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Wednesday, January 25, 2017 1:46:28 PM
Buffet in Perspective
I have a little different view of how Buffett became so wealthy: he didn’t do it by directly investing in companies that make tangible products (as you or I would); instead, he did it by first joining an Investment Partnership, then by starting his own Investment Partnerships which were later merged into one Investment Partnership named Berkshire Hathaway.
Owning any type of company – even an Investment Partnership – allows that company to print money. How do they print money?
They print money by selling pieces of paper called stock, either preferred shares or common shares or both. When that stock offering takes place, key employees in the company (like Warren) already own tens of thousands, and up to millions, of shares which they only paid pennies for, or which the company purchased for them and gave to them at zero cost (then the company deducts that cost as an expense).
Once the Investment Partnership is up and running and has sold stock, it now has printed money to either invest in other companies or to outright purchase other companies. As that process grows, more shares of stock can be issued (printed) and sold to willing investors; and, of course, the owner of the Investment Partnership along with the upper managers will receive their essentially-free stock options. The stock is free to the receivers because the company paid for the shares and wrote off the cost as a business expense.
So one could say that Buffett got very rich by printing money, otherwise called shares of stock.
The charts are time periods leading up the bottom of the recent Bear market, and the period after the Bear market.
Berkshire Hathaway, last 8 years (a period over which the S&P500 has performed better most of the time):
Berkshire Hathaway, previous 10 years:
List of companies owned by BRK: https://en.wikipedia.org/wiki/List_of_assets_owned_by_Berkshire_Hathaway
I have a little different view of how Buffett became so wealthy: he didn’t do it by directly investing in companies that make tangible products (as you or I would); instead, he did it by first joining an Investment Partnership, then by starting his own Investment Partnerships which were later merged into one Investment Partnership named Berkshire Hathaway.
Owning any type of company – even an Investment Partnership – allows that company to print money. How do they print money?
They print money by selling pieces of paper called stock, either preferred shares or common shares or both. When that stock offering takes place, key employees in the company (like Warren) already own tens of thousands, and up to millions, of shares which they only paid pennies for, or which the company purchased for them and gave to them at zero cost (then the company deducts that cost as an expense).
Once the Investment Partnership is up and running and has sold stock, it now has printed money to either invest in other companies or to outright purchase other companies. As that process grows, more shares of stock can be issued (printed) and sold to willing investors; and, of course, the owner of the Investment Partnership along with the upper managers will receive their essentially-free stock options. The stock is free to the receivers because the company paid for the shares and wrote off the cost as a business expense.
So one could say that Buffett got very rich by printing money, otherwise called shares of stock.
The charts are time periods leading up the bottom of the recent Bear market, and the period after the Bear market.
Berkshire Hathaway, last 8 years (a period over which the S&P500 has performed better most of the time):
Berkshire Hathaway, previous 10 years:
List of companies owned by BRK: https://en.wikipedia.org/wiki/List_of_assets_owned_by_Berkshire_Hathaway
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