In her excellent biography on Warren Buffett entitled “The Snowball”, Alice Schroeder finally reveals the secret behind the success of multi-billionaire from Omaha! His method is simple and very effective: just spend your whole life obsessing about accumulating the greatest possible amount of money ! Never taking a vacation, having no interest outside the business world, neglecting your wife and children and having an obsessive-compulsive personality are obvious key elements of this method.
Sounds a little harsh? I would say that you can’t accomplish extraordinary things without being yourself a rather extraordinary individual. Picasso and Mozart probably had the same defaults than Buffett … The oracle of Nebraska is a prodigy who began perfecting his art at an early age. At age 7, he read (and memorized !) investment books. At 20, he probably knew as much about business has many company CEOs in their forties. At 40, he probably knew more than anyone else … imagine him now … he his 79 years old…
Many “experts” will tell you that Buffett has succeeded because of his excellent investment principles. These people do not really understand the phenomenon. Buffett extraordinary achievements are the results of the encyclopedic amount of business knowledge he has been accumulating compulsively for over seven decades. The best investment principles of the world are of little use unless they are based on extensive knowledge. Here are some investment principles often associated with Buffett:
The Circle of Competence
Before having a circle of competence, one must have competencies ! Knowing the price and ticker symbol of a stock can hardly be described as competence. A company fall within our circle because of the in-depth understanding we have of its business. We should not overestimate the size of our circle.
The Margin of Safety
This famous margin is not an absolute number one can read every morning in the newspapers. It rather depends on our assessment of the intrinsic value of a company. And the correctness of our assessment is based on our level of knowledge of the company (back to the Circle of Comptence !)
The Concentrated Portfolio
Again, this method can lead to disaster if we do not have a strong knowledge of the few stocks we held in this type of portfolio.
In conclusion, if there is a characteristic of Buffett we should try to imitate, it’s this one: be a learning machine! You should also be skeptical of anyone claiming to invest like the chairman of Berkshire Hathaway. To invest like Warren Buffett, you need to be Warren Buffett.
A video of Alice Schroeder speaking about Warren Buffett
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