Is Warren Buffett Secretly Taking Your Money?

The forth richest man in the world doesn't need your money, but he will certainly take it if you let him.

May 7, 2014 at 7:30AM


No matter how inexperienced you may be when it comes to the stock market, chances are you've heard of Warren Buffett. Warren Buffett, nicknamed the "Oracle of Omaha," is the chairman and CEO of Berkshire Hathaway (NYSE:BRK-B)(NYSE:BRK-A) and is one of the most famous investors of all time. In the past, I have written about Buffett and his investing methodology:

While Buffett has used many different techniques and strategies to make money, I was interested in the most basic theme of his investment philosophy: Value investing.

The idea behind value investing is to identify quality companies whose stocks are trading at a lower price than they should be for a temporary reason or for no apparent reason at all. Value investing is based on the belief that the stock market eventually values companies appropriately and that temporary fluctuations in stock price will correct themselves over time. 

It certainly sounds simple enough, and I like simple. Buffett has consistently used the following strategy: Identify companies that are undervalued, buy shares, wait, and sell them when their market value has increased.

To say this strategy has worked for him would be an understatement, as Buffett is currently ranked the worlds forth richest person according to Forbes. But there's no way that the great Warren Buffett, who is a notorious philanthropist, would be after your money, right? Don't be so sure.

Imitation is the sincerest form of flattery
Over the years, Buffett's success has inspired many imitators that focus on identifying undervalued companies. However, many of these imitators fall short of Buffett-like success, and it has nothing to do with the companies they choose or the shares that they buy.

It has to do with the next step in Buffett's process: The waiting. And waiting. And waiting.

One of my favorite Buffett quotes is, "The stock market is a device for transferring money from the impatient to the patient." The pitfall of many investors is that they want profits, and they want them fast! With the hundreds of tickers scrolling feverishly across the TV screen all day every day, you'd think all of us could be rich by the end of the week if we just picked the right stocks to buy, right?

Buffett wins the waiting game
Unfortunately, the market is not as efficient as we'd like to think, and often undervalued companies can remain undervalued for months and even years at a time. 


For example, one of Buffett's most profitable investments over the years was the Washington Post. Buffett took his initial position in the Washington Post in 1973 for $10 million. Incredibly, by 2004, Buffett had an unrealized gain of $1.7 billion on the position. With 30 years of hindsight, this buy is clearly one of the greatest purchases of all time. However, about a year after his initial investment, he had endured a 20% unrealized loss on the position.

In fact, it wasn't until 1976, three years after the initial purchase, that Buffett made it comfortably above water on the purchase.

A more recent example of Buffett's patience and foresight is his purchase of Bank of America (NYSE:BAC) warrants in August of 2011. The warrants were part of a $5 billion investment in Bank of America and can be redeemed by Berkshire Hathaway at any point before 2021, allowing the company to buy 700 million shares of Bank of America stock at a price of $7.14 per share.


When the deal was announced, shares of Bank of America were trading at $6.88 per share. By December, 2011, shares of B of A had dropped under $5.00 per share, a price that was more than 30% below the purchase price guaranteed by the warrants.

However, more than two years later, with Bank of America shares now trading above $15 per share, Buffett's warrants look like yet another grand slam for the Oracle of Omaha.

It (literally) pays to be patient
Many investors are aware that patience is an important part of success in the stock market. They realize that part of making money is waiting for share prices to climb. But can you wait four months? Can you wait three years? Longer? 

If you aren't prepared to be patient and give the market as much time as it needs to adjust, Warren Buffett just might be taking your money. And I might be taking it too!

Warren Buffett just bought nearly 9 million shares of this company
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Wayne Duggan owns shares of Bank of America.

His book, Beating Wall Street with Common Sense, is now available on Amazon and contains an entire chapter devoted to explaining the mysteries of value investing. And, of course, my website is always available on your local Internet!

The Motley Fool recommends Bank of America and Berkshire Hathaway. The Motley Fool owns shares of Bank of America and 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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