Warren Buffett: The Investor of the Year

Brian Hicks

Updated December 24, 2009

With the confidence of a man who has been there before, there was nothing about the financial meltdown that could rattle Warren Buffett. 

In fact, while most investors were busy stuffing cash into their mattresses, the grandfatherly Buffett chose to wade into the panic, plucking stocks from the bargain bin.

After all, heading for the exits just isn’t his style… And that’s why I have chosen Warren Buffet as my "Investor of the Year."

You see, Warren marches to the beat of a different market drum. What seems to scare everyone else is strangely music to his ears.

And in a crisis that some believed would eventually rival the Great Depression, he saw one thing and one thing only: the buying opportunity of a lifetime.  

Warren Buffett Buys America

Contrarian to the core, he was more than happy to share his thoughts with any one that would listen. Even when all seemed lost.

In an opinion piece entitled, "Buy American, I am," he urged investors to follow him into the haunted house writing, "A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful." 

"Bad news," Buffett continued, "is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price."  The downturn he predicted simply couldn’t last. Over time, equities would go much higher.

Slump or not, that was an opinion few could argue with… especially coming from the mouth of arguably the world’s greatest stock picker.

But then again, there aren’t many people in the world that can turn $1200 from a paper route into a monumental fortune. His heft is entirely earned.

The reasons for his iconic image, however, are two-fold, since Buffett is not exactly your run-of-the-mill billionaire.

Instead, he’s an American everyman that not only exudes common sense, but dines primarily on hamburgers, chips, and Cherry Coke. He even lives in the same house he bought in 1958 for a paltry $31,500.

But buried beneath that cuddly, down-home exterior is something else entirely — the cold and calculating mind of man who is quick to make decisions and has a serious nose for money. A market shark if there ever was one.

Consider this: Even Buffet’s first investment company returned unbelievable results, turning a mere $100,000 into $100 million in just 14 years.

As for Buffett’s part of the original investment, he put up a whole $100 before becoming a millionaire for the first time at age of 32.

Meanwhile, his investment techniques are as simple as his tastes. He buys rock-solid companies trading well below their intrinsic value and holds on to them.

"I don’t look to jump over 7-foot bars," Warren Buffett has said. "I look around for 1-foot bars that I can step over… Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years."

Since then, he has turned those same value investing techniques into a legendary career at Berkshire-Hathaway. Owning companies as varied as underwear makers and railroads, Berkshire has averaged an annual return in excess of 21% from its inception.

As a result, money managers and individual investors have been quick to mimic his stock picking prowess, eagerly awaiting the news on his latest buys.

It’s a guru-based strategy that speaks for itself.  A 2007 academic study even found that using this technique for 31 years would have delivered an annualized return of 25 percent — or double the return of the S&P 500.

The Natural Swings for the Fences

So how did Warren play the stock market in 2009?

He waited for his pitch and swung away.

At the very peak of a global financial panic, Buffett’s Berkshire purchased $5 billion of Goldman Sachs (NYSE: GS) preferred shares with a 10% annual dividend, as well as warrants to buy $5 billion worth of for $115 apiece. The shares now trade at about $166.

Then, a few weeks later, Mr. Buffett agreed to buy $3 billion of General Electric (NYSE: GE) preferred shares with a 10% annual dividend. Additionally, he also secured the right to buy $3 billion of GE common stock at $22.25.

But what really made Buffett’s year were the pitches he passed on. After fielding frantic calls for money from Freddie Mac, Wachovia, Morgan Stanley, Lehman Bros, Bear Stearns and AIG… the deals he turned down were where he really shined.

That left Berkshire Hathaway with enough powder to buy Burlington Northern, the nation’s second-largest railroad. If approved, it would be the biggest bet ever for Buffett’s Berkshire Hathaway. 

In doing so, Warren basically bet the farm on the economic future of the United States at a time when many folks are still seriously questioning its outlook for future growth.

In true Buffett fashion though, he shrugs off the risks of what has been a busy year for the investment icon.

"Most major companies will be setting new profit records 5, 10, and 20 years from now," Buffett wrote in the New York Times. "If you wait for the robins, spring will be over.”

This time the story probably won’t be much different; in a way, it is almost like he has seen this movie before.

After all, they don’t call him the Oracle of Omaha for nothing.

By the way… if you’re wondering what he’s been up to lately, Buffett has initiated new stakes in ExxonMobil (NYSE: XOM), Republic Services (NYSE: RSG), and Becton Dickinson (NYSE: BDX)On top of that, he has added to his positions in Johnson & Johnson (NYSE: JNJ) and Wal-Mart (NYSE: WMT).

Your bargain-hunting analyst,

steve sig

Steve Christ, Investment Director
The Wealth Advisory

P.S. It’s easy to see how Warren Buffett sees the future… GE gives him exposure to energy and water infrastructure, which will both gain value as we head directly toward peak oil and a global water crisis. His Burlington play is also an oil play, because rail is going to gain traction when trucking becomes cost-prohibitive, due to high oil prices. But his smartest play to date may be a tiny Chinese battery company that you’ve never heard of. He thinks this one is going much higher… and we do, too.

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