• 
• 

Published on March 15, 2008

Getting very rich when he was still quite young, Warren Buffett is the wildest dream of investors who want to follow in his footsteps.

But the question is how?

In 1943, when the world's greatest investor was 13, he told a friend he would be a millionaire by the age of 30. And he was.

You may already know Buffett owns Berkshire Hathaway, buying it in 1962 at 200 shares for US$7.50 apiece plus 10 cents-a-share commission. It was worth $141,000 per share at the end of last year.

Earlier this month, 77-year-old Buffett overtook Mexico's Carlos Slim Helu as the world's richest man, with a net worth estimated at $62 billion (Bt1.95 trillion) as of February 11, up $10 billion from last year, according to Forbes magazine's 2008 list of billionaires.

A reporter from Time magazine once said: "We've seen oil magnates, real-estate moguls, shippers and robber barons at the top of the money heap, but Buffett is the first person to get there just by picking stocks."

Is it that easy? Pick stocks and then get rich?

Definitely, you must consider many things before getting rich. And Buffett has done so, with his thoughts collected into "Buffettology".

Good management, an easy-to-understand business, transparency, consistent earnings, good dividends, sustainable competitiveness, reasonable stock price and return on equity at more than 12 per cent per annum are the key factors Buffett thinks about before putting his money into any business.

Once he decides which company he would like to invest in, he buys a large number of shares and holds them for as long as a decade or more. The number of businesses in which he has investments at any one time is not many. Buffett once suggested one should invest in no more than 20 stocks in one's lifetime. Otherwise, you do not have time to analyse the stocks you own carefully.

The exact philosophy is businesslike investment.

The late economic guru Benjamin Graham, Buffett's professor at Columbia University, employer at the New York investment firm of Graham-Newman and mentor and friend for almost 30 years, taught Buffett about businesslike investment.

"Investment is most intelligent when it is most businesslike," Graham said.

When Buffett wants to buy into a company, what is in his mind is whether it is selling at a price that makes business sense, given the company's intrinsic value. Buffett's intrinsic-value model requires a projection of a company's future value or future earnings.

The world's most famous investor will make long-term investments only in businesses where future earnings are predictable to a high degree of certainty.

One of Buffett's most famous quotations is: "You should invest in a business that even a fool could run, because someday a fool will."

Coca-Cola, which he had bought into for 14 years, represents his philosophy that the business must be easy to understand, easy to sell and generate profits.

He also owns shares in American Express, Gillette, Procter and Gamble, Wells Fargo Bank, and The Washington Post. These five stocks represent about 73 per cent of this portfolio. It is apparent that Buffett does not want to hold too many stocks.

Thai Investor Association vice president Vigrom Kasemvhudi, who has followed Buffett's movements for years, has definite views on Buffett.

"Buffett does long-term investment," Vigrom said. "He buys a lot of shares in a few companies. But he holds them for quite a long time. He only sells them when he can find good stocks to replace the old ones. Or he holds them for his whole life. He does not sell stocks very often."

His view is in line with Mary Buffett, ex-daughter-in-law of Warren Buffett. "Warren's chief idea is to buy excellent businesses at a price that makes business sense," she wrote in her book "Buffettology".

"So, what makes business sense? In Warren's world, making business sense means that the venture invested in will offer you, the investor, the highest predictable annual compounding rate of return possible with the least amount of risk."

She said the reason Buffett could do this better than other investment managers was that he was motivated by the long term - like a business-owner - and not, like most Wall Street investment professionals, by the short term.

The price you pay will determine the return you can expect on your investment. So, Mary Buffett said Buffett always waited for the right price. She said Buffett, unlike other investment professionals, chose the kinds of business he would like to be in and then let the price of the security - and thus his expected rate of return - determine whether to buy.

"This is like Warren in high school identifying a girl he wants to date and then waiting for her to break up with her boyfriend before beginning his pursuit," she said.

Jiwamol Kanoksilp

The Nation