In 1962, a young portfolio manager named Warren Buffett bought a textile mill company in Massachusetts named Berkshire Hathaway. Instead of using the cash generated from the business to expand or pay out a dividend, Buffett started buying stocks with the cash.
The rest, as they say, is history, as the Oracle of Omaha has stacked gains on top of gains to create one of the world’s largest conglomerates, which has come to own hundreds of businesses thanks to its chairman’s once-in-a-generation ability to pick winning stocks. In his 47th year as head of Berkshire Hathaway, Buffett now manages a portfolio of stocks worth more than $50 billion.
Buffett and Value Investing
Warren Buffett is a proponent of value investing, which focuses on stocks that are undervalued compared with their intrinsic value. Financial metrics such as price-book ratio, price-earnings ratio, return on equity and dividend yield carry the most weight on Buffett’s scales. In addition, he seeks out companies that have what he calls “economic moats” — high barriers to entry for a competitor that might wish to invade the market and erode profit margins.
Buffett has proved beyond any doubt that he is one of the greatest investors of our time. His holdings are reported to the Securities and Exchange Commission several times a year, so investors who wish to copy his moves can do so with ease. This is made even easier by the fact that Buffett tends to hold stocks for a very long time, which means you don’t have to worry about constantly trading in and out of positions to keep in line with his holdings.
Follow Buffett’s Stocks
Also, if you would like to really get some insight into one of the greatest investors of our time, I strongly encourage everyone to read The Snowball: Warren Buffett and the Business of Life. The book also makes a great Christmas gift for the College Investor at home!