How Buffet really made all the cash, explained. . .

[ProfitProphet]

Everyone tries to outguess the Oracle of Omaha.

He started with $105,000 (about $600,000 in today's market) buying, selling, trading and doing his thing.

He discovered a textile company in the Northeast by the name of Berkshire Hathaway earning strong profits and selling at a great price. He decide to invest most of his capital into Berkshire. Berkshire Hathaway then had a fire sale on its stock. Mr. Buffett raised the capital to purchase the entire company outright.

The little textile company sent a fat check to Omaha every quarter. No need for company upkeep, payment of debts or replacing fading technology. Every dollar earned was gravy to Mr. Buffett.

He then took those quarterly dollars and went on a search for other "wonderful companies selling at a fantastic price"

He found them. He bought outright or big chunks of other profitable companies that in turn sent fat quarterly checks to Omaha.

One company became two. Two became four and four became eight.

Profitable companies sending fat quarterly checks which in turn is used to buy other profitable companies which will send fat quarterly checks...

He purchase 1 cash machine. Which in turn purchased 2 cash machines, then 4 and 8...

Simplified. But the essential, basic truth.

 

[ElectricSavant]

will I ever catch him....? not...

what makes these guys...Bill Gates... Warren Buffet... George Bush....different? Luck?..i do not think so...

are they greedier?

more power hungry?

Smarter?

Perfectionists?

do they have visions?

Michael B.


He purchase 1 cash machine. Which in turn purchased 2 cash machines, then 4 and 8...

Simplified. But the essential, basic truth.

 

[me1969]

Quote from ProfitProphet:

Everyone tries to outguess the Oracle of Omaha.

He started with $105,000 (about $600,000 in today's market) buying, selling, trading and doing his thing.

He discovered a textile company in the Northeast by the name of Berkshire Hathaway earning strong profits and selling at a great price. He decide to invest most of his capital into Berkshire. Berkshire Hathaway then had a fire sale on its stock. Mr. Buffett raised the capital to purchase the entire company outright.

The little textile company sent a fat check to Omaha every quarter. No need for company upkeep, payment of debts or replacing fading technology. Every dollar earned was gravy to Mr. Buffett.

He then took those quarterly dollars and went on a search for other "wonderful companies selling at a fantastic price"

He found them. He bought outright or big chunks of other profitable companies that in turn sent fat quarterly checks to Omaha.

One company became two. Two became four and four became eight.

Profitable companies sending fat quarterly checks which in turn is used to buy other profitable companies which will send fat quarterly checks...

He purchase 1 cash machine. Which in turn purchased 2 cash machines, then 4 and 8...

Simplified. But the essential, basic truth.

Yes, he was pyramiding in cash cows and what was the really big accelerator was him entering the insurance business. This has meant steady streams of cash every month which could be invested.

 

[RedDuke]

His secret is randomness.

There is a statistical probability that if you have unlimited time and millions of monkeys clicking on type writers, one of them sooner or later will end up with a complete novel.

Same thing with Buffet. Out of an army of investors, there will always be few that will greatly outperform the rest due to random distribution. Imagine for a second that his fist deal was a disaster. Who knows where he would be now.

 

[me1969]

Quote from RedDuke:

His secret is randomness.

There is a statistical probability that if you have unlimited time and millions of monkeys clicking on type writers, one of them sooner or later will end up with a complete novel.

Same thing with Buffet. Out of an army of investors, there will always be few that will greatly outperform the rest due to random distribution. Imagine for a second that his fist deal was a disaster. Who knows where he would be now.

Yawn! Efficient Market Hypothesis.. .
Interesting... his "fist deal"

 

[ProfitProphet]

Interesting theory RedDuke.

Karma favors one over another.

Would you say the same about Cassanova or Babe Ruth?

 

[lionfish42]

Quote from eagle488:

I will reveal the secret now.

He got a bunch of people together who had the cash. He then invested it in some common sensical companies. Then he waited and waited and waited.

There you go, thats it, end of story.

You forgot the most important method of making money - being the insurance underwritter.

Casinos and Insurance have the best returns on LIQUID capital.

 

[jllm03]

Quote from jazondh:

It wasn't the easy ride you make it seem. Buffet and his investors have sat through a few gut wrenching drawdowns. Recently 50% drawdown between 98-2000 and a 60%+ drawdown in the early 70's. With an Average annual return around 28%. I believe he is a good value investor, but he's had a bit of luck with the overall market on his side.




Year Buffett %
1966 -8
1967 15.7
1968 82.7
1969 13.5
1970 -7.1
1971 79.5
1972 14.3
1973 -11.3
1974 -43.7
1975 -5
1976 147.3
1977 46.8
1978 13.8
1979 102.5
1980 32.8
1981 31.8
1982 38.4
1983 69
1984 -2.7
1985 93.7
1986 14.2
1987 4.6
1988 59.3
1989 84.6
1990 -23.1
1991 35.6
1992 29.8
1993 38.9
1994 25
1995 57.4
1996 6.2
1997 34.9
1998 52.2
1999 -19.9
2000 26.56
2001 6.47
2002 -3.77
2003 16.04
2004 4.12
2005 0.82

I think I could live with this kind of return..
"IF" you invested $1000 the first year and compounded the returns each year you would have $4,543,400 now.

 

[RedDuke]

Quote from ProfitProphet:

Interesting theory RedDuke.

Karma favors one over another.

Would you say the same about Cassanova or Babe Ruth?

It depends, in certain endeavors natural gift is a must. I can work extremely hard and practice all I want, but there is no way I can become an opera singer. Such gift distributed randomly. But than hard work comes into the picture in order to become great.

 

[RedDuke]

Quote from jllm03:

I think I could live with this kind of return..
"IF" you invested $1000 the first year and compounded the returns each year you would have $4,543,400 now.

But you need to be lucky enough to start with someone like Buffet, and the odds of finding a fund manager/investor like this are against you. Then you need to continue to believe in him for several decades.