And why investing like Warren Buffet doesn’t translate to success.
Warren Buffet has built a cult-like following for his outsized wealth and winning investment strategies.
After studying him for a long time, I discovered that Warren Buffet has succeeded despite breaking several success rules.
Here are 4 absurdities about Warren Buffett's success and wealth.
About 90% of his wealth has come from his ability to stay alive.
While everyone tells you to work hard, work smart or some combination of the two. Warren Buffet teaches you to stay alive. Buffet would have been largely unknown if he died in his fifties or sixties.
Out of the $109 billion Buffet has in his account, he made about $108.9 billion after his 50th birthday. If somehow he died or stopped investing in his 50’s, he would have been worth about $400 million—still a significant sum, but 99.9% less than his current net worth.
Buffet made his money by making money.
Bernard Arnault, LVMH
Elon Musk Tesla ,SpaceX
Bill Gates, Microsoft
Larry Ellison, Oracle
Warren Buffet Berkshire, Hathaway
You know what all the other 4 companies work on. But Berkshire Hathaway is not famous for any particular thing. So what exactly do they do?
Berkshire Hathaway is a holding company with huge investments in companies like Apple and Coca-cola. There also have large enough shares in companies like GEICO, Diary Queen, and Loom Fruits, and these companies are now BH subsidiaries.
In simple terms, BH buys shares of other companies and if the other company is successful, it earns a dividend.
But how did Buffet come into control of BH?
By buying the majority stock with his vice chairman, Charlie Munger in 1962 and turning the failing textile company into a conglomerate of other money printing companies. So that means he made his money by well… making money.
He is not the best money manager
Sure, Buffet is the poster child (or man in this instance) of value-based investing. But he is not the best investor in the world, instead, he is the richest and consequently, the most popular investor.
Jim Simmons has a better investment track record than Warren Buffet. He has made a 66% return on average since 1988, up till 2020. In comparison, Buffett has made on average 22% annually since 1962.
Warren Buffet is not a better investor, but he has had more time to compound his money, giving him the edge.
Buying Berkshire Hathaway made him poorer
In 2010, Buffet admitted that buying BH lost him about 200 billion in compounded interest over the following 45 years after the purchase.
By all accounts, Warren Buffet is one of the wealthiest people alive, but he could have even been richer. It is absurd to think that the very vehicle of his wealth, was the same one that reduced it.
The craziest part of the story about BH making him poorer is that he bought it out of spite. He bought it to fire Seabury Stanton, the then CEO of BH who wanted to cheat him on a business deal.
For someone like Warren Buffett credited with the ideology of value-based investing, you would think he would have known better and made a decision based on data instead of his emotions. But we all make mistakes, even the best of us.
Conclusion
Warren Buffet is an enigma and while you can track how he became successful, there are a few lessons to learn.
The first and most important is that you can break a lot of success rules, but if you manage to stay alive, you can still win the game of life. And what we call success rules are just best practices.
