Warren Buffett never mentioned this, but he was one of the first hedge fund managers to reveal the secrets of successful stock market investing. He launched his own hedge fund in 1956 with an initial capital of $105,100. At that time, they were not called hedge funds, they were called “partnerships.” Warren Buffett received 25% of the total returns in excess of 6%.
For example, the S&P 500 returned 43.4% in 1958. If Warren Buffett's hedge fund had not outperformed (i.e. secretly invested like a closed-end index fund), Warren Buffett would have received a quarter of the 37.4% excess return. This would have been 9.35% of the hedge fund “fees”.
In fact, Warren Buffett failed to beat the S&P 500 in 1958, only returning 40.9% and taking 8.7% of it as “fees.” His investors didn't mind that he underperformed the market in 1958 because he beat the market by a large margin in 1957. That year, Buffett's hedge fund returned 10.4%, and Buffett only took 1.1 percentage points of that as a “fee.” The S&P 500 lost 10.8% in 1957, so Buffett's investors were thrilled to beat the market by 20.1 percentage points in 1957.
Between 1957 and 1966, Warren Buffett's hedge fund returned 23.5% annually after deducting Warren Buffett's annual fee of 5.5 percentage points. The S&P 500 achieved an average compound annual return of just 9.2% over the same 10-year period. An investor who invested $10,000 in Warren Buffett's hedge fund at the beginning of 1957 saw his capital turn into $103,000 before fees and $64,100 after fees (this means Warren Buffett received more than $36,000 in fees from this investor).
As you can guess, Warren Buffett's #1 strategy for building wealth is To achieve high returns in the range of 20% to 30%.
We see many investors trying to enrich themselves in the options market by risking their entire savings. You can get rich by returning 20% annually and compounding that for several years. Warren Buffett has been investing and compounding money for at least 65 years.
So, how does Warren Buffett manage to achieve high returns and beat the market?
In a free sample of our monthly newsletter, we analyze Warren Buffett's stock picks covering the period 1999-2017 and identify the best-performing stocks in Warren Buffett's portfolio. This is basically a recipe for better returns than Warren Buffett himself achieves.
You can enter your email below to get our free report. In the same report, you can also find a detailed payoff for biotech stock picks that we expect to return more than 50% in 12-24 months. We initially shared this idea in October 2018 and the stock has already returned more than 150%. We still like this investment.
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