04 Warren Buffett & Berkshire Hathaway

Speaking of masters in the investing world, the first name that pops into mind would be Warren Buffet.

In this section, we will uncover Buffett's investment philosophy, personal stories, and the performance of Berkshire Hathaway, the investment firm he oversees.

Buffett was born in Omaha, Nebraska, where his obsession with all things financial began. He liked numbers and got a penchant for investing and making money when he was little.

He went into business very early. At the age of six, he started selling gum door-to-door. Then he got into the business of collecting golf balls and reselling them with other kids. In middle school, he delivered papers before school while renting pinball game machines to barber shop owners on the side. From these ventures, he made quite some money.

Buffett is a true believer in "value investing." He suggests investors should not follow the daily market ups and downs and general economic conditions too closely. Instead, unearthing "outstanding companies" is the key. He emphasizes a company's intrinsic value will be reflected in its stock price sooner or later.

But how to find an outstanding company? Buffet has his own rules. He will never get involved in businesses that he does not understand. He prefers companies with the following characteristics: strong operations, excellent management, high return on equity, stable free cash flow, and stock prices with a margin of safety.

Buffett has invested in many great companies throughout his career. Coca-Cola is one famous example.

He bought $1.023 billion worth of Coca-Cola shares in 1988 and continued to increase his position. By 1998, the investment was worth $13.4 billion, a 10-time increase in a decade.

As of the second quarter of 2022, Coca-Cola was still Berkshire's third-largest holding. He held 8.11% of the company's stake, worth $25 billion.

When Buffett first bought Coca-Cola, the US stock market was at a historic low from the crash in 1987. Many considered his move risky, but he was determined to hold the stock. This exemplifies his saying, "Be greedy when others are fearful."

There is no doubt about Buffett's success. From 1965 to 2021, Berkshire generated an annual compound return of 20.1%, compared to the S&P 500's 10.5% during the same period.

But Buffett made mistakes, too.

He bought Delta Air Lines at $45 per share when US stocks plummeted in February 2020. But only after 33 days he sold off the stock at $26 per share, confessing it was a wrong move.

Berkshire Hathaway's portfolio is now tracked by global investors.

But remember copying famous investors' portfolios isn't a surefire way to success. Instead, absorbing and internalizing the tenets of their investment strategies matters more.