The Fountain of Forex

Why Warren Buffett Envies You

He's been called the best investor of all time. But, why does Warren Buffett wish he had less money to invest? Read on to find out how a small investor like you may have an easier time generating high investment returns than wealthy, investment guru Warren Buffett.

The Art of Value Investing
Warren Buffett has perfected the art of value investing. Buffett was a devoted student of Benjamin Graham, who gained fame in the 1920s with his simple investment philosophy of measuring the intrinsic value of a business. According to this strategy, if a company's share price is trading below what it's really worth, he buys it. Buffett looks for companies that are well-managed, with simple, easy-to-understand business models, high profit margins and low debt levels. He then determines what he believes to be the company's growth prospects over the next five or 10 years. If the company's share price today is priced below these future expectations, it usually ends up as a long-term holding in Buffett's portfolio. (Find out how to judge a company by reading, The Hidden Value Of Intangibles.)

Buffett has built Berkshire Hathaway into a $200 billion dollar business. According to an August 2005 paper by Gerald Martin and John Puthenpurackal, Buffett's investment strategy has beaten the Standard & Poor's 500 Index (S&P 500) 20 out of 24 years between 1980 and 2003, and exceeded the average annual return of the S&P 500 by 12.24%. These high returns were not achieved by taking high risk. Berkshire Hathaway's portfolio is comprised mostly of large cap stocks, such as Johnson & Johnson (NYSE:JNJ), Anheuser-Busch (NYSE:BUD) and Kraft Foods (NYSE:KFT). (To learn the difference between large and small cap stocks, see Market Capitalization Defined.)

Growth
Compounding is important to Warren Buffett's success. To make his radar screen, a stock investment must have a high likelihood of achieving at least a compound annual earnings growth rate of 10%. When he started four decades ago, Buffett had a wide range of stocks available to him that met or exceeded his minimum return requirement. Back then, however, the size of Buffett's investment portfolio was much more manageable.