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Revealed: Warren Buffett’s secret investing sauce

Warren Buffett

Warren Buffett is worth a cool $US 60.8 billion, according to Forbes, making him the third richest person alive. He is 86 years old.  

His partner in business, Charlie Munger, who is worth a healthy $US 1.2 billion (he gives most of his money away), is a straight-talkin’ ex-lawyer.

In an interview with the BBC, Munger gave away the secret stock-picking formula that he and Buffett used to turn Berkshire Hathaway Inc. into a $US 393 billion company throughout their lifetime.

They have a four-point checklist:

  1. They filter businesses by identifying only those that they are capable of understanding — they own companies like Duracell, Kraft Heinz, banks and companies that sell candy;
  2. These businesses must also have intrinsic characteristics which give them an enduring competitive advantage;
  3. Management must operate with integrity and talent; and
  4. No company is worth an infinite price – “the price must make sense” as Munger puts it – because buying cheaply offers them a margin of safety.

It is a “very simple set of ideas…they’re too simple!” says Munger. So simple, in fact, that the reason why everyone doesn’t invest the same way is because the “professional classes can’t justify their existence if that’s all they have to say.”

The true secret sauce of Warren Buffett

Now, that checklist is awesome. But it doesn’t contain all of the secret herbs and spices, which can be found in the Berkshire Hathaway head office in Nebraska. The last ingredient is far simpler.

It is time.

Don’t believe me? Here are the facts.

When Buffett turned 50 he was worth an estimated $US 300 million. Meaning between zero and 50 he was yet to join the $1 billion club.

That also means, a total of $US 60.5 billion of his wealth was made after 50 years of age. As former Motley Fool columnist Morgan Housel put it, more than 99% of his wealth was made after 50.

Foolish Takeaway

It takes a good investing strategy and loads of time and patience to become a good investor. Without either one of those things you are doomed to fail. And with none…well… buy an index fund.

Where to invest $1,000 right now

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

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Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any company mentioned. Owen welcomes -- and encourages -- your feedback on Google+, LinkedIn or you can follow him on Twitter @ASXinvest.

The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Berkshire Hathaway (B shares). The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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