Warren Buffett - the Man with the Midas Touch

He may only be the second richest man on the planet, having lost his crown yet again to friend and fellow Bridge player Bill Gates, but Warren Buffett is the man that all private equity investors strive to be even a fraction as successful as.

This unassuming 79 year-old gentleman has kept people guessing all of his life how he has become quite so successful. Whilst other private equity investors have been chasing the fast buck to live the high roller life, he has a slow but steady approach to business. It’s a classic case of the tortoise and the hare and one that aspiring private equity investors would do well to emulate.

Whenever Mr Buffett has been asked to explain the secret of his success he seems more than happy to do so. He says that he hates being in debt and never borrows to buy. Likewise, he only invests in things he can understand and is familiar with, whilst taking a very light-handed approach to managing the companies he buys allowing them far more freedom than others might. But for all of the information he’s more than happy to pass onto other private equity investors there seems to be something missing…the secret!

Nothing that he says is new or particularly innovative. Even his laid back approach, calculated emotional response to the markets and long-term perspective are not revelations that will necessarily have you following in his very wealthy footsteps. So what is it that has helped him to grow his wealth year on year, outstripping the performance of the keenest financial minds to become the multi-billionaire he is today?

Sorry…were you expecting an answer here? No such luck I’m afraid. Believe me if I knew his secret I’d be somewhere lazing on a sun-drenched beach counting my lucky stars around about now. However, by looking at the man himself and how he lives his life we can get a better idea of how he does it.

Mr Buffett is a bit of an anomaly. He makes a reasonable income (amazing how good I am at understatement!), but he spends very little on himself, content to live in an average house on an average street and drive an average functional car. His tastes are simple and most of his time is focussed on his business activities. He is not technically-minded and if you believe the rumours he apparently does not even have a computer in his office. And he always seems to be calm and collected, so when all around are rushing here, there, everywhere to invest, his measured approach has seen far higher returns in the long run.

Although he started out just like all private equity investors, buying and selling stocks and shares, today he buys companies. Now, to make money private equity investors need to recognise when shares are either undervalued or in companies with excellent growth potential. Well, buying companies has a similar set of rules, and if you do it right, as Mr Buffett seems to do time and time again, all you then need do is to sit back and let your investment prosper (with the odd nudge in the right direction now and then).

It seems that Warren Buffett’s real business secrets are his remarkable ability to value the worth of a company and his likability. How many from the ranks of the uber-rich are universally liked? Very few I’d warrant. Aside from an early lesson in company investment that ended up in him breaking up and selling the assets of a business, he does not practice such “Gekko-esque” strategies. No, he builds companies, he allows them to blossom and where his guidance is needed he helps them to grow into truly successful global enterprises. It seems by simply being Warren Buffett he is able to persuade people to sell him their companies for less than they are worth.

Private equity investors have followed his purchases with interest and he has built quite a fan base who hang on his every investment. The annual general meeting of his company, Berkshire Hathaway, has been described by some as Woodstock for Capitalists. Regularly attended by tens of thousands of excited shareholders keen to hear the Oracle of Omaha’s views, in the hope that some of his success might rub off on them.

Whatever Mr Buffett’s secret is it has afforded him decades of success. From paper-rounds and second-hand golf ball sales as a child, to becoming the most successful of all private equity investors, the ride to the top has been good to Warren Buffett.