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Warren Buffett's Biggest "Secret"

August 31, 2013 | About:

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Hmcustodio
Hmcustodio premium member - 10 months ago
I'm sure doing all these things helped Buffet achieve success. However, it does not follow that he became successful because he did them.

Study and practice helps, but does not necessarily make one the best or even very good at anything. It just helps one to be better.

So, if you decide to follow Buffet's formula, don't expect the same results. If you factor luck into the process, the result is even more unpredictable.
william.b.thomson
William.b.thomson premium member - 10 months ago


One element of the 'secret" sauce that is not discussed enough is the fact, that although he did not use leverage by the traditional measures, he employed significant leverage via his ownership of insurance companies. I have many definitions of what an insurance policy is but from a cash flow standpoint it is "float" to be used as wanted. Again, not considered to be leverage, but it certainly is effective leverage even if not traditionally defined as such.
20punches
20punches - 10 months ago
Hucustodio: I definitely agree with you. I don't think anyone can follow Buffett's formula. Every value investor will have a different story and luck is a factor, although may not be the deciding factor in my opinion. Warren Buffett did a lot of things that others value investors simply weren't willing to do. That was the point I wanted to make. Thank you for your comment.

William.b.thomson: I just read an article by someone who argues that if counting insurance premium as debt, BRK's leverage ratio is something like 1.6. I think his use of insurance premium is widely known, although not widely copied. It's definitely a question one should ponder. Thank you for bringing that up.
AlbertaSunwapta
AlbertaSunwapta - 10 months ago
The float hasn't always been available to Buffett and his past returns were probably much higher in his pre-float days. It would be interesting to put the sources of financing together side by side with his returns to see how he's adjusted his methods with the scale of the capital he's burdened with.

...but that's a a huge deviation from the main point of this thread. Great topic and quote above. Thank you for presenting it.
poolgmac
Poolgmac premium member - 10 months ago
His real secret which takes intellect but also guts is to be greedy when all are fearful and fearful when all are greedy. He was a good investor from 1965 to 1982/84 when during that bear market he invested one forth of his entire portfolio $1 billion in one company. Over the next 3 yrs he turned it into $4 B that co was KO. He shut down the co that gave him his name Berkshire Hathaway in New Bedford, MA and invested tens of millions in a co almost bankrupt, which was partially driven to save his mentor's Ben Graham portfolio - that co was GEICO which opened his eyes to the power of billions in float aka the insurance industry.
vgm
Vgm - 10 months ago
Jianing,

Thanks for the fabulous quote. Alice Schroeder writes well and she excelled herself with this mighty statement.

The advice often given to students to 'Follow your bliss' or 'Do what makes your heart sing' is what Buffett himself did. Capital allocation was in his DNA and powered by his huge intellect (which sometimes gets played down) and total dedication (even to an excess we might say) it became the perfect storm of investing.

I agree with Hmcustodio above. We each need to find our own path, but taking a spoonful of Buffett wisdom on a daily basis cannot but help.

Regarding luck, Buffett arguably personifies Thomas Jefferson's observation that "I'm a great believer in luck and I find that the harder I work, the more I have of it." Buffett was willing to go the extra mile, as you said.

I found your quote inspirational and am back reading Snowball.

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