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Old November 27, 2000, 01:25 AM
Dien Rice
 
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Default You deserve to know what America's fourth-richest person knows....

Many people know Warren Buffett as arguably the world's greatest investor....

What is it that he knows that you don't?

He's currently the fourth richest man in the USA (according to Forbes magazine), with assets worth $25.6 billion.

Below, you'll find out how Warren Buffett got his start, and the key to his higly successful investment strategy....

How he got started

To begin with he used the power of OTHER PEOPLE'S MONEY....

Warren Buffett started his first investments by setting up a limited partnership (back in 1957), with himself as the general partner.

Then, he and his wife would hold parties at their house.... To their parties they would invite doctors, lawyers, and other members of high-paying professions.... The whole point of this was to encourage these people to put their money into the limited partnerships with Warren Buffett.

Buffett gave everyone very fair terms....

He would invest the money on behalf of the partnership. He wouldn't pay himself anything unless he made OVER a 6% return. That way, if he wasn't beating the rate you could get with a savings account (back then), he would make nothing for himself.

He was only getting paid for the returns he could make OVER the interest rates that people could make by putting their money in a savings account.

He also agreed to offset any losses against profits from a preceding year (something he never had to do, since he never had a down year). Then, Buffett would take 25% of the profits over a 6% return as his "fee" for managing the investments of the partnership.

This way, EVERYBODY won.... WIN/WIN/WIN....

The investors won, because Buffett would only get paid if he made a return from the stock market OVER what they could make from interest. And Buffett was only paid if he made them good money.

Warren Buffett won, though, too.... He knew a good strategy of how to invest money, and was confident he could regularly beat the 6% return limit he had set for himself. And he did.

This strategy in itself made Warren Buffett a rich man....

Eventually, he dissolved the limited partnership, and that's when he bought Berkshire Hathaway, his current company. It currently has the highest stock price on the stock market, worth $63,200 per share for Class A shares. The price is so high because Warren Buffett doesn't believe in stock splits, so the price has just gone up and up and up....

Other reasons he's remarkable

Allthough he's one of the world's richest individuals, he still lives in an ordinary little house in Omaha, Nebraska.

He still drives a regular car.

He works in a plain office in Kiewit Plaza in Omaha.

He seems very down-to-earth in his approach to life.

He's obviously not in it for the "baubles" that wealth can buy.

I think he just likes owning stocks and businesses!

I try to model my own investment approach on Warren Buffett's.... NOBODY in the world has beaten Buffett's long term investment approach. Some may beat it in the short term, but they eventually tend to lose....

How he invests

To invest like Warren Buffett, look for long-term growth stocks.

He also calculates to see if they are over-valued or not. He also likes companies with a strong franchise -- like a strong brand name -- or a strong monopoly-like position, free of government regulation....

Then, buy and HOLD.....

Here are the advantages of this approach.

You get the benefit of compounding.... If you've chosen good growth stocks, the worth of the stock will go up and up and up....

Also, your money isn't being eaten away all the time by taxes (you only pay tax when you sell) and by paying your stock broker's commissions all the time.....

This is the approach I use.... I figure if it works for Buffett, it ought to work for others too.... :)

- Dien Rice

P.S. I also like the investment approach of Peter Lynch, the highly successful former manager of the Magellan Fund.... I'll write about his approach another time.... :)


Berkshire Hathaway (Buffett fans should read Buffett's Letters to Shareholders....)
 


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