No old iron: Warren Buffett: The guru from Omaha continues to attack – what’s on his shopping list | message
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by G. Baur and P. Violence, Euro am Sonntag
W.he, like investment guru Warren Buffett, received hymns of praise from all over the world on his 90th birthday last Sunday, could certainly look back on his life’s work with great pride. But anyone who, like investment guru Warren Buffett, keeps the stock market in suspense on his 90th birthday is far from finished with his life’s work. Last week, for example, he caused a sensation worldwide when he bought billion-dollar investments from Japanese trading and raw materials groups and added them to the portfolio of his holding company Berkshire Hathaway. This was followed by a real run on the shares. The titles of the five companies increased in trade in Tokyo by five percent. A start by the star investor is still a seal of approval.
After all, Buffett is seen as a man with foresight who has used his life to recognize sensationally low prices for companies and has amassed one of the greatest fortunes of the present. Berkshire Hathaway currently has 130 billion US dollars in cash reserves. This roughly corresponds to the annual economic output of Cyprus, Bolivia and Slovenia – together, and before the Corona recession. And these are just the instant cash from the gigantic Berkshire Hathaway company that Buffett built up in his life: Almost 80 companies are wholly owned by the holding company, from utilities to insurance, retailers and newspapers to a railway line, almost 400,000 people work for one the direct Berkshire daughter.
In addition, there are blocks of shares valued at around 250 billion US dollars. In 2019, Berkshire recorded sales of $ 245 billion and after-tax profit of 81.5 billion dollars – dimensions that are hard to grasp. Hosts of investors have tried to discover the secret of Buffett’s success and to copy his methods. But so far no one has been able to achieve anything similar.
Warren E. Buffett was born 90 years ago in Omaha, Nebraska, a sleepy town in the Midwest of the USA. Father Howard had a job in the securities trading of a bank until his employer, like hundreds of other US banks, had to shut down during the Great Depression. Warren Buffett was interested in profitable business models from an early age and hoarded coins in a drawer that he earned from door-to-door sales of cola bottles or chewing gum and later with the sale of collected, crafty golf balls.
The Graham Younger
As a newsboy, he created the financial basis for his current billion-dollar fortune. When he was 14, Buffett filed his first tax return and had amassed $ 2,000, a small fortune at the time. By the age of 20, he had increased his capital tenfold to $ 20,000 through stock deals, newspaper routes, and a few smaller businesses. He knew more about stocks and the stock market than many professionals and had an excellent degree from the University of Nebraska.
Buffett possessed the intellectual skills, ambition, and determination that an investor should bring. His father had also trained him to think independently and to oppose majority opinions. What Buffett lacked was a systematic method of how he could use all of this profitably on the stock exchange.
In a library he discovered a book that, contrary to his habit, he read several times: “Security Analysis” by Benjamin Graham and David Dodd. “I thought then that this was by far the best book on investing ever written, and I still think so,” he says. When he found out that the authors were teaching at Columbia University in New York, he applied there and was accepted.
Benjamin Graham – the intellectual part of the writing team – quickly became much more than his teacher. Graham had developed a method of calculating the value of a stock, a revolutionary approach for the time. Buffett loved the combination of detective work, common sense, and a mathematically concrete approach. He showed himself to be highly gifted in applying the Graham method. In addition, stocks were so unpopular in the 1950s that it wasn’t difficult to find real Graham investments. “It was like catching fish from a barrel,” he recalls.
Buffett invested obsessively: as a college student, later working for Graham’s investment firm for a while, and most of all when he returned to Omaha. There he founded first one, then several investment partnerships, with which he invested his own money, as well as the money of his family, friends and later also from strangers.
He bought shares in retailers, banks, the blue chips stamp company, and a textile company called Berkshire Hathaway. Blocks of shares from American Express and Disney were added later. The number of his partnerships and his fortunes grew rapidly. Between 1957 and 1968 Buffett regularly achieved a good 30 percent return per year with his partnerships, making more than a quarter of a million out of $ 10,000 each. But gradually the barrel with the Graham fish became emptier: at the end of the 1960s stocks were on the upswing again, and the pure Graham approach brought next to no hits. Therefore Buffett dissolved all partnerships and wanted to retire.
He also wanted to buy the shares in the Berkshire Hathaway textile company for a decent price. When the official bid reached Buffett’s Omaha office, the bid price was a few cents lower than agreed. He switched to stubborn. Instead of selling, he bought Berkshire stocks and after a while owned a third of the company. “I was the dog that caught the car,” he says.
Buffett assumed the chairmanship of the board of directors and began using Berkshire’s free funds for his investment ideas. He later converted the company into a holding company for all other investments. Under the influence of Charlie Munger, Buffett finally found a new way of defining the intrinsic value of a company in the early 1970s.
He had known Munger since 1959 and had been in constant contact with him about investment ideas ever since. Munger in particular tried to overcome the weaknesses of the Graham approach. After all, it was not only in the booming stock markets of the late 1960s that it didn’t work out. If you buy a real Graham bargain, you only make a big profit exactly once, after which you have to look for a new idea.
Instead, the two of them wanted to find companies that they could keep and from which they could benefit in the long term. Firms that made steady profits without investing a lot of additional capital. Munger in particular was looking for such “outstanding” companies and, when he bought the Californian chocolate manufacturer Sees Candies, convinced Buffett that such treasures could certainly be paid for more. With success: Sees developed into one of the best investments Buffett has ever made.
A moat as a model for success
The buyers for Berkshire had to meet a few requirements: They need a steady, predictable business model, little debt or legacy so that they could weather a crisis, and a position in the market that is hardly vulnerable. This “moat”, as Munger and Buffett call it, was primarily a brand name like Coca-Cola in the past, and later also a regulated industry like utilities or a business with immense capital requirements that discourages newcomers like a railway line.
Both assume that all crises of capitalism are temporary. They never forecast the development of the stock market, how high or low the price of a company is, is only of interest to Buffett and Munger when they want to buy something. “We see stocks as business shares and not as index shares,” Warren Buffett explains the principle.
Over the years, the two found many “excellent companies”: Berkshire grew and grew, they bought entire companies, large retailers, industrial companies, carpet manufacturers, brickworks, a car dealership chain and, time and again, large blocks of shares from Coca-Cola, the Moodys rating agency Banks, chemical companies and much more. For a long time, just about any of the engagements was a hit, yielding steady profits or dividend payments to Berkshire that were then reinvested.
Apart from Buffett, only two handfuls of employees are employed there. Berkshire Hathaway is thus the most unusual headquarters of an international corporation. There is no major superstructure, no research or human resources department or even complex control apparatus – Berkshire leaves all of this to its subsidiaries. Buffett doesn’t want to stop yet. Even if in the past few months he has once again heard that he would no longer understand the times – as every time in his career when he announced a stock market boom without buying a single share.
It is therefore hardly the headlines that prompted him to invest heavily – a few weeks ago ten billion in the natural gas transport and storage company Dominion Energy and a good billion dollars in an increase in his stake in Bank of America. Now Buffett has struck in Japan. This is where the favorable valuations – four of the five companies are trading below their book value – are likely to have caught his attention.
In any case, the Japanese stock market is considered a paradise for value investors. “I’m very excited that Berkshire Hathaway will be part of Japan’s future,” said Buffett of his multi-billion dollar investments. And compares his new engagements with his successful holdings in Coca-Cola, American Express and the rating agency Moodys.
The Berkshire Holding is diversified. The portfolio includes around 90 companies, for example from the insurance and industrial sectors, which the group controls. There are also large blocks of shares. Buffett’s conservative strategy often lagged the market in exaggerated bull markets. So far, it has performed better and better during times of crisis. The B share (ISIN: US 084 670 702 6) of the holding company is an opportunity for long-term investors.
From dropping out to billionaire
Warren Buffett was born in Omaha on August 30, 1930. He is the second child of Leila and Howard Buffett. His father was a broker by trade and later became a congressman. After high school, Buffett studied and earned a Masters of Economics from Columbia University in New York. One of his teachers was Benjamin Graham. Buffett later went into business for himself, becoming a millionaire at the age of 30 and a billionaire at 55. In 1962, he began buying shares in Berkshire Hathaway, which has served as an investment pool since 1969. Today Berkshire has sales of around $ 250 billion.
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