It's incredible to think it, but Warren Buffett is officially worth A$100 billion.
In US Dollar terms, his net worth is $75.1 billion according to Forbes — making him the second-richest person, behind Microsoft's Bill Gates.
But Warren Buffett, the Co-Chairman of Berkshire Hathaway, didn't make his billions starting a technology company like Microsoft or Jeff Bezos' Amazon Inc. Bezos is currently third on the rich list.
You see, Buffett is a dyed-in-the-wool, old school, value investor. Through Berkshire, he and his partner Charlie Munger have accumulated large positions in an array of great businesses like Coca-Cola, Heinz, Wrigley's, GEICO and more.
Interestingly, Munger ranks 1,376 on Forbes' rich list, with a wealth of 'just' $1.5 billion, since has given away so much of his money.
Buffett has also pledged to do something similar with his fortune, except he thinks the money is better left with him — to compound ferociously — until he passes.
A simple formula to their riches
Buffett has spent his life teaching others valuable investing lessons, so there are seemingly endless online resources that you could read or watch at your leisure.
However, Munger — a qualified lawyer — has been a little more aloof with his investing secrets…
Until 2009, when the full force of the Global Financial Crisis was ripping through financial markets. Munger did the following interview with the BBC. When asked, Munger details he and Warren's simple stock-picking checklist.
Buffett and Munger 4 point Checklist
1. They must be capable of understanding the business.
The duo believes that if you have no skill or understanding of a business or market, don't buy. For example, if you don't understand biopharmaceuticals, don't buy shares in companies like CSL Limited (ASX: CSL) unless you can truly get your head around the business.
2. The business must have a durable competitive advantage.
This is a feature or characteristic of a business which makes it able to withstand competition and continually generate free cash flow. Coca-Cola is the Coke, for example. However, Australia's Coca-Cola Amatil Ltd (ASX: CCL) is only a bottler and distributor of Coca-Cola products. It's vital to understand the business and its true advantage.
3. Management must have integrity and talent.
This one is pretty straightforward, but perhaps hard to quantify. Things to look for are management tenure and insider ownership. Ask yourself:
- How long has management been in the job?
- Are returns, in per share terms, appealing?
- Do they eat their own cooking? (i.e. do they own shares)
- What's their growth strategy?
4. No business is worth an infinite price.
As Charlie says, the price must make sense. It's all well and good to own a great business but if you sign a blank cheque to buy it, it will be a terrible investment.
