Thursday, December 01, 2005

Portrait of a master

A recent November 2005 weekend edition of The Wall Street Journal had an article about Warren Buffett's style of investing - "Warren Buffett, Unplugged." Here is a summary:

Since 1951, Warren Buffett has generated an average annual return of about 31%. The average return for the Standard & Poor's 500 over that period is 11% a year. A $1,000 investment in Berkshire in 1965 would be worth about $5.5 million today. Berkshire Hathaway is $136 billion.

He seldom holds meetings, avoids set procedures and doesn't require frequent calls or reports from his portfolio companies and believes that managers of his companies should be left to run their businesses without interference. "We delegate to the point of abdication."

Buffett has relied on gut instinct for decades. He keeps no calculator on his desk, preferring to do most calculations in his head explaining that he does not need exact numbers for most investment decisions. He makes swift investment decisions and says he knows an attractive acquisition candidate when he sees it. "If I don't know it in five to 10 minutes," Mr. Buffett says, "then I'm not going to know it in 10 weeks." Berkshire has no investment committee.

He pays little attention to some factors that shape other investors' decisions. Buffett deliberately keeps the outside world at bay, believing it is the best way for him to remain "rational" as an investor. "All I have to do is think and not be influenced by others."

Buffett drives a Lincoln Town Car with a vanity license plate "THRIFTY".


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