OMAHA, NEBRASKA – Renowned investor Warren Buffett is widely known for his successful stock market strategies, but few are aware of his early foray into hedge fund management. In 1956, Buffett launched his hedge fund with $105,100 in seed capital, operating under the guise of a “partnership” at the time. He implemented a system where he would take 25% of all returns in excess of 6 percent.
An interesting example of Buffett’s approach can be seen in the year 1958. While the S&P 500 Index returned 43.4%, Buffett’s hedge fund only managed to achieve a 40.9% return. Despite falling short of the market that year, Buffett still pocketed 8.7 percentage points as “fees” – a move that raised eyebrows among his investors. However, the previous year saw Buffett’s fund outperform the market by a significant margin, boasting a 10.4% return while the S&P 500 Index suffered a 10.8% loss.
From 1957 to 1966, Buffett’s hedge fund recorded an annual return of 23.5%, even after deducting Buffett’s 5.5 percentage point annual fees. In comparison, the S&P 500 Index generated an average annual compounded return of only 9.2% during the same 10-year period. This translated to substantial profits for Buffett, with a hypothetical $10,000 investment turning into $103,000 before fees and $64,100 after fees – resulting in Buffett making over $36,000 in fees from a single investor.
Buffett’s success is often attributed to his wealth-building strategy, which aims to generate high returns in the 20% to 30% range. Despite the allure of striking it rich quickly, Buffett’s long-term approach to investing and compounding has proven to be his key to success.
Delving deeper into Buffett’s investment strategies, an analysis of his stock picks from 1999-2017 revealed the best performing stocks in his portfolio. This valuable insight presents a recipe for achieving returns that may even surpass Buffett’s own success.
As investors seek to emulate Buffett’s strategies, it’s important to recognize the potential risks involved, especially in attempting to mirror the success of a legendary figure in finance. Nevertheless, with the right knowledge and approach, investors can aim to achieve substantial returns over the years, aligning with Buffett’s proven methods.