His Net Worth Grew $100B In 27 Years

Warren Buffett is worth over $113B because of investing.

Although he’s been a great investor his entire life, over 90% of that wealth came after he turned 65.

Today I’ll break down his investment strategy.

There are tons of investment strategies and styles:

• Value

• Growth

• Dividends

• Index funds

• Day trading

But Warren Buffett focuses on value.

He invests in companies whose stock prices are lower than what the company is actually worth.

Here’s how he does it in 6 steps…

1. Return On Investment

Buffett isn’t concerned with a short-term expected return.

Instead, he focuses on the 10+ year return on investment and compares it to other companies in the same industry.

This shows him how a company’s returns hold up against competitors.

Here’s how he calculates return on investment:

Net profit ÷ Initial cost

2. Debt

Buffett prefers companies that can fund their operations and growth with their own resources.

A company with a lot of debt fuels earnings growth with borrowed money.

A company with little debt fuels earnings growth with shareholder equity.

This boosts cash flow, increases profitability, and allows the company to grow at a faster rate.

3. Profits

Buffett likes to look at profit margins from 5+ years ago.

He asks 2 questions:

• How much does the company make after expenses?

• Is the company consistently making more money?

He wants to see high-profit margins that increase year over year compared to competitors.

These are the signs of a leader in an industry.

4. Age

Buffett prefers companies that have been publicly traded for at least 10 years.

This provides him with the historical data needed to do adequate research, and helps him avoid volatile IPOs and short-term fads.

There’s a reason the rule of thumb exists: Don’t touch IPOs for at least 6 months.

Buffett abides by it religiously.

5. Moat

A.k.a competitive advantage.

Buffett doesn’t invest in companies whose products/services are too similar to their competitors.

Common moats can be:

• Patents & IP

• Brand recognition

• Superior product/services

If nothing sets them apart from its competition, how can it outperform them?

It can't and Buffett understands this.

6. Value

Buffett looks at a company’s:

• Assets

• Earnings

• Management

• Future growth

And more to determine a company’s intrinsic value.

He asks what the market cap of the business is, and what the fundamentals say it should be, then invests accordingly.

Notice how a lot of Buffett’s criteria are measured against competitors in the same industry.

Potential investments are never analyzed on a stand-alone basis or across other industries.

This is because each industry is unique from each other.

So comparing something like Microsoft and Tesla doesn’t work as well as comparing Exonn and Shell.

Keep this in mind when analyzing investments.