Warren Buffett, CEO of Berkshire Hathaway and the world's most successful investor, has begun making preparations for the inevitable end of his career. He has announced a massive charitable contribution of his vast fortune and is actively seeking someone to eventually succeed him as investing head at Berkshire Hathaway.
Only one exceptionally worthy candidate will be chosen for what will probably be the toughest investment job on Earth.
Fortunately for us mere mortals, however, you don't have to be the next Warren Buffett to invest like him. In fact, Buffett has repeatedly announced the most critical aspect of his market-trouncing strategy to anyone willing to pay attention.
In case you missed it, here it is: Buy businesses for less than they're worth.
Time-tested
It's a simple concept that completely sums up a market-trouncing strategy that has stood the test of time. The biggest mistake investors make is conflating a company's stock with its business. To be successful as a Buffett-style investor, all you need to do is understand that there's a difference between a stock and the business it represents -- and invest accordingly. When the stock market offers you a sale on a great business, buy it. Do that reliably for a few decades, and you will be amazed with how much you wind up with when all is said and done.
You don't even need to tread in the dangerous waters of unknown businesses to be successful. Buffett's most famous investment, American Express (NYSE:AXP), was already a fairly large company when a scandal knocked its shares into the cellar -- and into Buffett's portfolio. In fact, looking at the recently reported Berkshire Hathaway holdings reveals a significant number of already very well-known businesses:
|
Company |
Berkshire's Cost |
Recent Value |
Move from |
|---|---|---|---|
|
Moody's (NYSE:MCO) |
$499 |
$3,112 |
523.6% |
|
Wells Fargo (NYSE:WFC) |
$3,679 |
$7,527 |
104.6% |
|
Conoco Philips (NYSE:COP) |
$1,066 |
$1,216 |
14.1% |
|
U.S. Bancorp (NYSE:USB) |
$969 |
$1,103 |
13.8% |
|
Johnson & Johnson (NYSE:JNJ) |
$1,250 |
$1,326 |
6.1% |
|
Wal-Mart (NYSE:WMT) |
$942 |
$946 |
0.4% |
As you run down that table, notice that you can buy some of these top-notch companies today for fairly close to Berkshire Hathaway's price. In Wal-Mart's case, for instance, a single day's ordinary volatility could knock it down to a price below what Berkshire paid.
You read that right. If the market continues to throw away Wal-Mart, you just might be able to buy shares of the world's biggest retailer for less than the company headed by the world's greatest investor did. If you're serious about inheriting Buffett's legacy, that's exactly the type of investment you need to be willing to make: a strong business at a bargain price.
Follow in Buffett's value-oriented footsteps and look to buy stocks only for significantly below what the underlying business is really worth. Just as it has worked for Buffett for decades, that same strategy is helping our Motley Fool Inside Value investing service beat the market today. (We count ourselves among those who've taken our inheritance early.)
Join us today to get your share of the greatest investing legacy in history, as well as to peek at our lineup of value-priced stock ideas. We're offering a one-month guest pass where you can look around, free for 30 days. You've got nothing to lose but your time, yet you've got so much to gain from following in the footsteps of the great value investors that have come before us.
At the time of publication, Fool contributor and Inside Value team member Chuck Saletta owned shares of Johnson & Johnson, and he's shocked to discover that he picked them up at a lower average cost than Berkshire Hathaway did. Berkshire Hathaway and Wal-Mart are Inside Value selections. Johnson & Johnson and U.S. Bancorp are Motley Fool Income Investor picks. Moody's is a Stock Advisor choice. The Fool has a disclosure policy.
