Why Is Warren Buffett So Successful?

Berkshire Hathaway Inc. (NYSE:BRK.A) has generated tremendous returns for investors and for Warren Buffett himself over a long period of time. His famous strategy, “buy and hold” cheap companies with good fundamentals, has been emulated by many with varying degrees of success.  Jeff Macke of Yahoo! Finance has identified four traits of Berkshire Hathaway Inc. (NYSE:BRK.A)’s strategy and portfolio that may explain these substantial returns over such a long period of time.

hedge funds vs. mutual funds

First, contrary to the popular belief that the more diversified the stock holdings are, the better, Berkshire Hathaway Inc. (NYSE:BRK.A)’s portfolio is focused, says Macke. Four of the largest holdings make 58% of the entire portfolio. These companies are: Wells Fargo & Co (NYSE:WFC) -which is one of the biggest banks in the World-, The Coca-Cola Company (NYSE:KO), American Express Company (NYSE:AXP) and International Business Machines Corp. (NYSE:IBM).

Second, Buffett is wise enough to game taxes on earnings, as many other investors do. For instance, the acquisition of Washington Post by Amazon.com, Inc. (NASDAQ:AMZN), where the “Oracle of Omaha” has retained a profit of hundred times over the initial investment made in the 70’s. By swapping out shares instead of cash he avoided paying any taxes.

Third, Berkshire Hathaway Inc. (NYSE:BRK.A) has always been able to get for itself a sort of a cash cow for funding other ventures, the same way technology companies like Google Inc (NASDAQ:GOOGL) with Google Search and Microsoft Corporation  (NASDAQ:MSFT) with Windows. Buffett’s formula for unlimited cash is investing in insurance companies, the cash of which he extensively used to finance a great deal of acquisitions.

Fourth and probably the most important, Buffett is a big fan of the American economy and very optimistic. He buys when the economy does poorly and sells when the economy does well.  He gets cash from insuring against events with very low probability and buys into America.

“He generates cash betting against super catastrophic events in insurance and uses the money to bet against the collapse of the economy,” Macke said.

Disclosure: None

Biotech Insider Alert - $6 Stock To Hit $40

$200 Million Dollar Healthcare Hedge Fund's #1 Best Idea Right Now

The best healthcare hedge fund out there right now is one of the largest shareholders in this biotech stock. The fund returned more than 20% in each of the last 2 years with a virtually fully hedged portfolio, and it's sending out a BUY signal on this biotech stock. Get your FREE REPORT today (retail value of $300)

This is a FREE report from Insider Monkey. Credit Card is NOT required.
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The World’s Most Famous Circuses

Best Hair Stylists

Most Popular NASCAR Drivers

The Best Romance Movies of all Time

The Most Wanted Drug Lords

The Oldest Money Managers

The Greatest Directors in the World

Largest Animals in the World

World’s Most Expensive Desserts

Best Selling Comic Books of All Time

A-list Actors who Sabotaged Their Career

Rappers With a College Degree

The Best Jazz Albums of all Time

The Most Influential Jazz Musicians

The World’s Most Famous Photographers

The Best Oscar-Winning Songs

Most Influential Choreographers Ever

Most Expensive Department Stores in the World

The Most Expensive Stolen Paintings in the World

The World’s Most Expensive Teas

Top Oscar Record Holders

The Most Expensive Flowers in the World

Countries With a Booming Film Industry

Most Expensive Cupcakes in the World

Uncommon European Escapes

The Most Stolen Artists in History

Best Travel Destinations in Australia

World’s Most Expensive Musical Instruments

World’s Most Famous Animals

Most Expensive Cakes in the World

Most Expensive Kosher Champagne in the World

Most Expensive Kosher Wine in the World

The Most Surprisingly Dark Fairy Tales

Most Popular Travel Destinations in Asia

The 10 Most Expensive Dresses Ever Worn to the Oscars

World’s Most Visited Art Museums

Best Countries for Photographers to Work in

Best Paid Jobs in the Film Industry

The Most Renowned Recovered Paintings Ever

Child Stars That Turned out Just Fine

Books That Were Banned in the Past Century

World’s Richest Dancers

Best Remedies against Bad Breath

Foods That Improve Your Skin Texture

Best-Selling Children’s Books of all Time

Foods That Boost Your Libido

Best-Selling Books of all Time

The Most Expensive Academy Awards Jewelry in History

Most Expensive Japanese Restaurant In New York City

The Best B-Boy Movies

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 129% in 2.5 years!! Wondering How?

Download a complete edition of our newsletter for free!