My understanding is that Warren Buffett is a good stock investor and a great manager. If you look at his portfolio he likes to buy and hold companies. The CEOs of the companies that he buys unanimously say that they have learned a tremendous amount from him.
Therefore there is strong argument for saying that he makes winners rather than buying them. And the first big winner that he made was a textile company that he bought because he realized it was perfectly positioned to sell insurance instead. The name of that company is Berkshire-Hathaway.
Buffett has another key advantage. Many of his profitable deals are not publicly available. For example look at the Goldman Sachs deal he did last year. He bought $5 billion in preferred stock that pays a perpetual 10%/year, with a 5 year option for $5 billion in stock at $115/share. They then were able to talk up his investment as a "vote of confidence", and he threw his weight into TARP.
If we assume a 5% discount rate, he spent $5 billion for $10 billion in future earnings, with a 5 year option that is potentially worth a lot more than that. That is worthwhile even if he only thought they had a 30-40% chance of surviving. It isn't hard to come out smelling like roses when opportunities like that get offered to you.
Therefore there is strong argument for saying that he makes winners rather than buying them. And the first big winner that he made was a textile company that he bought because he realized it was perfectly positioned to sell insurance instead. The name of that company is Berkshire-Hathaway.
Buffett has another key advantage. Many of his profitable deals are not publicly available. For example look at the Goldman Sachs deal he did last year. He bought $5 billion in preferred stock that pays a perpetual 10%/year, with a 5 year option for $5 billion in stock at $115/share. They then were able to talk up his investment as a "vote of confidence", and he threw his weight into TARP.
If we assume a 5% discount rate, he spent $5 billion for $10 billion in future earnings, with a 5 year option that is potentially worth a lot more than that. That is worthwhile even if he only thought they had a 30-40% chance of surviving. It isn't hard to come out smelling like roses when opportunities like that get offered to you.