When promised quick profits, respond with a quick ‘no’. – Warren Buffett, who became a billionaire through stock market investing
When Michael Jordan was inducted to the Hall of Fame in the NBA, Magic Johnson said, in basketball there is Michael Jordan and the rest of us. Similarly, in the world of investing, there is Warren Buffett and the rest of us.
Warren is a powerhouse. His record is unparalleled. Gaining 20 percent in one year is a great return; but having a compounded annual gain of 20 percent for 48 years is beyond words!!! _________.
No doubt he is the greatest investor of all time. As of December 2014, he ranks second amongst the richest persons on earth with USD$74.4 billion. The question now is can we copy his style to be rich.
He has lots of money?
My title actually came from a comment in Facebook doubting anyone’s ability of imitating Warren. He said that Warren invests with millions of dollars while we, only thousands of pesos; and so what a waste of time to copy him. Really?
This guy forgets something. He doesn’t know the humble beginnings of Warren. When he started out, he just contributed USD$100 to the Buffett Partnership he put up in 1956.
His partners? They had thousands of dollars fuelled into it. I know that the money he contributed could buy a lot back then but the point is he started not with very big amount.
If we accept the idea that we can’t copy him, then we close the doors of us making a lot of money in the stock market. It’s like accepting the fate that we can’t make it. But I believe we can photocopy his style so that in the end we make what he made.
It’s not because he had big capital that he became a billionaire. He had little money at the start. It lies rather in strategy, not in big money.
Here is what Warren says in one of his letters to his shareholders:
“They are fond of saying that the small investor has no chance in a market now dominated by the erratic behavior of the big boys. This conclusion is dead wrong: Such markets are ideal for any investor – small or large – so long as he sticks to his investment knitting.”
He has influence?
It’s a misreading to say that Warren makes a lot of money because he has influence on politicians and other big personalities in the US.
Does he lobby in US congress to gain favors for his companies? I haven’t heard anything like that so far (bankers in Wall Street do so often). What I know is he does business in an honest to goodness manner.
Campaign contribution? Yes he does but he is not asking favors from any politician. Here is one striking thing I know. He operates in the market not through influence but attitude. Warren says:
“Our advantage, rather, was attitude: we had learned from Ben Graham [Warren’s teacher] that the key to successful investing was the purchase of shares in good businesses when market prices were at a large discount from underlying business values.”
It is therefore finding excellent businesses from the many businesses in the stock market that he makes a lot of money. When there prices are marked down, he is like crazy shopper buying them on large scale. He does so again and again and again.
Here are some clues regarding characteristics of great businesses:
- those that produce the same products for decades
- whose products people buy in spite of recession or crisis
- whose products are desired regardless of the price
He has the brain?
I happened to watch a documentary about a study of the brain of Albert Einstein, who’s probably the greatest scientist of all time. According to findings, his brain looks different from that of others. There are parts of his that are bigger compared to other brains.
It would be fair to say that Warren is the Einstein in the world of finance. But make no mistake about this. Though some are born genius, talent and skill can be developed.
Here’s one proof: did you hear about the “10,000-Hour Rule,”?
This is a theory of K. Anders Ericsson which Malcolm Gladwell mentioned in his bestselling book Outliers. This theory basically states that to become an expert and world class in a certain field, you have to allot 10,000 hours of practice to it.
Be reminded that Michael Jordan was not born a basketball shooter. He became a champion because of the many hours he dedicated before the actual game. It’s the same thing with Manny Pacquiao in boxing.
Warren Buffett was not born a brilliant and successful investor. He became so because he reads a lot. His days revolve around reading business newspapers and magazines, annual reports, and the like.
I believe all of us can be good (even be the best) at something. It starts by looking at our interests and allotting much time on that thing that we are most passionate about. We may just be surprised where it will take us one day.
Hence, it’s not that we don’t have money, influence, and brain like that of Warren to be successful. The questions that we need to be concerned of are:
- what is your strategy to win?
- what is your attitude towards the market?
- how much time do you devote in your chosen field?
