Business Management Blog

In the past 30 years ending in 2008, Berkshire Hathaway has given an annualized return of over 23 percent per year. This is twice the rate of return you would have earned with the Dow Jones Industrial Average or the S&P 500 index. Obviously, Warren Buffett’s performance is incredible.

In terms of dollar amounts, if you had invested $1,000 in Berkshire Hathaway about 30 years ago, your investment today would amount to about $500,000. The lesson is clear: Learn from Warren Buffett’s investment philosophy, which is described throughout this book. You may not be able to attain his level of success, but you do not have to be Warren Buffett to earn respectable returns in the stock market. If you can replicate even, say, one-fourth or one-third of the advantage he has over the market, you will earn very high long-term returns. The average investor is likely to be a relatively small investor. It is easier to beat the market with smaller amounts of money than with large investments.

When Buffett ran his partnerships in the late 1950s to late 1960s, his returns were even larger. Now, Buffett cannot invest in smaller companies because the Berkshire portfolio is so large. But a small investor has the advantage of being able to invest in smaller companies. For Berkshire as a whole, returns were higher when the company was smaller, but even over the past 15 years, the average annualized return has been 12 percent compared with only about 6 percent for the S&P 500 index.

You never know: You might have the skills to pick the right stocks and become as good an investor as Warren Buffett. As long as you are not reckless, there is little downside in trying to find out whether you have some of the skills to be successful. One great thing about Buffett is that he has written generously about what he does and how he does it. If you have patience and the willingness, let’s start learning about businesses and investing from the master.