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Value Investing: The Way of Berkshire Hathaway

Warren Buffett, also known as the Oracle of Omaha, began buying shares of Berkshire Hathaway in 1962. He picked them up for $7 a share for Buffett Partnership, Ltd., now one of the most successful investment vehicles ever.

What is his investment philosophy?

A student of Benjamin Graham, author of “The Intelligent Investor,” Buffett seeks to invest in businesses that he can understand, which includes insurance, media and consumer goods. His preference is to invest and allocate capital in a good business.

How does he define a good business?

Essentially, an operation with strong franchises, above average return on equity, and a relatively small need for capital investment.

In its 1977 annual letter to investors, Berkshire Hathaway expressed interest in:

  • Businesses that they understand
  • …with favorable long-term prospects
  • …operated by honest and competent people
  • …and available at attractive prices.

Buffet believes that the best business to own is one that over an extended period can employ large amounts of incremental capital at very high rates of return. The worst company to own is one that consistently employ large amounts of capital at low returns.


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