The latest rankings of the world's richest people show that
telecom magnate Carlos Slim of Mexico is again on the top of the
heap, followed by Microsoft founder Bill Gates.
Both of these men amassed dizzying fortunes primarily with one
investment: Gates with
Microsoft (Nasdaq: MSFT)
and Slim with
America Movil (
, one of the largest telecom companies in the world.
Fourth on the list isWarren Buffett . The Oracle of Omaha also
made his fortune with one company,
Berkshire Hathaway (NYSE: BRK-B)
, but there's a twist. While Microsoft is focused on software and
America Movil on cellphones, Berkshire is a holding company. Its
business is to own other businesses.
It is Buffett's uncanny ability to pick winning businesses
that has enabled the modest man from Omaha to pile up nearly $55
But is it really all that uncanny?
I don't think so.
If you go to the bookstore, you'll find a whole shelf of books
on Buffett in theinvesting section. Theywill be chock-full of his
witty sayings. His earthy common sense resonates with everyone.
No matter the story on the financial channels, Warren Buffett is
the one we all gravitate to. He always makes sense, and he always
But no one listens to a word he says. Not really. They process
his words. They laugh at his jokes, but people just do not hear
what Buffett is saying.
I've followed Buffett for 30 years. I've read all of his
shareholder letters, gone to shareholder meetings to hear him
talk and read most of the books about him. They all capture
Buffett the man. A few restate hisinvestment philosophy. But no
one has ever -- ever -- mirrored his method.
This, frankly, is pretty curious.
I'm going to tell you a theory I have about Buffett. It might
seem a little controversial. It may seem contradictory to the
jovial image most of us harbor. I think Buffett woke up one day
and decided to do a little experiment. He decided to test if
people really were paying attention. And he started to tell them
everything he knew about business and investing. He wrote, he
taught, he spoke. He appeared on television and gave
As the decades passed, Buffett conclusively proved one thing,
and one thing only. It was this: People simply do not listen. No
matter how credible the source or enviable his track record,
people always assume they know better.
They don't. Buffett told them all he knew. The shelf full of
books is there because he wanted it to be. Everything the man
knows is laid out for you to benefit from. But you'll likely
ignore it. Buffett has proved this.
The entire financial world is focused on theincome statement .
We go nuts forearnings season .
kicks it off every quarter. Then the big banks make their
announcements, all in a row. Hundreds of major companiesissue
their financials.Wall Street compares them with their estimates.
Trading volumes soar. Prices swing.
This is madness.
The income statement is functionally
Wall Street's consensus forecast for any company'searnings is
also meaningless. Buffett knows this. He's been saying this for
Warren Buffett DOES NOT buy a company for what it has done.
He buys companies for what they will do
. And that is not something you can find on the income statement.
The income statement is in the past tense.
Thebalance sheet , however, is about the future. The income
statement is a video of a game already played. The balance sheet
is a snapshot of a player running toward the goal line with the
ball tucked under his arm.
If you want to be a better investor, forget thebottom line of
the income statements. Read every line of the balance sheet
instead. I've been talking about this alot with my
readers lately. And later this week, I'll show StreetAuthority
readers a little more about reading balance sheets. It's
important, it's interesting -- and it can make you a better
investor than most.
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