Warren Buffett


If you are sure that you want to start investing but are not aware of when to start or when the right time to start investing is, let this blog guide you. Studies have shown that the earlier you invest, the better it is. So the ideal time to invest would be right now. Read more to know why.

Before beginning, we would like to introduce you to the concept of Compound interest to understand the role it plays in long term investing. Compound interest is basically earning interest on interest which will make the total sum grow faster than simple interest. To give you an example:

If you had invested Rs. 100 at an interest rate of 10%, then the Compound interest would earn you:

Rs 10 (10% * 100) in the 1st year.

Rs 11 [(10% * 100 + 10% * 10)] in the 2nd year.

Rs 12.1[(10% * 100) + (10% * 10) + (10% * 11)] in the 3rd year.

Whereas in case of simple interest it would only earn you Rs 10 (10% * 100) for all the three years.

This concept plays on a much bigger scale when looking at 5, 10, 15 years or even more which is precisely why you should start investing as early as possible due to the longer time horizon. Your first goal in investing should be to earn more than the inflation rate and beating inflation requires you to invest in risky securities like Equity. Studies over the past several years have shown that Equities has been the best performing asset class. However, daily volatility of prices could worry a lot of beginners if not the experienced ones. However, on a long term basis, equities have tended to be on the positive side beating inflation. Having a long term horizon when investing in risky securities does help considerably and hence investing early will be beneficial in addition to the following benefits:

  •  More time to recover from any losses compared to an investor who starts at a later stage in life. Since equities or any risky security carry the risk of a downside, an investor should be cautious regarding which securities he chooses to invest in. However, there can never be any guarantee regarding capital protection. Starting early means if there is a loss, the investor has more time to recover from those compared to an investor who starts late.
  • When starting early, you develop a discipline towards savings and investments which will stay with you for the rest of your life. Youngsters have the habit of spending on luxurious goods as soon as they get some money in hand. Investing early means that they have to save some money automatically reducing expenses on unnecessary items. Regular investing will make them disciplined from a very young age and discipline is the one thing that separates the best investors from the rest. 
  •   Early investing lets you pick risky companies which could grow exponentially rather than sticking to safer or low return options. Such a strategy allows many people to achieve financial independence at a young age and take early retirement.
  • If you start investing in your 20’s means that by the time you turn 50, you would have invested a considerable amount which coupled with the Power of Compounding, will have turned into a huge sum. This sum can be used to spend during retirement. Every new generation retiring is more active than the previous ones. Retirees generally prefer to travel or start a new hobby or any other interest. These activities require more spending. Also, retirement is getting expensive due to inflation, and the advancement of medicine means people at least 20-30 years after retirement. Being able to afford an active retirement is a huge benefit of early investing. Each year of early investing brings you closer to retiring on your terms and puts you ahead of most of your peers.

Warren Buffett too started investing at a very young age, from the age of 11 to be precise and his investing philosophy is well known all over the world. He has earned a compounded annual growth rate of 20-25% for the whole of his investing career showing that you don’t need supernormal returns to become wealthy. All you need is regular investing and staying invested for a long time. Do check out our blog about Warren Buffett and his investing principles to know more about him. 

One thing which Warren Buffett insisted on is investing in quality companies with good management, brand value, historical growth, strong market share in the industry. Investors find it intimidating to identify such companies given the amount of information available today. We’ve made that job simple for you by identifying a set of companies we have researched with the help of our vast experience in this field so that you don’t have to worry about the safety of your capital. Check out our product Stockbasket for more information.

If you have invested early, your retirement might just be around the corner. If you haven’t, sooner is always better. Start planning today to enjoy the 20-30 years post-retirement. You can retire comfortably knowing that your early investments have paid off.

Warren Buffett, the man who needs no introduction to my fellow investors. He is known for his investment philosophy and modest lifestyle till date. Presently, he is the Chairman and CEO of Berkshire Hathaway and has a net worth of around USD 85 billion (Rs. 6.10 lakh crore). Currently, Buffett stands at no. 4 on the richest people list. The exciting part that appeals to people is his ability to consistently beat the stock market for over 50 years, using what many people see as simple investment techniques.

(Source: https://www.berkshirehathaway.com/letters/2018ltr.pdf)

Buffett made his first investment in a stock at an age of eleven (‘I was wasting my life up until then.’ when he was asked about his first investment). He bought his first stock at USD 38 a piece. He started to panic when the price declined to USD 27 soon after buying. He promptly sold his holdings when the price rebounded to USD 40. However, the stock then shot up to USD 200 soon after he sold them. This experience taught Buffett one of the fundamental lessons of investing: patience is a virtue.

Buffett at an age of 19, read both The Intelligent Investor by Benjamin Graham and Security Analysis by Benjamin Graham and David Dodd. These books, to date, are considered a Bible for investing community. He applied to Columbia Business School, due to the fact that both Benjamin Graham (father of value investing) as well as David Dodd were members of faculty there. Buffett was a successful student and this gave him an opportunity to directly work under Benjamin Graham’s partnership firm. He enjoyed working with him at the core. He later claimed that working with him gave him valuable experience of a lifetime. 

Buffett Partnership Years  

After his stint with Graham came to an end, Buffett started setting up investing partnerships and the most important one was Buffett Partnership Limited (BPL). As an obedient student and disciple of Graham, Buffett run partnerships focused on ‘Bargains’. These were companies that traded at a discount to the value of their net asset. This is also popularly known as ‘Cigar-Butt’ approach. In this approach, Buffett purchased a large stake in bargains and waited for market sentiments to improve. Improvement in market sentiments would drive the share price up and the bargains could be sold for comfortable profit. Buffett also used his holding in these companies to try and speed up the process of extracting value. One-third of the BPL’s portfolio was also invested in what Buffett called ‘workouts’. These companies were in the process of being taken over by another company and giving him merger arbitrage.   

Soon, the stock market started to become too expensive. Buffett’s probability of generating above average returns and cigar-butt style of investing was turning increasingly difficult. So, he decided to wind up BPL.

During his partnership years, Buffett would write a letter to his partners every year. These letters would convey his investment rationale, philosophy along with partnerships performance. These letters (Buffett Partnership Letters) are available in the public domain and are a must read for investors. 

Berkshire Hathaway Years       

Buffett started focusing on Berkshire Hathaway, a textile manufacturing company. He originally bought it as a value investment (bargain) in 1964. He then realised that the company was getting stiff competition from domestic as well as foreign plants and did not have any future. So, Buffett turned Berkshire Hathaway into a holding company for his investments which he operates as a hedge fund. 

Expensiveness in stocks made Buffett to shift his philosophy from the idea of bargains to stocks that were merely cheap and had wonderful business prospects. Understanding the changes in the economy, he currently has adopted a philosophy which believes that ‘It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price’. Buffett’s strategy on investing in a wonderful business at fair price is built on staying away from anything that seems complicated. He says that it is most important to know one’s circle of competence and to stick with it. He added that the size of that circle of competence is not very important, however knowing the boundaries is vital. Understanding and sticking to his own circle of competence favored him to stay away from technology stocks during the maniac technology boom popularly known as the ‘dot-com bubble’ from 1995-2001. He focuses only on companies which are easy-to-understand businesses for him like insurance (GEICO). GEICO generates large amount of consistent cash flow that he reinvests in Berkshire Hathaway. 

Even though we see that Buffett revised his investment philosophies a couple of times. But he, never inched a bit from the philosophy taught by Benjamin Graham: ‘Price is what you pay, Value is what you get’

Warren Buffett has placed a great deal of importance on investing in companies having ‘moat’. These are companies with an advantage, legal or operational which prevent competitors from entering and affecting margins of business. He has developed an expertise for looking at businesses as a whole and chooses companies solely based on their overall potential. He is seen holding companies for long-term and seeks ownership in quality companies only. These companies are capable of consistently generating free cash flows. When Buffett invests in a company, he is hardly concerned with whether the market will recognize its worth. His only concern is how well the company can make money as a business. Buffet also concentrates on buying companies outright as buying these companies outright allows him to keep his portfolio relatively concentrated. He is known for his early investments in companies like See’s Candies, GEICO, Coca-Cola, American Express etc. which was based on his circle of competence.  

He continues his legacy of writing at Berkshire Hathaway too. He writes to his shareholders every year as Shareholder Letters. These letters are full of wisdom (that nearly anyone can understand) on various topics such as investing, money, life and much much much more. These letters occupy a very special place in business and finance. 

What should I learn? There is an ocean of wisdom with this billionaire investor. Few things that I would love my reader to inculcate in their investment philosophy are to start investing (very) early, (always) invest in wonderful businesses with economic moat, and invest keeping long term horizon in mind (without fail). This would help investor’s start their wealth compounding journey in the right direction.  

And lastly, for Warren Buffet fans/ disciples, CNBC.com has created ‘The Warren Buffett Archive’ which is the world’s largest collection of Buffett speaking about investing, money, business and life.

I am sure you’ll love it. 

That’s all for now.

Until next time.


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