Warren Buffett made lots of money for Berkshire Hathaway by finding stocks with intrinsic value and sticking with them , He could come under critisism now for his portfolio
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Warren Buffett
Berkshire Hathaway currently trades at an astonishing $68,000 a share. Had you put $10,000 into Berkshire Hathaway when Buffett bought control of it in 1965, you'd have more than $50 million today, compared to the just under $500,000 you'd have if you'd invested in the Standard & Poor's 500 stock index. Thanks to an ability to spot undervalued companies and purchase them on the cheap, the so-called Oracle of Omaha has made many people very wealthy over the course of his five-decade career. Buffet's own 38 percent stake in Berkshire Hathaway gives him a net worth of more than $36 billion, making him the second-wealthiest man in the world, behind his friend Bill Gates, and one of the few who has amassed such astonishing riches solely through stock market investments. . His annual salary as Berkshire Hathaway's chairman and CEO is $100,000. At the age of 68, he continues to live in Omaha, in the same gray stucco house he purchased four decades ago for $31,500. He eats burgers or steaks for lunch and dinner, always washing down his meals with Coca-Cola -- a company in which he has invested since 1988. If Buffett's lifestyle seems out of step, so is his investment strategy. At a time when day traders bid up stocks based on nothing but rumor and momentum, when bond investors place pricey and complex bets on such arcane financial instruments as interest-rate futures, it's hard not to think of Buffett as a kind of museum piece. His approach is simple, even quaint. Ignoring both macroeconomic trends and Wall Street fashions, he looks for undervalued companies with low overhead costs, high growth potential, strong market share and low price-to-earning ratios, and then waits for the rest of the world to catch up. As often as not, Buffett's business instincts become conventional wisdom. Consider Coca-Cola Co. In 1988, when Buffett started buying the global soft-drink giant, it was a Wall Street wallflower, trading at $10.96. But Buffett saw two things that were not reflected in the balance sheet: the world's strongest brand name and untapped sales potential overseas. As Coca-Cola's earnings grew, so did investor interest. In less than five years, the stock soared to $74.50. Buffett's current stake is valued at some $13 billion. The news this year, while hardly disastrous, was not nearly as good as Berkshire investors have come to expect. Although the company had posted earnings of $2.8 billion, Berkshire shares were up just 11.4 percent for the year, compared to 20.1 percent for the S&P 500 and 36.1 percent for the technology-heavy NASDAQ Composite Index. The Internet stocks, meanwhile, were on fire. America Online was up more than 600 percent. Amazon.com had risen ten-fold. Nonetheless, Buffett informed shareholders that he was sticking with companies like Coca-Cola and Gillette, despite the fact that both stocks had taken a beating in recent months. "I think it's much easier to predict the relative strength that Coke will have in the soft drink world than Microsoft will in the software world," Buffett said. "That's not to knock Microsoft. If I had to bet on anyone, I'd bet on Microsoft. But I don't have to bet." That's Buffett in a nutshell. Amazingly, the world's savviest investor has sat out the entire stampede over technology stocks, backing away even from proven players like Microsoft or Hewlett-Packard. As for Internet stocks, forget it. Buffett says he won't invest in a company unless he can "see" it, unless he can imagine what its balance sheet might look like in a decade or two -- a shockingly long view, especially at a time when many investors hold stocks for just days, or even minutes, at a time. Such behavior would get many contemporary fund managers fired, but it's hard to argue with a man whose own holdings have outpaced the Dow Jones Industrial Average for more than 40 years.
