Over the years, the capital market has failed to emerge a second Buffett, which has caused people to think deeply. As we all know, Warren Buffett's investment secret lies in value investing, as well as clever floating and compounding strategies. While this is no secret, why has no one been able to reach the peak of investment like Warren Buffett's? Many people know that Warren Buffett became the richest man in the world with only ** investment and foreign exchange market, and his success seems to be within reach, but why is it difficult for others to follow suit? This stems from the three wealth codes and three nobles in Buffett's life, which are difficult for ordinary people to reach. Today, we're going to explore Warren Buffett's life journey and unravel the mystery of his success.
Warren Buffett was born in 1930 into a family of intellectuals and had a keen interest in making money since he was a child. While children his age were still immersed in fairy tales, Warren Buffett had delved into "A Thousand Ways to Make a Thousand Dollars" and set a vision to become a millionaire by the age of 35. To achieve this, he grew up in a variety of small businesses, such as selling chewing gum, golf balls, newspapers, and popcorn. He is not afraid of hardships, he is not afraid of failure, and he has steadily accumulated experience and wealth.
However, it was his first noble man who really led him on the road to wealth - his father Howard Buffett. As a professional broker, Howard opened the doors of the financial world for Warren Buffett. When Warren Buffett was ten years old, he followed his father to the ** exchange on Wall Street in New York, where he was fascinated by the bustling scene. At the age of 11, he opened a ** account with his father's company and began his investment career. His first transaction was the purchase of preferred stock of a public utility**, a city** company, at $38 per share. Soon after, the stock price rose to $40, and after deducting a $1 commission, he earned $5. Despite the profit, he was not satisfied, because this ** later rose even more. This experience made him deeply aware of the importance of long-term gains and room for growth.
Howard's influence on Buffett was not limited to leading him into the financial world, but more importantly, it taught him a priceless concept of wealth - the internal scorecard. The internal scorecard emphasizes acting in accordance with one's internal standards and values, not being distracted by external evaluations, and thinking independently. Contrary to those who rely on external evaluation criteria, people with internal scorecards are more likely to stick to their principles. Buffett was growing up, and his father, Howard, was one such person with an internal scorecard. He influenced Buffett with his words and deeds, enabling him to maintain independent and rational thinking on the investment path, so as to make informed decisions.
For example, in the occasion of a ** baseball game, although the host offended many people because of Howard's insistence and political views when introducing the social celebrities in the audience, causing the audience to boo, Howard did not care and faced it calmly. This scene deeply touched Buffett and made him realize how a person who really does not follow the crowd and sticks to his heart can face external pressures. This spirit of internal scorecard has also been reflected in Buffett's investment career, allowing him to withstand market volatility and the outside world** and stick to his investment principles.
In 1999, with the global popularity of the Internet, the IT industry ushered in explosive growth. Many people are immersed in the carnival of **, but Warren Buffett has made bold criticisms of the Internet industry during this period. He believes that the value of these companies is overly dependent on the uncertainty of the future. This view of Buffett immediately caused a backlash from market participants. They accuse Buffett of being jealous because he missed an opportunity in the IT industry, and even question whether he has fallen out of step with the times. This year, Buffett's investment income is indeed much lower than in previous years, and many people are waiting to see his jokes. However, Buffett stuck to his internal scorecard, confident in his judgment, and unwavering.
As it turned out, he was right. At the beginning of the new millennium, the tech bubble burst, many IT companies disappeared overnight, and many investors were hit hard. And Warren Buffett and his company came out unscathed. Warren Buffett's decades-long investment career has endured multiple stock market crashes, but he has been able to maintain excellent investment returns, which is inseparable from his adherence to the internal scorecard and his trust in his own judgment at critical moments. Of course, an internal scorecard doesn't come out of nowhere, it's built on a deep knowledge system that requires a lot of knowledge to back it up.
Warren Buffett's excellent home-schooling environment and his studious spirit have provided him with a strong body of knowledge. Here we have to mention his second nobleman - his teacher Benjamin Graham. At the age of 17, Buffett entered the University of Pennsylvania to study finance and business management, where he earned a bachelor's degree in economics and a master's degree in economics from Columbia University. It was at Columbia that he met the teacher who changed his life, the godfather of Wall Street, Benjamin Graham.
Graham not only taught Warren Buffett how to analyze scientifically**, but also taught him two important investment philosophies: cigarette butts and asset allocation. The so-called cigarette butt strategy is to look for those neglected and cheap **, like the cigarette butts that others have smoked, although they look inconspicuous, they still have value to dig up. Warren Buffett followed this strategy when he was young, picking up many of these "cigarette butts" on **, and eventually these cigarette butts became gold bricks.
Graham also taught Buffett how to allocate assets, that is, put money where it would make the most money. This philosophy led Buffett to realize the need for diversification and the idea for him to create the world-famous Berkshire Hathaway. And this Berkshire Hathaway company was co-founded by Warren Buffett and his third nobleman, Munger.
At a luncheon in 1959, Buffett met Munger and hit it off. Since then, their friendship, like their wealth, has grown deeper. The company started as a textile mill, but under the leadership of Warren Buffett and Munger, it continued to inject new profitable assets and gradually grew into a vast investment empire. It covers the shares of various insurance companies, American Express, Coca-Cola, FedEx, Washington Post and other excellent companies. Berkshire Hathaway cannot simply be categorized into any one type of company. Some people joke that Microsoft became a Fortune 500 company by producing software, Coca-Cola became a Fortune 500 company by selling Coke, and Berkshire Hathaway became the world's most famous company by producing money.
If you had invested $10,000 in Warren Buffett when Berkshire Hathaway was founded, you would be a billionaire by now. Berkshire Hathaway's $10 per share from less than $10 when he bought it now is $260,000 per share, which is a miracle in the world. The success of this company is naturally inseparable from the hard work and wisdom of Warren Buffett and Munger. Although Buffett is more famous than Munger, Munger also has many loyal fans. Munger brought many new investment ideas to Buffett and helped him refine his investment philosophy.
Munger has a structural theory that some people think they know everything because they have achieved remarkable results in a certain field, and they can guide everything in any field. Munger considered this attitude dangerous, and he exhorted people to remain humble and cautious, and not to express casual opinions on things they were not familiar with, or they would become victims of coercion. Influenced by Munger, Buffett also set a range of capabilities for himself and only invests and lives within this range. For other things, Buffett is not interested and does not comment on it. Therefore, Warren Buffett never invests in areas that he does not understand. Even his good friend and Microsoft founder Bill Gates failed to convince him to buy Microsoft's ** because Buffett knew nothing about the IT industry. This once again confirms Munger's structural theory: people should focus on what they are good at and do what they do best.
Sadly, Charlie Munger, the investment genius who has worked with Warren Buffett all his life, passed away on November 28, 2023, at the age of 99, just one step away from turning 100. Munger's investment wisdom opened up new horizons for Buffett and prompted him to re-examine his investment strategy. Warren Buffett later profoundly pointed out that buying a good company, even if it is slightly higher, is better than buying a cheap but mediocre company. He further explained that choosing a reputable company with excellent management is often a better investment than a troubled company.
This insight prompted Warren Buffett to shift his investment style beyond the pursuit of low prices** or short-term profits. He began to focus on deeper factors such as the company's business model, its future growth potential, and the quality of its management. Only those companies that are truly outstanding can attract his attention.
Since then, Buffett has gradually formed and adhered to his own value investing strategy, which is long-term investing. In the unpredictable market, he has maintained high returns for decades with this strategy. In addition to value investing, Warren Buffett's success is inseparable from three wealth secrets: floating funds, compound interest and super concentration. Concentration is the key.
Regarding floating deposit, it is the money that the insurance company collects the premium first but does not pay the claim. Berkshire Hathaway's insurance companies have put the money to good use to invest in valuable companies and companies. What is less well known is that Berkshire Hathaway is also an insurance empire in its own right, covering all types of insurance businesses, providing Buffett with a steady stream of cash flow that has snowballed his wealth.
Compound interest is Buffett's second secret to wealth. The principle is to reinvest the earnings earned each time, thereby increasing the principal. While each increase may seem small, it can be surprising over time. For example, if you save $10,000 at age 20 and grow by 20% per year, that amount will increase to $600 million by age 80. Warren Buffett has understood the magic of compound interest since he was a child, and has used it as a cornerstone to build his own wealth empire.
He practiced the concept of compound interest investment through the coin-operated pachinko business. When he was in high school, he bought a second-hand coin-operated pachinko machine for just $25 and placed it in the barbershop to share the proceeds. After just one week, he recouped his initial investment and immediately used the $25 he earned to buy a second machine, beginning his journey of compounding investment. This strategy has always accompanied him, from pachinko to becoming the richest man in the world, his investment philosophy has not changed: use the floating fund to find high-quality investment projects, and let compound interest play a role to achieve the best growth of wealth.
However, Buffett also emphasized two core principles of compound interest investing: the first priority is to protect the principal from loss; Second, keep the first principle in mind. Compound interest does not rely on high yields, but is built on the basis of avoiding losses. Although floating cash and compound interest are the two secrets of Buffett's success, why can no one replicate his brilliance? Many people have tried to follow Warren Buffett's example by buying insurance companies to get floating funds and find investment projects, but have not achieved the same results. The reasons for this are worth pondering.
Warren Buffett's third secret to wealth, focus, is equally commendable. Behind his seemingly effortless achievement is decades of dedication and hard work. This constant focus is the key to his success. In the world of investing, Warren Buffett sets himself apart from other investors because of his outstanding focus. His focus is not only on the global economy, finding undervalued countries and markets, but also on his dedication to every detail.
In 2004, for example, Warren Buffett, who was 74 years old at the time, was still voracious in reading the details about South Korea. He doesn't miss a single number and even delves into South Korea's accounting rules to make sure he doesn't get misled. This ultimate pursuit of detail is exactly the investment philosophy that Warren Buffett has adhered to for many years.
**10,000 Fans Incentive Plan
Warren Buffett's daily life is also full of focus. He departs from his residence every day and arrives at the office on time to start his day of focused work. He browses the news, researches company data, and covers everything from car insurance to prisons**. In addition, he has studied the reports of hundreds of other companies and the overseas markets he is interested in. Unlike other investors, Warren Buffett likes to get to know the company in person, communicate with his boss and shareholders, and this deep focus allows him to uncover more valuable investment opportunities.
It is worth mentioning that Warren Buffett not only excels in the field of investment, but his love for bridge also reflects his focus. He has said that if there are three people in prison who can play bridge, he is willing to go to jail for the rest of his life. He was as committed to the game of bridge as he was in the financial markets, even consulting with world champions and buying professional computers to improve his skills. This dedication to bridge is what makes him stand out in the game, and he is able to stay calm and play well even when he is surrounded by a large crowd.
However, when an investment opportunity arises, Buffett does not hesitate to put down the bridge and devote himself to negotiations. This ability to shift attention is another trait of his successful investor. Overall, Warren Buffett's success comes not only from his investment wisdom and vision, but also from his decades-long dedication and meticulous attention to detail.