Why is Warren Buffett the Most Successful Investor?

When Warren Buffett said its shareholders in the past 45 years has been enjoying the annual investment return rate of 20%, many investors cannot help but feel envious.

The data provided show that Berkshire Hathaway chairman Warren Buffett served during one of the best performing of the two funds, Fidelity Magellan Fund's annual average return of 16. 3% and Templeton Growth Fund's annual rate of return is 13.4%.

In terms of share prices of Berkshire Hathaway A shares since 1965, annual return rate of 22%, but Buffett's net worth is more likely to use to measure return on investment. If a net basis, the annual return rate of 20.3%. In fact, the stock price gains compared with mutual funds, is only more equitable. If the October 1, 1964 to the Buffett investment 10 thousand U.S. dollars (equivalent to 60,000 U.S. dollars now), then the investment is now worth 80 million U.S. dollars.

If you invest the money to Fidelity, then the investment value is 9.1 million U.S. dollars now. If you vote for Templeton Growth, then the value is now about 2.9 million U.S. dollars. The above statistics, as of the date of the end of 2009 ranges over the total time of 45 years. For S & P 500 Index during this period the annual rate of return is 9.3%, or 1 million will be added to the nearly 56 million U.S. dollars. In early 1965, there are a total of 145 mutual funds.

The same formula reflects the power of compound interest, although the difference is only a few percentage points every year, but the end result is quite different. And mutual fund managers compared to Buffett have more institutional freedom, therefore, between them, and it is not 100% comparable. However, this difference also reflects the limitations of the common funds, most of the recent performance of the fund managers have to face the pressure.

Buffett has been throughout the term of years to persuade investors to see themselves as the owner of the company, rather than investors. This is in line with his long-term investment style. Mutual fund managers each year, pressure to perform, because if there are one or two years of poor earnings, investors may redeem their shares.

Fund companies such as Morningstar's rating may also be part of the problem. However, Morningstar pays more attention to the long-term performance of the Fund. Nonetheless, fund industry's structure makes it difficult to fund managers to invest. Funds need to be issued by institutions, while the agencies through the fund will be asked to invest according to their preferred style. These organizations also hope that fund managers to invest in full position. They are assessing fund managers on a quarterly basis each year and replace several fund managers.

Short-term performance pressure tends to frequent operation of the fund managers. Morningstar Statistics show that on average one-year mutual fund positions will be replacing all the time, which is Buffett's approach's exact opposite. A company holds a stock for usually the period of 8 to 10 years. The portfolio turnover rate is usually 10% annually to 15%. The fund industry average of 100 percent annual turnover makes the investment to become more like gambling.

Templeton Growth Fund has adopted a low value investment strategy. They buy when the stock is seriously undervalued, and hold for long-term. Templeton's annual turnover is higher than 10%.

But even if this fund also receives from institutional investor's pressure, this fund under institutional investor's request is unable to insist completely own investment strategy. This fund will usually leave leeway of 10% in most recent several years to 20% cashes. This strategy enables it to dodge to fall the market well the risk. In 2000, 2001 and in 2002, the Standard & Poor 500 indices fell 9.1%,11.9% separately and 22.1%, but the A stock distinction of Templeton growth fund rose 1.7%,0.5% with falling 9.5%. This stock in 2008, in full operation, finally fell 43.5%.

According to each net worth computation, Berkshire Hathaway rose 6.5% in 2000, fell 6.2% in 2001 and rose 10% in 2002. This stock fell 9.6% in 2008, rose 19.8% last year. In 2008 with 2009, the Standard & Poor 500 indices fell 37% with rising separately 26.5%. Buffett said to the shareholder that defensive abilities must be stronger attacking ability.

This kind of investment strategy needs patience, and patience is very scarce in the fund world. Fund industry faces the pressure that causes this strategy unable to implement, while Buffett has many freedoms. Buffett has 44 billion US dollars cashes at the end of 2007, occupies in its investment portfolio the proportion is about 35%, certainly a part of cash Buffett will use to purchase a company. Even if in today almost zero interest rate situation, Buffett Berkshire Hathaway still had the massive cashes. Buffett said that they usually have over 20 billion US dollars cash, although the cash returns ratio is few, but can actually let them sleep peacefully at night.

Different from Templeton, Fidelity Magellan is one that stresses in the expanding fund. Different from other funds, this fund's achievement does not stabilize, with its majority divided into the merit coming from Lynch mainly 1977 to 1990 operating the rudder times, during this fund, the year rate of return achieves 29%. This long-term rate of return still established above Lynch's success. Lynch also adopts the strategy for a long time. The investment portfolio turnover rate is very low. Holds an office in the fund in him, the Magellan property amount is small. This fund is managing about 25 billion US dollars now. Buffett also acknowledged that when the management fund is bigger, it is more difficult to make the ideal progress.

Lynch said that the growth of fund scale causes their investment superiority considerably to be weakened, and this unpleasant tendency will continue. The Magellan fund's 10 years the average was losing 2% in every year, causing this bad achievement is a reason lying in the fund's excessive scale of projects. Another reason was that fund manager changing job rate is excessively high. This was Buffett and mutual fund's important difference. Since the fund was established since 1963, Magellan has had 7 fund managers. These fund managers adopt different strategies. The achievement also has very big disparity. But Buffett has pressed his own way to manage Berkshire Hathaway. Buffett manages Berkshire Hathaway's time is longer than any other fund managers.