Each spring, the investment world descends on Omaha, Nebraska for the Berkshire Hathaway annual meeting. Investors flock to America's heartland to hear the words of Warren Buffett, widely viewed as one of the most successful and respected investors of all time, seeking wisdom, clues and perhaps hoping some of the Oracle of Omaha's magic pixie dust will rub off on their own portfolios.
Warren Buffett ranks number three in the world on Forbes billionaire's list with an estimated net worth of $68.3 billion, but is known for his frugal lifestyle and humble and down to earth personality. He famously quipped:
· The first rule of investing is 'don't lose money'
· The second rule of investing is don’t forget rule number one
That is only one of many lessons long-term investors can learn from Buffett. Many investors attempt to track his lessons and ideas, because his company's stock can be out of reach for the average investor.
One share of Berkshire Hathaway Inc. Class A stock (BRK.A) will set you back $218,558 as of April 22. "Most people can't, won't or shouldn't delve into this stock only because it would be too big a part of someone's portfolio," says JJ Kinahan, chief market strategist at TD Ameritrade. "The class B stock (BRK.B) is not inexpensive at $145 per share, but it is one that investors can have a conversation about," he says.
Berkshire Hathaway is a multinational, conglomerate holding company which focuses on long-term investments in publicly traded companies and more recently has bought entire companies outright. Some of the largest stake holdings include Kraft Heinz Co. (KHC) at 27.1%, DaVita HealthCare Partners Inc. (DVA) at 18.81%, Phillips 66 (PSX) at 14.24% and USG Corporation (USG) at 25.78%.
Long-Term Investing Lessons
Kinahan acknowledges that there are "great lessons for investors in what he says."
1. Patience: One of the biggest lessons that Buffett teaches is patience, Kinahan says.
"He didn't get to where he was overnight. He invests in companies he believes in and he invests for the long-term. Initially, he is willing to let things go against him and often uses it as an opportunity to buy more," Kinahan explains.
2. Know And Believe In What You Are Buying. Another lesson long-term investors can learn from Buffett is "doing enough research that you have a very firm belief in the investment that you've made," Kinahan says.
3. Invest in Simple and Sound Businesses. "He invests in companies that have an established business model and have expenses that are very much in line with revenues. He invests in companies that are fairly easy to understand like Coca Cola makes soda, or Wells Fargo –people deposit money in the bank and they lend it out. This is something the average investor can understand," Kinahan says.
It’s Hard Work to be Warren Buffett
Despite the valuable lessons that can be learned, Kinahan notes that "I've heard many people say I invest using the Warren Buffett methodology. I can say I'm going to play basketball using the Michael Jordan methodology and I can believe I am doing that, but I'm still not Michael Jordan," says Kinahan.
When you buy, are you ready to hold?
It is also important for the average long-term investor to face the reality of the difficulty in some of the methods Buffett employs. Example: Watching trades go against you. Many individual investors panic when a stock moves against them. "Are you willing to have a partial mentality and buy something that goes against you? He uses movement as a friend, not an enemy," Kinahan says.
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