Ask a question

How Does Warren Buffet Make Money

How does Warren Buffett make money?

Buffett was an inveterate saver, putting away significant savings, quite literally, from his paper route. In his teens he had a business running vending machines in his hometown. He never missed an opportunity to save, and invest.Early on, he invested well, and interested other people to invest their money with him. He was, in effect, a hedge fund, and charged 20% of all earnings above earnings in line with the S&P-500, as most hedge funds do, making his money off of what he earned other people, the classic ‘when their earnings go up, I make money, but when their earnings go down, I don’t lose anything,” or OPM philosophy.After he had amassed a significant amount of money he began to buy whole companies, of course, but he didn’t “get rich” that way, he “got richer.”He initially got rich by being a brilliant investor of other people’s money, then parlayed that into his own personal wealth. Buffett is a certified genius, IQ probably north of 140, who can spot anomalies in a corporate balance sheet from six feet away, and add columns of numbers in his head. But it’s not just his brilliance that made him rich. From an early age he was a scrimper and a saver, never missing an opportunity to make a buck, and he came from a fairly wealthy family where his abilities were nurtured and developed. He’s often reputed to “live in the same modest house he grew up in.” Right. A “modest” house that has a squash court in the basement. That’s not modest in my neighborhood, so let’s be realistic and say that true, it’s not the home Bill Gates now owns, nor is it the house Bill Gates grew up in, but it’s not the house I grew up in either.

Does Warren Buffett use a broker?

Since Buffett is not a registered broker/dealer, he and his company must execute their orders through a broker/dealer

His methods of buying/selling is very simple, some one in his orgranization picks up the phone and calls one of the B/Ds that they use and tell them what they want to do.

Large investors, just tell the broker how much they are looking to buy, around how much they want to pay and the total dollar amount they are looking to spend.
Brokers that take these order are "not held" to a set price, they will buy the total amount of shares or spend the total dollar amount the investor has provided.

All large investors buy/sell the same way, there is nothing magical about the way they do it, so "copying" their methods is meaningless. I have taken very large orders over a lunch, some of my people have taken large orders while at a bar. Nothing magical there or nothing magical what Buffett does.

How do buffet's make money??

At a buffet, you don't eat as much as you want, you eat as much as you can. Your stomach can only accept so much food before you pig out. So let do the math - Suppose that you can stuff 2lbs of food into yourself and the average cost of the food that's available at the buffet is 2.00$ per pound. Therefore......you've consumed 4.00$ worth of food. Your bill comes to 10.00$ for the buffet, plus the extras not included such as coffee, wine, beer etc.
If your total bill comes to 14.00$ and the restaurants' cost for food & beverage is 5.00$ they've made a 9.00$ gross profit per person before wages, rent, electricity, and all other expenses.
To stay in business these people have to control their costs to earn a return on their investment.

Does Warren Buffet earn the majority of his money buy buying companies for cheap and selling them high, or is it from the stocks he trades?

A couple of things. He has not sold a private company he has bought - every private company he has bought is still part of BRK. He hasn’t necessarily bought them “for cheap” - he has just bought really good ones for the most part and held on. The stock investments are not “trades” and haven’t been for many decades, average holding periods for the tradeable part of his holdings have tended to be decades. Most of them have been home run choices, earning about 7% a year above the S&P500 in the long run.At this point the money being made is primarily from the first, but in the past it was primarily from the second. Now I’d say they’re 60/40. A final point: it all started with insurance company float. You should read about this (I believe there is another answer that talks about float). This also has a role (but every insurance company has float, so it doesn’t explain why ONE insurance company has so much and invests it so well).

How did Warren Buffett get rich?

When you think about investing, look at the long term track record of the company you are thinking of giving your money to. How did they do when the Wall Street crashed in 1988? Did they handle it well? How did they do after 2008? You can tell a great deal about a mans character not by how he handles himself during times of comfort, but how he conducts himself in times of crisis. The same holds true with companies and stocks. Buffett looked at the history of the company during those times of trouble. Just because a company does well when everything is going great does NOT guarantee they will keep it together when the carpet gets pulled out from under them.

You want to retire a millionaire? Contrary to the advice mose everyone is throwing out right now, invest $2000 a year in a mutual that is STILL pulling at least 12% interest. (Fidelity contra Fund is pulling about 12%). If you are all of 19 years old, begin making that investment NOW! Continue to invest that $2K annually until you are 26 years old and then stop. Don't touch it until you turn 65 and you will retire with over $2.5 million in the bank. It's called "compound interest" and it can either be your greatest friend or your worst enemy. (Most stocks/mutuals have lost 40% over the last year and will continue to lose until Obama leaves office and the Greeks accept the bail out from the EU)

Buffett made investments having investigated the companies first. He didn't invest in the obvious. AND, as the money started rolling in, he did NOT increase his life style. He continued to live well below his means. He did NOT buy on credit (compound interest being the enemy) and he learned how to play the tax codes. He never paid "Income Tax" because he never claimed an income. He took his pay out of the Capital Gains his companies had made. Capital Gains are taxed at much lower rates. They're supposed to be the fund taken from the profit margin and returned back into the company either to maintain or grow the company. While not expressly illegal, it is an immoral means of saving a buck (it's cheating).