Warren Buffett Investment Lessons

You don’t amass a $60.0-billion fortune as an investor by mistake. As the third-wealthiest person on the planet, Warren Buffett’s Berkshire Hathaway stock has, over the last 51 years, grown from a per-book share value of $19.00 to $155,501. That’s a staggering compound annual growth rate of 19.2%.

I am interested in dividend investing and have been looking at Warren Buffett’s Dividend paying stocks Profile.

Warren Buffet’s portfolio consists of 44 publicly traded companies. The vast majority of them (32) provide dividends, a number of which provide annual dividends in excess of four percent. No wonder he is the master investor of the world.

How does the “Oracle of Omaha” do it? “My wealth has come from a combination of living in America, some lucky genes, and compound interest,” Buffet said. “My luck was accentuated by my living in a market system that rewards those who can detect the mispricing of securities with sums reaching into the billions.”

He also was an investor in the 1960s when live market prices and fundamental analysis did not exist for a majority of investors. For the most part, people have probably eroded the strategies that he used in the early years. What he does today - raise money for very low interest, bail out GS for high interest, etc. - is special to him; other people might not be able to do it.

^ Well he still makes concentrated bets on stocks, like IBM and PSX.

To the OP - dividends are somewhat irrelevant, earnings matter far more. If you give me $100, I can pay you a dividend of 4% for 25 years and then declare BK, all without any earnings stream.

Buffett has skills, but as ohai refers to, there’s a time period that you need to be aware of and you have to benchmark him appropriately. He’s captured the small company premium and value premium for many years, comparing him to the S&P 500 would be an inaccurate comparison. He’s also benefited in ways not available to average investors, like buying out companies and reworking management, or encouraging mergers.

The guy is good at what he does, but he’s not a magician. If you go out and just buy stocks with 4%+ dividends you’re going to have a very different experience than what Buffett has had over the past 40 years.

Ohai, there’s some good research out there about the erosion of investment factors. I think it actually might have been in FAJ a few months ago. Basically there’s some erosion post-publication as the popularity grows, but that there are fundamental reasons for these premiums and so they’ll continue to exist. The popularity will fade as performance disappoints temporarily. Investors increasingly are becoming disappointed with their international positions for diversification as they watch the US outperform. Same is probably true for people who bought into value investing 5 years ago (up until this year). So, I think these premiums that Buffett has captured will continue to exist moving forward as the emotional side of investing will always remain.

Well he was aware of the stock market situation st that that, and he is very well aware now as well.

What I’m saying is… when Buffet started in 1970s or whenever, people didn’t know how to do any kind of fundamental analysis. The market was inefficient. Even some basic dividend discounting probably added tremendous value back then. So, people who were able to grasp fundamental finance concepts had a huge advantage. I am not discounting his achievement - after all, the method he developed was advanced among his peers. However, these tools have since been socialized, so if Warren Buffet had been born today, I doubt that he would have had the same performance, even if he could still outperform most investors due to other business skills.

If there is some persisting advantage to value investing in general, I don’t think it is enough to found a new Berkshire Hathaway based on that.

ohai, please don’t take this personally but - none of the above is true.

Do most people (money-weighted) buy stocks based on fundamental analysis now? I’d think indexsing gets the most $$$.

Is the market efficient now? In what way? Certainly most stock prices don’t come close to the sum of their discounted future cash flows. When would AMZN earn $360B in 2016 dollars; or TSLA earn $35B?

Buffett’s secret sauce is still a secret. Yes he does value investing, has enormous business sense, can read people well (Sokol excepted - Buffett tends to be too loyal and intense from what I heard), and juices up his returns using _ uncallable _ leverage in the form of float, and moves decisively and quickly and “bigly” based on his convictions. But why does he think WFC is far far superior to say BAC or C? Who knows! (Not “somewhat” better but so much better that he bought 10%+ of it.)

Summary, I think a Buffett born today will still blow away other so-called superinvestors.

Maybe you are right - and I was using fundamental analysis mostly as an example. There is more of everything now - more professional investors, more investment literature, more technology, more information, more transparency, and even people who have studied Warren Buffet’s method or graduated from his mentorship. The market might not be fully efficient today, but it is much more efficient than it was in the past. It’s likely much harder today than it was in the past to be a super outperformer.

I do believe that some managers are greatly better than others in a non random sense, but a lot of low hanging fruit have been taken as time goes by. Surely, it must have taken some brilliance to spot opportunities in the past that others could not at the time. But many things that were at one time profitable are no longer, as more and more investors close these holes. I don’t see why these rules would not apply to Warren Buffet. If he could outperform by 20% in the past, he might only have been able to outperform by some fraction of that today.

Some credit is also due to Warren for building an institution whose success will outlast him. Berkshire Hathaway is not going to go bankrupt when he dies (which realistically, could be any time now). It’s strength can be derived from its capital, its reputation, and its relationships that have been cultivated over many years, not just some mystical investment knowledge of its founder.

Even I agree, he is master investor with eye for deatils.

Keep in mind, WEB is not just an investor, but a capital allocator. He doesn’t run an investment fund, but a holding company. He moved on from the pure investor mindset when he closed BP. His company has unique advantages (or moat if you will) that ensure it performs well. That is the core of his success. There’s no doubt he’s a tremendously talented investor who would do great today, but that is not all he is.

Have you guys read the AQR paper on Buffet’s alpha? I found it pretty interesting. (http://www.econ.yale.edu/~af227/pdf/Buffett’s%20Alpha%20-%20Frazzini,%20Kabiller%20and%20Pedersen.pdf)

While narrative is fine, I think narratives grounded in the data we have around Buffet are more useful. Buffet surely is a smart guy who noticed before everyone else what a benefit leverage not subject to capital markets can do for the portfolio returns of high quality companies.

But I do find it strange how we tend to have this thing for guru worship. Regardless of the field or subject, gurus seem to emerge. I think Warren Buffet gets too much credit. He has done well at investing and has a lot to share, but I find the obsession and over emphasis of his information vs. others weird. Last I checked, value investors under perform their indexes worse than the other guys. I wonder if it has to do with the value investing dogma that has emerged. Seems hard to test, but I suspect dogmatic rules from a guru may not be the most useful for dynamic markets. I mean, look at them buying airlines. And now Buffet followers all try to rationalize it lol

Irony is the best source of comedy

He bailed on WMT and Suncor, that was quiet unexpected. Not sure which way to go now.

Three airlines stocks were bought by him also.

Is passive voice really necessary?

What are you saying? That people who try to stock pick in value stocks underperform value indexes worse than those who try to do it in growth stocks? That people who try to stock pick in value stocks underperform broad indexes? Or that value investors underperform the broad indexes?

I suspect that all three statements would be false.

Well find me 50 studies that show that growth stocks beat value stocks on average.

I’ll find you 50 studies that will show you the opposite. Or vice-versa.

Citing such results is for the birds without checking the premises.

It also fails to take into consideration that certain investment styles fit some people but not others.

I know a dude who got rich picking small cap growth stocks. Would I ever invest like that ? Never in hell, but said dude would certainly never invest in the stocks that I invest in as well…

https://www.youtube.com/user/BuffettsBooks

just thought i should contribute these well made videos. they have pretty tight podcasts too with tight interviews with ballers.

I’ll take that bet. Find me one study that says growth has outperformed value. I’m not talking some random ‘growth outperformed value between september of 2012 to november of 2013’…I’m talking about a legitimate study that covers a minimum of 50 years.

Growth underperforms value. It has throughout history and around the world. Its embarrassing that the CFA curriculum doesn’t explain such simple concepts as this.

You sound pretty dogmatic, as well as dismissive.

Fine I’ll find you such a study.