Warren Buffet Investment Theory

Improved Essays
Oracle of Omaha, the nickname for Warren Buffet who is one of the best investment gurus in the world owns Berkshire Hathaway (BH). Recently his firm released its 53rd annual report on February 24, 2018, which also includes, ‘Warren Buffett's Letters to Berkshire Shareholders’. His investment strategies are enshrined in his letters. Whether you are a novice businessman or a veteran investor it doesn’t matter, you will have a clue or cue to kick-start a new investment style which is sustainable.
Importance of a long-term investment approach
Majority of the investors tend to speculate on a short-term to book profits. Warren Buffet says in his letter to the shareholders of BH that he can’t offer assurances to any investor who is eyeing for a short-term
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He urges the investors to take decisions in the pursuit of maximizing long-term results, taking the risk of staying long and bearing the consequences of decisions.
Warren Buffet quotes the great investment guru and his teacher Ben Graham’s words: “In the short-term, a market is a voting machine; in the long-run, it acts as a weighing machine.”
Invest early and enjoy the benefit of compounding.
Buffet bought his first stock, shares of Cities Service for $38 apiece, at age 11. As and when you receive your first salary, you should try to invest right away and take advantage of the principle of compounding, he says.
Warren Buffet is a very good teacher who seamlessly uses stories with his typical wit and down-to-earth style. Let us take his lessons on compounding.
His first lesson on compound interest to the investors is the narration of stupid decision taken by Queen Isabella to fund Christopher Columbus’s expedition to find a new route to Asia. The monetary amount of $30,000 was invested for the expedition. Warren’s proposition is that if that same money was invested for 4% interest rate, it would be worth over $ 7 million
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As he demystifies the concept to shareholders, they start incorporating the elite principle on which their master has built a wonderful organization. In the shareholders meeting, the dividend question- whether it should be distributed or reinvested came up and surprisingly the majority of the shareholders voted for reinvesting all the earnings. Warren writes, “To have our fellow owners – large and small – be so in sync with our managerial philosophy is both remarkable and rewarding.”
Don't Put All your Eggs in One Basket
If you see the fifteen common stock investments that Berkshire Hathaway had the largest market value: Starting from American Express Company to Apple Inc all the way to Delta Airlines Inc, Coca-Cola Company, US Bancorp and Wells Fargo Company, we see one very important principle that is followed –the investments are well diversified. Buffet’s exemplary skills to diversify have made the BH immune to sector-specific shocks.
Accumulating cash in the business is like oxygen to

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