Warren Buffett: How To Get "Very Rich" As An Investor
Warren Buffett: How To Get "Very Rich" As An Investor
Hint: You need to find your personal Coca-Cola.
Dear CMQ Investors,
Owning stock is owning a piece of a business. Therefore, when you are considering adding a stock to your portfolio, you evaluate the opportunity through the lens of someone who is buying an entire business. This is one of the key lessons of Buffett’s mentor, Benjamin Graham. How many businesses does it take?
💰 Three businesses is all it takes to get “very rich”
As a long-term investor, your job is to find a reasonably-priced businesses that can produce above-average returns over a long time horizon. And you only have to do this two or three times…
If you find three wonderful businesses in your life, you’ll get very rich.
—Warren Buffett
Charlie Munger’s fortune is an illustration of the aforementioned quote from Warren. The bulk was built from big positions in Berkshire Hathaway, Costco, and Li Lu’s fund.
If you read Janet Lowe’s excellent biography of Charlie Munger then you know one of the big lessons from Charlie’s life is the impact a few decisions can make on the overall outcome.
What Charlie finds interesting when thinking back about all that progress is how few big business decisions were involved in creating billions of dollars out of less than $40 million, fewer than one every three years. ”I think the record shows the advantage of a peculiar mind-set—not seeking actions for its own sake, but instead combining extreme patience with extreme decisiveness.” (pg. 118)
But wait, there’s more…
🥤 Good news: All you need is one business like Coca-Cola
Warren Buffett goes on to say that many of the great fortunes in America were built based on someone buying a single business. Buffett cites Coca-Cola as an example of a company that made a lot of people rich.
I mean, if you look at how the fortunes were built in this country, they weren’t built out of a portfolio of 50 companies. They were built by someone who identified with a wonderful business. Coca-Cola’s a great example. A lot of fortunes have been built on that. —Warren Buffett
Remember: Fortunes have been built by people that identified one wonderful business and bought lots of it. Try to identify one wonderful business to buy (a lot of) at a reasonable price and hold it, ideally, forever.
💔 Bad news: It’s really hard to find these types of businesses
There are 4,286 US-based businesses that offer common stock. If we assume that 10 of them have the wealth-creating potential of Coca-Cola in the 1980s, and are available at reasonable prices, then you should expect to put in some serious work to find them. They aren’t going to be the businesses that scream “buy me” either.
“…there aren’t 50 Coca-Colas. You know, there aren’t 20. If there were, it’d be fine. We could all go out and diversify like crazy among that group and get results that would be equal to owning the really wonderful one. But you’re not going to find it.”
But this is just how things work. Charlie Munger says it best:
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