Warren Buffett's Net Worth by Age(microcapclub.com) |
Warren Buffett's Net Worth by Age(microcapclub.com) |
[1] https://en.wikipedia.org/wiki/A_Random_Walk_Down_Wall_Street
http://www.econ.yale.edu/~af227/pdf/Buffett's%20Alpha%20-%20...
Got it.
Basically, he explains how to pick stocks by fundamental analysis. Very entertaining to watch how this type of investors works. However, I can't help thinking that despite the rather sophisticated analysis, it just amounts to throwing random guesses. He always has to guesstimate some percentages (business future income over a decade and various other parameters) that can't be known precisely and little variation in them totally change the decision.
What he says it that 20% of stocks are badly priced by the market, it's just a matter of working hard enough to find them. Could it be that the market is only mostly efficient? or those successful investors are just the lucky ones and they are biased to interpret their success on great skills when it really is luck? (Nicholas Taleb's "fooled by randomness" is all about this idea).
I also watched a finance class on coursera (from Prof. Shiller) where this was discussed. A guest speaker (Andrew Redleaf) explained that the efficiency hypothesis was a thing of the past, essentially popular in academia, and he gave several reasons why it couldn't be true (you can find the video if you're interested) and it was convincing.
I've worked in the investments industry a long time now, and I've come to realize that the market is great at coming to a consensus, not necessarily the right one. It's the job of an investor (much like an entrepreneur) to have a different thesis from the rest of the market, have conviction that they are right, and then be right.
That being said, the market, especially the US equity markets, are predominantly efficient. Alpha can be found outside the mainstream, however.
Buffett directly answers this question
http://www8.gsb.columbia.edu/rtfiles/cbs/hermes/Buffett1984....
Then there is early luck and talent.
http://www.valuewalk.com/2015/05/warren-buffett-partnership/
The first page I flipped to said, "A man of 50 will not make anymore money than he is currently making in his life." It was just so specific, or I I got the quote wrong? I recall looking at it a few times. It was personally depressing because I was broke, and hitting 50.
To this day, I think about that sentance, supposedly extrapolated from years of statistics.
Well, even though most of the wealthy people I have pesonally interacted with had the likability factor of a boat anchor; Warren Buffet seems like one of the wealthy the others should try to emulate. He is one of the guys I secretly root for.
At 34, his net worth was $7M, so relatively speaking, I only need £70k to be doing about as well as he was.
I think I'm actually doing better. :-)
£50 when I was 14 was worth £90 in today's money. Buffett's $5k was $68k.
Buffett's age-35 7M was worth 53M in today's money. So I'd need £70k in today's money to match his net worth growth.
That's exactly the same. I'm actually surprised by this, as it suggests both Buffett and I experienced the same level of compound inflation over the 20 years of our lives from age 14, despite being at different times and on different continents.
(This is all tongue-in-cheek, of course).
If you click through to the original article[1] linked by the blog post, they explain that
> Warren Buffett became a player in the investment game at the wee age of 11, eventually using cash he earned from his paper route to buy some farmland in his home state. As a high school sophomore, he also reaped the rewards of a booming pinball machine business.
1. http://www.marketwatch.com/story/from-6000-to-67-billion-war...
A high school sophomore would be 15-16, so he would have already made the $67k (adjusted) before he got into the pinball business.
There are often leverage restrictions for financial products sold to individuals and even beyond this people are often wary of them. He is incredibly skillful in gaining the trust of investors and running an efficient mortgage operation as well as having a moderately good stock picking record.
And yet here I am anyway, nearing almost 30, still in graduate school, wondering if I'll ever know what it's like to have a reasonable amount in savings, let alone a "net worth" :)
What gets me is how much more creative successful people were when they were young. Fishing and re-selling golf balls? Pinball business?? When I was 14 I was too busy with computer games.
https://en.m.wikipedia.org/wiki/Capital_asset_pricing_model
If you had invested in low beta stocks, leveraged at the same level as Buffett you would not have performed much worse.
Few people start working as early as 13-14, but if we extrapolate the $175 a month (which would be almost $2500 in today's dollars), and you had no expenses you could save $150,000 by the time you were 20, today.
Must surprising here is how well paid that paper route was. Average salary was $200 a month in 1944. Today the average salary is $2500 a month, but you can't earn as much from such a simple job today.