? Mr Buffett amplified the returns from a low-risk portfolio of stable, profitable companies which had fallen out of favour with other investors.

The full paper can be found here.

 

[D.T.]

Lol missing the point

 

[roe]

Boffins have figured out how Buffett makes his money.



The full paper can be found here.

He can do it because he has access to cheap float most mortal can't -
Leverage in stock market can be dangerous if you don't have access to cheap and free float premium where he doesn't have to be a force seller...

 

[Aaron_C]

He can do it because he has access to cheap float most mortal can't -
Leverage in stock market can be dangerous if you don't have access to cheap and free float premium where he doesn't have to be a force seller...

Exactly which is why when people say Buffett doesn't leverage it is completely false.

 

[xanh]

I assume this is one of the reasons he has been successful. To me, putting it down to one thing is like saying ' The reason Mozart is so good is because of ....'.

It'll take a whole lot more to be as successful as him. There's a million people trying to be like WB. I'm not sure many have succeeded.

 

[roe]

Exactly which is why when people say Buffett doesn't leverage it is completely false.

The guy is very clever, he position himself to access to leverage in a way he can not lose or ever put himself in a force seller position....

In a way it is correct that he doesn't borrow money say from a bank and invest because it create problems when you in a tight situation ..

He source his capital from his insurance business arm where he virtually has access to interest free money..

One thing that damage your wealth on a massive scale is becomes a force seller in the market...Something many learned from the GFC in a hard way with margin loan....

On the flip side you can make extraordinary return buying from force seller on the market ....when the banks throw them out with margin call, it going at any price they can get...I was lucky enough to pick up a lot during the shake out of the GFC from force seller .... People think I am mad but a wise investor tell me you make the most money during the bear market you just don't know it at the time. -

 

[Aaron_C]

Indeed he's done very well, he's a very shrewd man and kudos to him for that. I guess the secret is to leverage without having to ever sell.

 

[roe]

I assume this is one of the reasons he has been successful. To me, putting it down to one thing is like saying ' The reason Mozart is so good is because of ....'.

It'll take a whole lot more to be as successful as him. There's a million people trying to be like WB. I'm not sure many have succeeded.

Warren is the most famous but there are dozen of other who is very very successful following the same principles ..you talking people with billions here

Not many heard of this name Seth Klarman, this guy record rival Buffett and still fairly young just That he doesn't have cheap access to money like Warren so obviously his return can't be amplified as such...

He's a fund manager and people that put money with him make a fortune....I post on here some where on is forum he is the author of Margin of safety book... An extremely good read....

Currently he has 75% of his stock money ties in just three stocks ...very concentrated and very confident investor who know when something is cheap and load up and make a fortune....

Then I say there are a good hundred of thousands or million of investor who generate very very good return following similar principles not the multi billionaire or multi millionaire But have enough few millions to live life in comfort.

Margin of safety principle works but not everyone can make it works because it require a certain mindset and a good doze of certain temperament and conviction and off course low debt or no debt ...

this model don't work well with high leverage as you need to go against the tides sometimes and stand firm, having large debt hang over your head with bankers at the door cloud your judgement and you tripped up

I follow the same principle, I am debt free, my cash is always ready at call .... I don't make too many decision each year, when the time come I put the cash to work and rise and repeat

I have no fear when I buy a stock even if it drop 50%, market can go crazy up and down and I can not be put in a force Seller position as I don't have debt, no one can force me to do anything I don't want. Life is stress free and good return....

 

[whiteduck]

Last year Warren Buffett's Berkshire Hathaway together with Brazilian company 3G took over Heinz, which used to an Australian company quite a long time ago. Heinz have now become a private company - ie unlisted. 3G have a reputation for "slash and burn" with major job losses . So makes me suspicious of what their tactics are.

See links below.

http://www.bloomberg.com/news/2013-...y-in-shakeup-after-berkshire-3g-takeover.html

http://equitymosaics.com/2013/11/17/warren-buffetts-takeover-of-heinz/

This has a personal interest for me as my sister who works in IT for a large but subsidiary company of Heinz has been recently told the whole IT team will lose their jobs as they are being outsourced. She like the rest of her team have been told they won't get a redundancy payout. She has taken legal advice and found she has a case against them, but taking on such a big company is pretty scary.

Ironically, this has already happened to her before, when the company outsourced previously then discovered that it didn't work. Hence she was headhunted back!!

 

[datto]

Whiteduck ...what happened to your sister sounds terrible and shameful for her boss. This should be outlawed.

Roe..I agree with picking up cheap stock after a crisis. I picked up CBA for $29 just after the GFC. Sold shortly after..wish I held on. "Be greedy when others are fearful". I believe no calamity can destroy the capital market. History shows it just keeps on going..but it does level some debri along the way lol.