Financial Accounting, 9th Edition

14 Financial Statement Analysis

Feature Story It Pays to Be Patient

A recent issue of Forbes magazine listed Warren Buffett as the richest person in the world. His estimated wealth was $62 billion, give or take a few million. How much is $62 billion? If you invested $62 billion in an investment earning just 4%, you could spend $6.8 million per day—every day—forever.

So, how does Buffett spend his money? Basically, he doesn't! He still lives in the same house that he purchased in Omaha, Nebraska, in 1958 for $31,500. He still drives his own car (a Cadillac DTS). And, in case you were thinking that his kids are riding the road to Easy Street, think again. Buffett has committed to donate virtually all of his money to charity before he dies.

How did Buffett amass this wealth? Through careful investing. Buffett epitomizes a “value investor.” He applies the basic techniques he learned in the 1950s from the great value investor Benjamin Graham. He looks for companies that have good long-term potential but are currently underpriced. He invests in companies that have low exposure to debt and that reinvest their earnings for future growth. He does not get caught up in fads or the latest trends.

For example, Buffett sat out on the dot-com mania in the 1990s. When other investors put lots of ...