How to Make 50% a Year like Warren Buffett

By Brian Zen, CFA

Warren Buffett achieved 50% return on small amount of capital during his early years. When asked about how he would try to do that again today, he shared the following tips:

Focus on things that are knowable and important.
Mr. Buffett wouldn't care about a possible recession; He wouldn't spend a minute thinking about it. The next 20 years should be good; He is in the investment game forever. He focus on things that are knowable and important. He doesn't know how to forecast, it's meaningless to him.

Win by playing your game or finding weak opponents.
Mr. Buffett looks at himself as a golfer. "We don't know which holes will come and in what order, but over 18 holes, we will win by playing our game or finding weak opposition," said Mr. Buffett. Look at See's Candy, Coca-cola – nothing else is in your mind when it comes to candy or soda. Share of mind equals share of market.

Capitalize on small capitalizations and human emotions.
In 1998, people behaved like frightened cavemen (referring to the Long Term Capital Management meltdown). They will be frozen by fear, excited by greed and it doesn't matter what are their IQ's and degrees, etc. Growth of 50% per year is achieved with small capitalization stocks, not large caps. It's just capitalizing on human behavior. It's human emotion that creates opportunities when people are frozen by fear or excited by greed. Human behavior allows for success if you are able to detach yourself emotionally. (That's where Zenway Retreat comes into the picture.)

Seek out publishers of stock information and look for various investment guides.
Go through every investment manual page by page. Looking at a copy of the 1951 Moody's, on page 1433, there's a stock you could have made some money on. The EPS was $29 and the Price Range was from $3-$21/share. On another page, there is a company that had an EPS of $29.5 and the price range was $27-28, one times earnings. You can get rich finding things like this, things that aren't written about. Or you can look through investment guides on Korean stocks like Mr. Buffett did.

Look for simple things that can't go wrong.
"In your investing life, you will have several opportunities and one or two that just can't go wrong," said Mr. Buffett. For example, in 1998 the NY Fed offered 30-year treasury bonds yielding less than the 29-½ year treasury bonds by 30 basis points, because Long Term Capital was trying to get out of a highly leveraged trade. In a situation like that, he would jump in with 75% of his networth if he had only a small amount of capital.

It is hard to stick to the basics everyday while finding nothing exciting.
Based on my personal experience with investing and Zen training, the key is to labor through the boring searches with unrelenting attention like a Zen monk day-by-day and suddenly catch the rare moment when other people's attention is slipping away or they are distracted by the emotions and sensations at the time. It is only during those brief and rare moments when you will catch the Warren Buffett type of simple stuff that can't go wrong. So sticking to the simple stuff is not easy. But if you try to be a little smarter, you may end up a lot dumber, said Mr. Buffett. At Zenway.com, we try very hard just to stick to what is simple and understandable. This alone is no easy feat since the human mind tends to wander.


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Brian Zen is Founder and Chief Investment Officer of Zenway.com Inc., a New York-based registered investment advisory firm. He also serves as Director of Research at Superinvestor.net, a collaborative research co-op for investment advisors and aspiring investors. Previously, he served as Vice President at JPMorgan Chase and Janney Montgomery Scott. Brian holds a Chartered Financial Analyst (CFA)® charter and a Master of Business Administration degree in financial accounting from Bernard M. Baruch College, where he graduated suma cum lauda. He is also a graduate of the executive program in value investing at Columbia Business School. Brian is a member of New York Society of Security Analysts and a faculty member at the graduate school of St. John's University teaching investment research.