10 Reasons Warren Buffett Is Such a Successful Investor

10 Reasons Warren Buffett Is Such a Successful Investor

The simplicity and transparency of the Oracle of Omaha’s investing strategy has led to an average annual return of 20.1% over 57 years.

You could rightly say that Berkshire Hathaway ( BRK.A 2.10%)( BRK.B 2.12%) CEO Warren Buffett knows a thing or two about investing in the stock market.

Since becoming CEO in 1965, he’s led Berkshire’s Class A shares (BRK.A) to an average annual return of 20.1% and created almost $690 billion in value for shareholders (himself included). On an aggregate basis, Buffett has overseen a greater than 3,600,000% increase in his company’s share price in 57 years. Berkshire Hathaway’s share price could plummet 99% tomorrow, and it would still be handily outperforming the S&P 500 , including dividend payouts, since the beginning of 1965. Berkshire Hathaway CEO, Warren Buffett. Image source: The Motley Fool. But perhaps the greatest aspect of Buffett’s success isn’t his vast outperformance, so much as the transparency and simplicity of the strategy that’s allowed him (and his shareholders) to flourish. What follows are the 10 reasons Warren Buffett has been such a successful investor for nearly six decades as Berkshire’s CEO. 1. The Oracle of Omaha lets his winners run over the long term

Despite generating a 20.1% average annual return over 57 years, Buffett isn’t infallible. Berkshire Hathaway has had down years, and will almost certainly have negative-return years in the future.

But one of his many keys to outperformance has been allowing his winners to run over long periods . Winning stocks like beverage giant Coca-Cola , credit servicer American Express , credit ratings agency Moody’s , and insurer Globe Life , have been continuous holdings since 1988, 1993, 2000, and 2001, respectively. 2. He tends to gravitate to cyclical companies and industries

To build on the previous point, the Oracle of Omaha absolutely loves to buy cyclical stocks . By “cyclical,” I mean companies that perform well when the economy is expanding and struggle when it’s contracting.

Even though recessions are inevitable, periods of expansion last considerably longer. Rather than trying to guess when a recession might occur, Buffett has set Berkshire Hathaway’s portfolio up to benefit from these disproportionately long periods of expansion and the natural growth of the U.S. and global economy over time. Image source: Apple. 3. Brand-name, time-tested businesses are popular buys

Another reason for Buffett’s incredible success is his willingness to invest in brand-name, time-tested businesses. While management teams come and go, Buffett is well aware of the power behind branding and a loyal customer base.

For instance, Apple ( AAPL 4.08%) is one of the most recognized brands in the world, and it has an exceptionally loyal customer base. Apple has relied on product innovation to control the lion’s share of the U.S. smartphone market, and is in the process of reinventing itself to emphasize subscription services moving forward. After generating $116.4 billion in operating cash flow over the past 12 months, the data suggests Apple’s strategy is working. 4. Meanwhile, potential fads and momentum plays are often avoided

Equally important is Buffett’s avoidance of trends and investments that can be viewed as fads. Although next-big-thing investments, such as genomics, 3-D printing, cannabis, and blockchain technology, have offered incredible growth potential, these trends have also endured large bubble-bursting events.

Buffett has been particularly critical of crypto blue chip Bitcoin ( BTC 5.67%), stating that, “If you… owned all of the Bitcoin in the world and you offered it to me for $25, I wouldn’t take it.” The Oracle of Omaha prefers businesses with longevity that produce something. In Buffett’s view, Bitcoin is a major red flag because it doesn’t produce anything . Image source: Getty Images. 5. Buffett focuses on sectors and industries he knows well

A fifth reason for Warren Buffett’s success is his narrow research focus. Instead of trying to understand a little bit about every sector of the market, the Oracle of Omaha aims to be highly knowledgeable in a few sectors and industries.

In particular, Buffett has a keen eye for spotting value and well-rounded businesses in the financial, energy, and consumer staples sectors. Peruse Berkshire Hathaway’s portfolio and its owned/acquired assets, and you’ll find plenty of banks, insurance companies, energy providers, and food/beverage companies. Financial stocks have been Buffett’s go-to for decades. 6. He leans on his investing team for sectors/industries outside his comfort zone

Warren Buffett realizes he can’t cover the entire stock market, which is why he relies on his investment team to help him out in the sectors and industries he doesn’t […]

source 10 Reasons Warren Buffett Is Such a Successful Investor

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