What makes someone the best they can possibly be? What is the difference between mediocrity and greatness?
There have been many successful investors over the years, but no one quite like Warren Buffett. What is it about Buffett that makes him better than not just you and me, but even other world-leading investors?
Start early, create your own business, and reinvest
As a child growing up in Omaha, Nebraska, along with collecting tops from Coke bottles, he would sell magazines and newspapers. After reading Benjamin Graham’s The Intelligent Investor, he began investing during his early twenties. At the age of 84, he is still investing.
So Buffett began at an early age, and is living to a ripe old age. People don’t realise this, but time is the single most crucial factor in determining your investment returns. The longer you leave your investments, the more they will grow, just as a snowball gets bigger the further it rolls down a hill.
Then there is taking a stake in your own business. Peter Lynch was an incredible investor, whose career returns are actually better than Buffett. Why isn’t he as famous and as rich as Buffett? Well, he was happy being an employee of Fidelity, and was paid a salary and a bonus, rather than owning his own investment company.
Whereas most wealthy investors would probably stop at their first billion, Buffett just kept going.
Then there is reinvestment. At the early stages of his career, the Sage of Omaha ran a series of partnerships. But instead of spending the profits he made from investing other people’s money, he would reinvest them to build his own wealth. He was basically leveraging the power of compounding. And this meant that he was a millionaire at the age of 32.
Berkshire Hathaway still today reinvests most of its profits to buy more stock.
Be pragmatic, and invest well
Then there is pragmatism. During his early years, Warren would buy recovery and turnaround opportunities â many of these were small companies. But when you have billions to invest, this approach is not practicable.
So Buffett has tried other avenues. When he bought Heinz, the bulk of his purchase was in high-yielding preference shares. While Berkshire Hathaway’s scale has meant that traditional value investing is difficult, Buffett has used his company’s financial clout to get the best deals in terms of preference shares.
And finally, there is investing skill. I could write a whole article just about Buffett’s investing prowess, but basically he bought shares with strong prospects when others were selling, he chose proven winners, and he was never emotional about his trades.
Instead of just concentrating on being pragmatic, or owning his own business, or reinvesting his dividends, he was able to use all these techniques, weaving them into a tapestry which was his own investing style.
You see, Buffett’s approach is not about value or growth investing, about a particular market or a particular type of business. It is about leveraging the power of ‘and’.