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so warren buffett started investing at age 11 and is now 91 years old that's 80 years of investing experience which let's be honest makes him a expert at investing so after coming through hundreds of different articles and interviews here's what i found from warren buffett the man that got rejected from harvard who'd go on to make 14 million dollars per day we'll cover exactly how the billionaire investor himself would tell you to invest and how he has been so successful for so long so if you were curious about what warren buffett first invested in when he was 11 he actually got six shares of city service preferred which is a natural gas company to that day in 1942 because it was the day you purchased your first stock which point out you were 11 years old then right said to my dad i want to go all in i had 125 and i put every bit of it in three shares of city service preferred and which is still my personality is to shove it all in as we've seen with apple uh somewhat however the stock doesn't matter as much as the fact that he bought three shares for his sisters at 38 per share that investment he gave to them would later on help shape their entire financial base in the world and now a little background so warren buffett is an american business magnate investor and philanthropist with a net worth of about 125 billion dollars considered one of the most successful investors of all time buffett now runs berkshire hathaway which is a multinational holding company that's invested in tons of big names like apple bank of america coca-cola and american express if you want to know how successful of an investor he is just take a look at this chart that compares berkshire hathaway's total return to the s p 500 for 20 years clearly he's one of the most knowledgeable people out there when it comes to investing so with all that being said let's dive into some things that we can all learn from buffett there are a lot of things we can learn from his mistakes his successes and most importantly the actions that he took early on to get most of his net worth today the reason why i say that is because if he had not built the financial base that he did when he was younger he would not have the billions that he has today but why does it matter if you start young or old well it's because of something called compound interest you've probably heard of it before but it's basically the interest that you earn on interest it's what allows small amounts of money to grow exponentially over time and it's the reason why he was able to beat out jim simon who had a 66 annual return compared to buffett's 22 return because buffett started investing in the 50s he had a 20-year lead on simon which resulted in a 72 net worth difference so what can we learn from this right well for starters if you're already past 11 years old you should probably start investing because chances are you are already late to the party just like i was when i started after college i mean compared to born buffett investing at 11 i think we're all starting a bit too late oh and warren buffett would love a platform like public.com who's graciously sponsoring this video public is an investing platform that helps people be better investors with public you can build a diverse portfolio of stocks etfs cryptocurrencies and soon even alternative assets like nfts are in collectibles as you can see building diversified portfolio is important for investors like buffett public makes investing super easy and convenient there are zero dollar commission fees on standard stock trades they also have over 30 cryptos alongside thousands of stocks and etfs this includes the most popular cryptos like bitcoin ethereum and cardano and they're always adding new cryptos to the platform for example they recently added eight coins you can follow me at public.com charlie and see what trends i'm following and you'll also get a free slice of stock between three to three hundred dollars when you make an account and deposit again that's public.com charlie to get your free stock i'll see you there and now back to the video but the key to this isn't just investing early it's also developing a deep understanding of what compound interest is capable of once you understand compound interest you'll realize that buffett's investing strategy is not about the high annual returns or the amount of money he made in the last year but more about how much he has made over a long period of time in fact you can see this play out when you look at the five-year chart as berkshire hathaway actually underperformed compared to the s p 500 i'm sure you guys have all heard of the term time in the market versus timing the market and well this is exactly what the term is talking about because instead of trying to make the most money now you just have to keep investing for longer to beat everyone else now before you even spend a dollar investing into any stocks you first need to know about what warren buffett looks for in the company that he's interested in let's take a look at how buffett and his business partner charlie munger approach investing through a set of simple philosophies and the less the less static there is in that intellectual process really the better off you are what is the intellectual process intellectual processes is defining your level defining your area of competence and valuing businesses and then within that area of competence finding whatever sells at the at the cheapest price in relation to value and there are all kinds of things i'm not competent to value we have to deal with things that we're capable of understanding and then once we're over that filter we have to have a business with some intrinsic characteristics that give it a durable competitive advantage so what can we learn about them first up you need to study the business not the stock you should not let the price of the stock affect how valuable it is which is why buffett advises anyone to learn the business take tesla stock for example right if you don't know much about electric cars will you truly be making an informed decision investing in a stock like tesla or neo next does the company have a durable competitive advantage in its market this is referring to the company's moat or what i like to call blue ocean if the company has an advantage over the rest of the competition it will be able to raise its prices without too many consequences we'll be talking more about this in a little bit but last up as a bonus let's take a look at something buffett said back in 1999 in a shareholder meeting that i think is super interesting you find small securities in your area of competence that you can understand the business i think you can and occasionally find little arbitrage situations or little wrinkles here and there in the market i think working with a very small sum that there is an opportunity to earn very high returns what i want to focus on in this clip is how he talks about finding small wrinkles in the market what he's trying to say is to find stocks that are currently being mispriced sometimes there are times when stocks have major sell-offs and that creates a window of opportunity for active investors to take advantage of but how do you know if a stock is being mispriced well two my favorite ways are by looking at the price to earnings and price to book ratio a p e ratio measures the company's current share price relative to its earnings per share meaning if it has a lower p e ratio it's considered to be undervalued many investors will say that it's better to buy shares in companies with a lower p e ratio because you would be paying less for every dollar of earnings that you receive so in other words buying at a discount now a pb ratio compares a company's market price to its book value meaning if it's pb ratio is under one then your stocks would cost less than what the company can you know theoretically sell for this for investors could mean that the stock is undervalued but it could also mean that there's something fundamentally wrong with the company now buffett's methodology in finding low price stocks also values things like the company's return on equity debt to equity ratio and profit margins a return on equity is often referred to as the measure of profitability in relation to equity which basically means how efficiently the business generates profits this is a really important financial ratio because it helps us understand how a business uses money so warren buffett he looks for stocks with a higher projected roe of at least 15 percent because that indicates that the company is more efficient at generating profit you'll also want to look at the roe over the course of five to ten years to see if they are getting more efficient because that would also be another really great sign now the debt to equity ratio is the total liabilities divided by shareholders equity which basically tells investors if the company is using more of equity or debt to fund their assets a high debt level compared to equity can result in volatile earnings so buffett actually prefers a company with a debt to equity ratio that is below 0.5 in other words for every 10 in equity the company should only have five dollars in debt this would indicate that the growth is being generated more from shareholder equity instead of borrowed money and last we have profit margins which are the company's net income divided by the revenue having a high profit margin suggests that a business is doing well but if you want to find growth you should also look for increasing margins this would mean that the company is super efficient and successful at controlling their expenses and according to buffett companies with a gross profit margin of 40 or more tend to have a competitive advantage over companies below 20 so with all these ratios and numbers to keep track of it's important to know that finding these opportunities nowadays is going to be more difficult let's hear what charlie munger has to say about it i would also say that what we did 40 or so years ago was in some respects more simple than what you're going to have to do we had it very easy compared to you it can still be done but it's harder now you have to know more i mean just sifting through the manuals until you find something that's selling at two times earnings that won't work for you over 60 years ago warren buffett and charlie munger would flip through books to find a stock that was undervalued and i bet that there weren't many people doing it at that time compared to today because yeah today everyone has access to stock analyses online but that's not to say that there aren't any opportunities out there to buy underpriced companies as buffett said in the shareholder meeting if you can find these wrinkles in the market they can give you an opportunity to get significant returns now that we know what he looks for in stocks let's take a look at berkshire hathaway's holdings in 2022 and how they all fit into his investing approach if we go on the berkshire hathaway portfolio tracker on cnbc we can see that some of berkshire hathaway's biggest holdings are apple bank of america coca-cola american express and craft heinz if we take a look at all these stocks what do they all have in common well they are all companies that have competitive advantages in the market which allows them to raise prices without losing out on customers let's look at their biggest holding right now at 43.5 percent which is apple berkshire hathaway began buying apple stocks in 2016 and after two years they already had a five percent stake in the iphone company if you look at a company like apple it doesn't matter if they all of a sudden charge extra on their products because it's not like we're going to stop buying them buffett clearly sees apple as an essential business for consumers and businesses all around the world with loyal customers willing to pay a huge premium for their products let's also take a look at how this investing approach applies to brochure hathaway's investments in the banking industry out of the top 10 holdings the five bank companies are bank of america american express moody's u.s band corp and bank of new york melon so why does berkshire hathaway invest so much into banks well consumers and businesses rely on central banking institutions to do business and keep the economy running making the banking industry an absolute necessity for most people even if we look at berkshire hathaway's most recent investment into the domestic oil production company occidental petroleum we can see that oil is another business that most people will pay a large premium for because they have no other choice especially with the conflict between russia and ukraine domestic oil production has increased and as a result prices skyrocketed over 43 in february now what you shouldn't do is just go buy any of these stocks right now just because warren buffett did he's never owned any stocks that he didn't understand and that's why i always recommend that you guys do research before investing in anything buffett knows that there are stocks that he doesn't fully understand so he stays away from them until he can learn you know there are all kinds of things i don't know about and that may be too bad but uh you know why should i know all about them i haven't worked that hard on it now at this point you might be wondering about inflation and how the fed just announced that there will be three interest rate hikes in 2022.
due to a wide range of political and economic factors inflation has been at a record high reaching up to over 8 percent for consumers essentials like gas and food may become unaffordable and businesses may have to cut production costs or increase prices for the consumer things are definitely more scary for investors during times of high inflation and rising interest rates so what do you do well if you remember one of the things that charlie munger talked about it was to find a company with an enduring competitive advantage basically a moat berkshire hathaway is already investing for inflation as they have tons of shares in companies that have competitive advantages the mode that these companies have lets them protect their market shares against inflation but what else does buffett recommend when it comes to inflation the best protection the best investment against inflation is to improve your own earning power your own talents very few people maximize their talents and if you'd if you increase your talents they can't tax it while you're doing it they you know they can't take it away from you so what he's saying in this clip is to invest in yourself and build your own talents and skills so that you can afford the increase in prices not many people think of it that way but i think it's super important as an entrepreneur to build skills because no one can take that away from you now for investing during times of rising interest rates we'll have to take a look at the 2021 berkshire hathaway shareholders meeting interest rates you know basically are to uh to uh the value of assets what gravity is to matter you know essentially so what does buffett mean when he says that interest rates are to stock valuations what gravity is to matter well think of it like this if you try to lower the amount of gravity you will be able to jump higher and if you increase gravity it'll be harder for you to jump as high so because interest rates have been so low for the past two years stocks have seen a ton of jumps in valuations but now that interest rates are rising we might see stock valuations come under pressure now this is by no means to scare anyone because if this does happen it'll actually be a good thing if interest rates continue to rise and inflation runs hot we'll be seeing money move out of the markets and back into bonds meaning stocks will be at a discount and it would be a great time to invest however it wouldn't matter in the long term because like charlie munger has said before you don't make money when you buy and you don't make money when you sell you make money when you wait now i want to end this off with something buffett said during the 2018 berkshire hathaway shareholder meeting about how much you have if in 1942 you invested 10 000 into the s p 500 and never looked at it again you had invested ten thousand dollars and you put that money in an index fund we didn't have index funds then but but you in effect bought the s p 500 and never look at another stock quote never listen to another person give you advice or anything on the sort i want you to think how much money you might have now and we'll get the answer you'd have 51 million dollars and you wouldn't have had to do anything you wouldn't have to understand accounting uh with a very relaxed philosophy and you do not have to be you do not have to be you do not have to know as much about accounting or stock market terminology or whatever else it may be or what the fed is going to do next time and whether it's going to raise rates three times or four times or two times none of that counts at all really in a lifetime of investing what counts is is having a a philosophy that you've that you stick with that you understand why you're in it and then you forget about doing things that you don't know how to do so so if you're watching this video and you want to know how to invest in 2022 all you really have to do is ask yourself one question do you see the american economy and businesses growing in the next 50 to 100 years if the answer is yes then it's really a no-brainer and you should invest in companies that you understand that have emotes and can easily scale if you don't want to spend the time looking at different companies you can do something that buffett also recommends which is investing in low-cost index funds such as ones that track the s p 500 index so that you can buy all these big companies in one single stock you don't need to be good at accounting you don't need newspaper headlines and you don't need to listen to people from wall street telling you how you can beat the market remember warren buffett is the guy that had a net worth of 39 billion dollars in 2010 but now has a net worth of over 120 billion something that is only possible from starting as early as he did that's over 200 increase in the last decade and it's because compound interest grows exponentially that means that if you want to passively invest like warren buffett you need to just continue to invest even if inflation is high and interest rates are rising be patient and more importantly be consistent without trying to time the market as long as you continue to invest over a few decades you'll be taking advantage of compound interest and creating long-term wealth with warren buffett's investing model anyways i hope you guys got some value out of this video making this video is super fun watching all these clips about warren buffett was actually super interesting and yeah the guy really is an investing genius yeah if you liked the video make sure to hit that like button and also subscribe for more videos just like this i make a ton of content about personal finance investing in entrepreneurship thank you so much for your time and i'll see you in the next video peace you
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