Inside Buffett's Investing Strategy
Some of the key tenets of the Oracle of Omaha's philosophy.
By Paul A. Larson 05-02-07 06:00 AM
"In our view … investment students need only two well-taught courses--How to Value a Business, and How to Think About Market Prices." Warren Buffett, whose Berkshire Hathaway (BRK.B) holding company is convening its annual shareholders meeting May 5, is widely regarded as the world's most successful investor, and it is no mistake we at Morningstar have repeatedly echoed his wisdom. The book value of Berkshire compounded at 21.4% per year between 1965 and 2006. That is more than double the 10.4% pretax return to the S&P 500 over the same period. According to Forbes, Buffett is the world's second-richest man with a net worth of about $52 billion as of March 2007. But he didn't stumble across a giant oil field, develop software, or inherit wealth. Rather, he built his fortune solely through astute investing. Aspiring investors, then, will certainly benefit by studying his methods. Fortunately, Buffett has been forthcoming in Berkshire's annual reports and shareholders meetings. (Click here to watch our Berkshire Hathaway Annual Meeting Preview video. And for on-the-spot coverage of this year's meeting, be sure to visit Morningstar.com on May 5 to read our analyst blog on the event.)
In Berkshire's 1977 annual report, Buffett described the central principles of his investment strategy:
"We select our marketable equity securities in much the way we would evaluate a business for acquisition in its entirety. We want the business to be one (a) that we can understand; (b) with favorable long-term prospects; (c) operated by honest and competent people; and (d) available at a very attractive price."
in Morningstar http://news.morningstar.com/article/article.asp?id=191671&pgid=wwhome1a