Warren Edward Buffett - The Oracle of Omaha

 


Why Oracle of Omaha?

One of the world’s greatest investors of all times, Mr. Warren Buffett is nicknamed as “The Oracle of Omaha”. Have you ever thought of the reason behind it?

Let me unveil the reason behind this name. The literal meaning of the word “Oracle” means a person who has great wisdom or someone believed to have a direct communication with a deity.

So, Mr. Buffett is someone who has built his fortune by being a value investor and purchasing undervalued stocks basis his strong fundamentals and beliefs, then holding them as a long term investments.

He is closely looked up to by investment community for the decisions he make and his comments on the functioning of the markets as if his sayings are the sayings of Greek God. Also, He works in Omaha, Nebraska.

So, this is why this great man is called as “The Oracle of Omaha”. He is considered as one of the most successful investors in the world.

His Investing Style & Strategy

Born on August 30, 1930, Mr. Buffett is a CEO and Chairman of Berkshire Hathaway, which is an American Multinational Conglomerate, headquartered in Omaha, Nebraska, USA and wholly owns over 60 companies like GEICO, BNSF, Lubrizol etc.

You will be awestruck to know that, this company has averaged an annual growth of 19% in its book value to its shareholders since 1965 vs. 9.7% from S&P 500 Index with dividends.

Despite being the 7th wealthiest person in the world with a net worth of US$78.9 billion as of August, 2020, he is viewed as extremely frugal and he always believed in Value Investing.

He was born to Mr. Howard Buffett and Ms. Leila Stahl Buffett. His father being stockbroker, he got exposed to stock markets very early, since his childhood.

Now, let me ask you, what you used to do when you were 11? Your answer may be just playing or a little bit of studies. Right! To your surprise, this man purchased his first stock at the age of 11. Can’t believe? Even I couldn’t!

At that point in time, he purchased 3 shares of Cities Service Preferred for himself at the price of $38 per share and he sold his shares at the rate of $4o per share, but after a while this share reached to $200, and this was the time when he understood the value and importance of patience.

According to me, having patience is the most important quality which an investor should possess while investing.

Mr. Buffett has strongly followed the “Value Investing Strategy”, developed by Benjamin Graham and David Dodd, Professors from Columbia Business School. For all the potential investors, who think of investing in stocks, let me give you an idea of his stock purchasing strategy.

He looks for companies which may be trading at a price below their intrinsic value or actual value, also, may be out of favor from the market, but have the potential to make money. He uses fundamentals like Return on Equity to assess the value of the company.

He, while investing, searches for the companies having extremely superior and skilled management teams and economic characteristics. He also looks for people having passion for their work just as he has for investments.

Another important thing, which the potential investors should learn from him is that, invest in companies where you can confidently forecast future returns on equity for at least ten years. This shows that how important is being far-sighted while investing.

Once in a conversation, he himself told that he tries to invest in companies having significant free cash flows, so that after paying its bills, it has sufficient cash to be able to invest in its growth projects.

Also, he mentioned that he prefers companies having less debt and huge capital, thereby generating higher return on equity.One thing which is to be noticed is that, he gives importance to the history of a particular organization while investing.


His investment decisions are not affected by stock market fluctuations or market predictions, he focuses on his analysis of firm’s fundamentals and till the time they change, he doesn’t change his investment plan. This is the quality which I personally liked about this great man, “being decisive”.

So, I guess, that’s a wonderful tip for the people who are interested in investing. As per social psychology, it is a general human tendency to follow the crowd and we tend to get influenced from other’s decisions but if you want to be like Mr. Buffett, you need to have a strong instinct and a quality of not following others, rather than influence others to follow you. 

Rather than just blindly following the market, you should do your own analysis based on company’s fundamentals and then take your investment decisions.

His famous quote goes like this, “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price”.

In simple words, he, before making his investment decisions, looks for the potential of value creation in a particular company and if he thinks that the company has potential which currently the market cannot see, he purchases that share.


His Favorite Stock!

A very interesting fact told by Mr. Buffett himself, that his favorite stock is See’s Candies which is a candy manufacturer. He purchased that share in 1972 for $25 million and since then, has generated a return of about 8000%.

In 2011, the then American President Barack Obama awarded him the Presidential Medal of Freedom, which is given to recognize people who have made especially meritorious contribution to the security or national interests of US, world peace, cultural or other significant public or private endeavors. It is the highest Civilian Award of United States.


Not Only an Investor, But a Philanthropist

Mr. Buffett is not only a Billionaire & an American Investor, but also a notable philanthropist. Recently, In July 2020, he made an announcement that he donated $2.9 billion worth of stocks to non-profit groups.

This was his 15th annual donation since 2006, when he pledged to give away 99 percent of his wealth to philanthropic causes.

When in 2006, he promised to give away 85% of his fortune to Bill and Melinda Gates Foundation; this donation act became the largest act of charity in US History.

As per USA Today, In between 2006 and 2017, Mr. Buffett gave away close to $28 Billion in charity, that’s a very huge amount. He donates primarily via The Bill and Melinda Gates Foundation. He always urges the beneficiaries to spend the donated money in a prompt manner.

Another excellent initiative taken by him was he founded along with Bill Gates, The Giving Pledge in 2009, with a motive to motivate the other fellow billionaires to give away at least half of their fortunes. He is a celebrated philanthropist, a man with a golden heart!

He is a great man with wisdom and there are so many things which we should learn from him. I want to quote one of his saying, “Someone’s sitting in the shade today because someone planted a tree a long time ago”.

Lessons which we should take from his journey are that believe in your basics (fundamentals); don’t blindly follow others; do something for others who are not so powerful and wealthy like you; be humble and frugal.

 

Written by - Anshika Gupta

Edited by – Adrija Saha 


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