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Warren Buffett never mentions this, but he was one of the first hedge fund managers to reveal the secret to successful stock market investing. He founded a hedge fund in 1956 using his $105,100 seed capital. Back then, they weren’t called hedge funds, they were called “partnerships.” Warren Buffett earned 25% of all returns above 6%.
For example, the S&P 500 index returned 43.4% in 1958. If Warren Buffett’s hedge fund did not produce outperformance (i.e., if it was secretly investing like a closet index fund), Warren Buffett would have earned his fourth share of his 37.4% excess return. would have gotten his one. This amounts to 9.35% in hedge fund fees.
In fact, Warren Buffett failed to outperform the S&P 500 index in 1958, returning only 40.9% and pocketing 8.7% of that in “fees.” Buffett outperformed the market in 1957 by a wide margin, so his investors didn’t care that he underperformed the market in 1958. That year, Buffett’s hedge fund returned 10.4%, but Buffett received only 1.1 percentage points of that in “fees.” Buffett’s investors were actually thrilled that he outperformed the market by his 20.1 percentage points in 1957, as the S&P 500 Index fell by his 10.8% in 1957.
Between 1957 and 1966, Warren Buffett’s hedge fund returned 23.5% annually, after deducting Warren Buffett’s 5.5 percentage point annual fee. The S&P 500 index’s average annual compound return over that same 10-year period was only 9.2%. An investor who invested $10,000 in Warren Buffett’s hedge fund in early 1957 would have capitalized at $103,000 before fees and $64,100 after fees (i.e., Warren Buffett earned more than $36,000 in fees from this investor).
As you can imagine, Warren Buffett’s best wealth creation strategy is Generates high returns in the range of 20% to 30%.
The options market has many investors risking all of their savings in hopes of getting rich quick. You can get rich by returning 20% per year and compounding it for several years. Warren Buffett has been investing and compounding for at least 65 years.
So how was Warren Buffett able to generate high profits and beat the market?
In this free sample issue of our monthly newsletter, we analyze Warren Buffett’s stock picks covering the period 1999 to 2017 and identify the best-performing stocks in Warren Buffett’s portfolio. This is basically a recipe for making more profits than Warren Buffett himself has achieved.
Enter your email address below to get your free report. The same report also includes detailed bonuses for biotech stocks where he expects returns of more than 50% within 12 to 24 months. We shared this idea in October 2018, and the stock has already given him more than a 150% return. We still love this investment.
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Warren Buffet’s secret recipe
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