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Ask the Investor

Question: "Who is Warren Buffett and why do investors follow him so closely?"

By: Ryan T. Fulmer
Sunday, March 4, 2018

For over 50 years the 85-year-old billionaire investor and CEO of Berkshire Hathaway, Warren Buffett, has generated wealth for his investors at nearly twice the annual rate of the S&P 500. To many, this has earned him the title “The Oracle of Omaha.” 
 
There are countless stories of investors becoming millionaires as their holdings of Berkshire stock compounded at a near 20% annual rate over time. If an investor had started with $1,000 invested in the S&P 500 (or broad stock market) in January of 1965, the investment would have multiplied to $135,000. Alternatively, had they invested in Berkshire Hathaway, it would have soared to $19,327,141, or 142 times more! The magic of compounding!
 
Each year the rock star investor holds a meeting to discuss the financial results of Berkshire Hathaway (BRK-A/ BRK-B), an event often dubbed the “Woodstock for Capitalists.” To say the conference is well-attended is a bit of an understatement.  On May 5th, nearly 50,000 investors from all over the world are expected to descend upon Omaha, Nebraska for this year’s affair (filling the CenturyLink arena).  All to spend a few hours soaking in Buffett’s storied wisdom. 
 
Warren Buffett has managed and operated Berkshire Hathaway since the 1960’s. Berkshire owns many different assets from GEICO Insurance, Berkshire Hathaway Reinsurance Group, Burlington Northern Santa Fe, Lubrizol Corporation, Precision Castparts and many other businesses.
 
In addition to owning private businesses, Berkshire Hathaway has many investments in publicly-traded companies such as American Express, Apple, Coca-Cola, Goldman Sachs, Wells Fargo and several others. 
 
Warren’s approach to investing is probably not what you expect, as he tends to hold investments for very long periods of time and sometimes never sells them.
 
If you were to purchase all of Coca-Cola, how would you approach the work necessary to make that decision?
 
When Warren Buffett analyzes potential businesses, he focuses his due diligence on determining the strength of the company’s competitive advantage, capabilities and depth of management, and long-term growth potential. 
 
Many companies possess these attributes. The challenge becomes buying these companies when their valuations are attractive, precisely where Buffett’s long-term investment approach comes in handy.  In the short-term stocks can go up and down for many reasons that have little to do with the underlying company. However, in the long run, a stock price will almost always reflect the quality of the underlying business. For investors who embrace this mindset and start by identifying good quality companies with bright prospects, the inevitable market pullbacks quickly turn into attractive buying opportunities. 
 
For many investors, Berkshire Hathaway’s stock may be worthwhile as it provides diversification similar to a large-cap mutual fund without the expenses. 
 
 
 
Source: Company Filings
 
Beese Fulmer Private Wealth Management was founded in 1980 and is one of Stark County’s oldest and largest investment management firms. The company serves high-net-worth individuals, families, and non-profits, and has been ranked as one of the largest money managers in Northeast Ohio.
 
 
 

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