In the following article, we'll focus exclusively on what some might describe as the “secret" to Warren Buffett's wealth.
It's common knowledge that Warren Buffett is one of the richest men in the world. However, most people attribute his vast wealth to an ability to pick stocks that dramatically rise in price over time. While it's certainly true that Warren Buffett has had an amazing career picking winning stocks, it should be noted that his estimated $40 plus billion dollar fortune does not reside in a brokerage account. In other words, Warren Buffett did not literally start out with, for example, $10,000 dollars in a Merrill Lynch brokerage account and over time build up his holding within that same brokerage account to $40 plus billion dollars.
The vast majority of Warren Buffett's $40 plus billion dollar fortune is derived from his ownership interest in Berkshire Hathaway, which is itself a publicly traded company. Warren Buffett purchased Berkshire Hathaway, a struggling textile company, not long after winding down a stock market trading investment partnership he had successfully managed for over 13 years.
A brief bit of history. . . at the age of 25, Warren Buffett began a limited stock market trading investment partnership. Warren Buffett was the general partner, and started with $100. There were seven limited partners who contributed $105,000 towards the partnership. The limited partners received 6 percent annually on their investment and 75 percent of the profits above this target amount. Warren Buffett earned the other 25 percent.
Over the course of the next thirteen year period, Warren Buffett compounded money at an annual rate of 29.5 percent. This was amazing, because during that same thirteen year period, the Dow Jones Industrial Average declined in value five different years within the same thirteen year period!
In 1969, Warren Buffett thought it best to end the stock market trading investment partnership because he thought the stock market had become very speculative. Over the past thirteen years, Warren Buffett's share of the investment partnership had grown to be worth over $25 million.
Over the years, Warren Buffett has transformed Berkshire Hathaway into a thriving conglomerate with a substantial interest in the insurance industry.
Shares of Berkshire Hathaway have risen dramatically over time, largely as a result of Warren Buffett's ability to successfully invest the vast sums of money generated by the insurance companies that Berkshire Hathaway owns, but also as a result of the celebrity status Warren Buffett enjoys within the global investment community.
Buying shares of Berkshire Hathaway has been one of the best ways to align ones financial interests with those of Warren Buffett and to essentially profit from his spectacular ability to invest in other companies.
The intense level of investor interest in Warren Buffett has propelled shares of Berkshire Hathaway to stratospheric heights, thus boosting the value of Warren Buffett's ownership interest in the company even higher.
That, in a nutshell, is one interpretation of the secret to Warren Buffett's wealth.
Nameer Eno is a contributing content editor at the Warren Buffett fan club forum.