Warren Buffett’s Investing Style : a Financial Perspective

Warren Buffett’s Investing Style : A Financial Perspective

Abstract

Warren E. Buffett, one of the world’s richest man, is the only investor who has built his wealth entirely through the stock market. With an initial investment of $105,000, he has grown it to an astonishing $30 billion within 30 years at an average annual growth rate of 29% (Buffett and Clark, 2002). Buffett has been able to beat the average market growth rate for most of the years with astonishingly high rates. Buffett’s success in the stock market intrigues everyone as to how he has been able to do it? How does he make his investments? What does he analyse in a stock before making the investment? What kind of stocks does he invest in? With all these questions in mind, this paper tries to capture the financial analysis that Buffett would have made before picking stocks. Although Buffett makes various other analyses while picking stocks, this paper presents only the financial aspect of his investing style.

1. Objective

The objective of this study is to identify the investing style of Warren Buffet,

so that some of his investing wisdom could be to put in use by students and academicians alike.

Also this study is limited to understanding only the financial aspect of Buffet’s investing style. How he uses the financial data of a stock to his advantage to invest. Apart from the financial aspect of his investing style, he also considers other macro, and micro economic factors that could affect the business.

2. Introduction

Warren Edward Buffett is the world’s third richest man with a personal wealth of USD 47.30 billion (Forbes, March 2010). Known to the investing world as the Oracle of Omaha, he is one of the greatest investors in the world. He was born on the 30th of August, 1930 in Omaha in the state of Nebraska.

At a very early age he displayed his acumen for both money and business. He went door to door selling chewing gum, Coca-Cola, or weekly magazines as a young...