Thursday, February 28, 2008

Warren Buffett - The richest investor in the World

Warren Buffet is one of the best investors of our time. He has been investing other people’s money through partnerships and Berkshire Hathaway since the late 1950’s. His results have been truly phenomenal. I highly recommend reading his annual letters to Berkshire’s shareholders.

I recently stumbled upon the letters to his investors in the Buffet Partnership here . His average annual returns of 29.5% for the period from 1957 to 1969 significantly outperformed the 7.4% return that Dow achieved.

He recently made news headlines with his investments in Kraft Foods and Glaxo-Smith Kline. I was wondering myself if following the Wizard of Omaha is a good investment strategy or a recipe for disaster. I found the following research paper “Imitation is the Sincerest Form of Flattery: Warren Buffett and Berkshire Hathaway” on the internet. It was written by Gerald S Martin and John Puthenpurackal and studied Buffet’s stock picking for a 31 year period from 1976 to 2006. Based off their research, a portfolio that mimicked Buffet’s stock investments would have outperformed S&P 500 by 14.6% annually. The stock market average returned 10.32% versus 24.97% for Buffet’s portfolio of stocks. In addition to that the research paper found that investors would have performed much better had they simply invested in Berkshire Hathaway’s stock would have returned 30% on average.

Even though Buffet is 77 years old and even if he decides to no longer be the CEO of Berkshire Hathaway, I still think that the company is a good Long-Term holding. The reason is because Buffet invests in businesses that he thinks have good prospects for the long term. So even if he’s no longer in charge at BRK.A, the worst annual average that his stockholders will have would be at par with the S&P 500.

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