Rule #1 Finance Blog

With Investor Phil Town

Here’s How Rich You’d Be If You Followed Warren Buffett’s Investment Strategy

Anybody who knows me for more than two seconds knows Warren Buffett has made a big impact on me and my investment strategy.

Heck, I even named my business Rule #1 after one of his quotes,

“Rule #1 never lose money. Rule #2 never forget rule number one.”  – Warren Buffett

That’s a rule I not only live by as an investor but as a financial educator.

I have built my business and personal wealth around it. Everything I do is all about minimizing risk and maximizing reward.

Whether it’s stock, houses, boats, or cars, I always buy on sale.

Like Buffett, I know the stock market doesn’t have a to be a big gamble.

To me, his investing philosophy is brilliant because it’s so simple. Don’t lose money. Ever.

That philosophy has made him one of the richest people on the planet and he is undoubtedly one of the most successful investors of all time.

One of the best ways to get a feel for just how extraordinary Warren Buffett’s investment results have been over the years is to look at how much money you could have made if you had invested in Buffett’s holding company, Berkshire Hathaway.

If You Invested $1,000 Dollars in Berkshire Hathaway in 1964…

So, what would $1,000 invested in Berkshire Hathaway (BRK-A) in 1964 be worth today?

Warren Buffett first took over the holding company Berkshire Hathaway in 1964. At the time, shares of Berkshire Hathaway were valued at just $19 a share. With Buffett at the helm choosing which companies Berkshire Hathaway invested in, though, this number rose dramatically.

Today, class A shares of Berkshire Hathaway are valued at a little over $300,000 a share.

This means that $1,000 invested in Berkshire Hathaway back when Warren Buffett took over in 1964 would be worth almost $16,000,000 today.

If you had invested $1,000 a year in Berkshire Hathaway starting in 1964, your returns would be even more staggering.

Today, $1,000 a year invested in Berkshire Hathaway from 1964 to now – a total investment of $54,000 – would be worth $124,000,000.

Many of today’s investors either weren’t alive in 1964 when Berkshire Hathaway was taken over by Buffett or they weren’t old enough to have money in the market. Thanks to Warren Buffett’s investment strategy, though, none of that matters – even young investors who entrusted their money with Buffett could have made a fortune.

If You Invested $1,000 Dollars Berkshire Hathaway in 1990…

$1,000 invested in Berkshire Hathaway in 1990 would be worth $45,154 today.

That equates to an investor multiplying their money by over 45 times in less than twenty years.

So, what allows Warren Buffett to deliver such high returns?

The returns that Warren Buffett has been able to deliver are no accident. His investing success boils down to a strategy for choosing the right companies to buy as well as when to buy them.

value-of-1000-invested-in-Berkshire

Business Insider/Andy Kiersz, data from Statman and Scheid (2001) and Yahoo Finance

Buffett’s “Secret” Rules of Investing

Buffett is among a camp of investors that believes the price that the market puts on a company is often much less than the company’s true value, and he has made a fortune out of finding companies that are priced lower than they actually should be.

He is not a day-trader or even a highly active trader and rather focuses on buying companies that he can hold onto for the long-term.

In fact, one of Warren Buffett’s most famous quotes is, “Our favorite holding period is forever.”

Buffett has also said before that if you aren’t comfortable holding onto a company for at least ten years then you should never buy it.

Using these relatively simple principles, Warren Buffett has been able to single out companies that deliver value over the long-term and buy them at a price point that is on-sale relative to their true worth. The results of this strategy as seen from how much money an investor could have made if they followed Warren Buffett speak for themselves.

Warren Buffett may be a legend among investors, but there is no magical secret behind his success. In fact, the principles he has used to turn a holding company that was priced at $19 a share into one that is priced at over $300,000 a share are principles that anyone can learn and put to use in their own investing strategy.

Here are Warren Buffett’s 4 Principles:

  1. Be capable of understanding the business.
  2. Make sure the business has a durable competitive advantage.
  3. Ensure the management of the company is trustworthy and has integrity.
  4. Buy the stock on sale.

With Rule #1 investing – a strategy designed to enable everyday investors to make use of the same principles that Buffett has over the course of his career – you can achieve returns that greatly outpace the market just like Warren Buffett has.

It’s simple, and you can’t even argue with it, because if you can buy $10 bills for $5, you’re guaranteed to make money.

Today, Berkshire Hathaway is reaching critical mass, and generating returns like it once did is going to be difficult for the company due to the limitations that having to invest billions of dollars at a time imposes.

With that said, by following the strategies of Rule #1 investing, you can emulate the past success of Warren Buffett and Berkshire Hathaway in your own investments.

Do you want to learn how to invest like Warren Buffett? Because you can. Leave a comment below with your answer. Learn more about Buffett’s 4 Principles of Investing.

Featured Image: Warren Buffett at Fortune Most Powerful Women Summit 2015, Photograph by Stuart Isett/Fortune Most Powerful Women.

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Phil Town is an investment advisor, hedge fund manager, 3x NY Times best-selling author, ex-Grand Canyon river guide and a former Lieutenant in the US Army Special Forces. He and his wife, Melissa, share a passion for horses, polo, and eventing. Phil’s goal is to help you learn how to invest and achieve financial independence. You can follow him on google+, facebook, and twitter.

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