Warren Buffett's Secret to Making Billions in the Stock Market

Buffett has been very open in sharing the keys to his investing success. This one, however, never seems to get enough attention.

Mar 15, 2014 at 1:30PM

Everyone knows Warren Buffett is filthy rich -- but how exactly did he do it?

Warren Buffett's investing style has evolved over the years. Early on, he looked for beaten down businesses, or "cigar-butts." Then, there was a period of great business for good prices. And now, we're seeing Buffett shift toward wonderful businesses for fair prices.

Buffett Homeservicesamerica

Source: HomeServicesAmerica.

There's one thing, however, Buffett has never budged on. He's always been more interested in steady growth and capital preservation than exciting high-growth stocks. And if you were to ask any investment advisor how to accomplish this, I'll guarantee you'll hear "diversification." 

According to Warren Buffett, that's a mistake. Buffett and his investing team defy a number of investing norms, but none more so than then Berkshire Hathaway's (NYSE:BRK-A) (NYSE:BRK-B) lack of equity diversification.

Warren Buffett
At the end of 2013, Berkshire Hathaway's portfolio was valued at approximately $118 billion -- $14 billion of which is handled by Warren's lieutenants, Todd Combs and Ted Wechsler. Even so, Buffett's "big four" make up an extraordinary 55% of the portfolio. 

Charlie Munger
Munger, Berkshire's vice-chairman, doesn't actively manage Berkshire Hathaway's portfolio. He is, however, heavily involved in the inner working of Berkshire, and a big part of the attitude that defines the Berkshire's culture. And we could assume Munger, if given the role, would invest similar to Buffett. Luckily, though, we don't need to assume.

Munger manages Daily Journal Corporation's (NASDAQ:DJCO) $119 million portfolio. And since it's a publicly traded company, we can easily see his opinions on diversification. 

Todd Combs and Ted Wechsler
Combs joined Berkshire in late 2010, and Wechsler followed the next year. Before coming to Berkshire Hathaway, both men managed their own hedge funds. And, not surprisingly, both created concentrated portfolios.

Combs Wechsler Hedge Fund Ports

Source: www.sec.gov/Archives/edgar/data. 

Combs portfolio looks incredibly diverse compared to the group. Though, with just 24 stocks in total, and 78% in the top 13, it's still fairly concentrated by most standards. 

More importantly, how is their strategy affecting Berkshire Hathway? Buffett jested in his letter to shareholders that Combs and Wechsler not only beat the S&P 500 in 2013, but their investments topped his, "by a lot." 

How can this help the average investor? 
Buffett said it best: "Very few people have gotten rich on their seventh best idea, but a lot of people have gotten rich on their best idea." 

While this is great advice, Buffett did throw an amendment into this statement. He suggested unless you're going to bring an intensity to evaluating businesses, you're better off betting on the U.S. economy, and buying a low-cost index fund. In that case, extreme diversification makes perfect sense. 

If, however, you're interested in greater than average results, and are willing to give a greater than average effort, go big on your best ideas.

Follow Buffett's footsteps to financial freedom
Warren Buffett has made billions through his investing and he wants you to be able to invest like him. Through the years, Buffett has offered up investing tips to shareholders of Berkshire Hathaway. Now you can tap into the best of Warren Buffett's wisdom in a new special report from The Motley Fool. Click here now for a free copy of this invaluable report.

Dave Koppenheffer has no position in any stocks mentioned. The Motley Fool recommends Berkshire Hathaway. The Motley Fool owns shares of Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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