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How Warren Buffett Became a Billionaire

Phoenix Capital Research's picture




 

One of Warren Buffett’s greatest investment ideas concerned “economic moats.”

 

What he meant by this was to invest in companies with significant competitive advantage that stops competitors from breaking into their market share. These competitive advantages served as “moats” around these businesses, much as a moat of water would protect a castle from intruders in medieval times.

 

To consider how “moat” investing works in the real world, let’s consider McDonalds (MCD).

 

For starters, MCD has a moat. MCD was launched in 1940. Burger King was launched in 1953. Wendy’s was launched in 1969.

 

Despite these competitors moving into its space, MCD has thrived, growing to become the largest hamburger based business in the world: its 2012 revenues were $27 billion compared to Burger King’s $1.9 billion and Wendy’s $2.5 billion.

 

Today, MCD has over 34,000 restaurants based in 199 countries employing 1.8 million people. Obviously the company is able to defend its market share from competitors. That’s an economic moat.

 

Between this and the company’s focus on producing returns to shareholders, those who invested in MCD and held for the long-term have dramatically outperformed the market and built literal fortunes.

 

Indeed, had you in McDonalds in 1986, you would have outperformed the S&P 500 by a simply enormous margin (see Figure 1 below). Not only that but you would have crushed every asset manager on planet earth with very few exceptions.

 

Regarding returns to shareholders, MCD has paid dividends every year for 37 years and has increased its dividend at least once per year.

 

Dividends per share have increased from $0.11 in 1986 to $2.87 in 2012. Those who invested in MCD shares in 1986 are receiving a yield of nearly 30% per year on their initial investment today just from dividends alone.

 

MCD is so focused on producing returns for shareholders that the company has bought back 23% of its shares outstanding in the last ten years. So even investors who bought in 2000 have experienced a synthetic yield of roughly 5% per year.

 

However, the most dramatic returns produced by “moat” investing are evident through the power of compounding as illustrated by MCD’s Dividend Re-Investment Plan or DRIP (a plan through which cash dividend payouts were  automatically used to buy more MCD shares).

 

If you had invested in MCD’s DRIP program in 1988, you would have turned $1,000 into over $23,000 by the end of 2012. This is not by adding to your positions, this is the result of one single $1000 purchase of MCD stock.

 

This example of “moat” investing is precisely the kind of wealth generating investment that has made Warren Buffett a billionaire.

 

For a FREE Special Report outlining how to set up your portfolio from this, swing by: http://phoenixcapitalmarketing.com/special-reports.html

 

Best Regards

Phoenix Capital Research 

 

 

 

 

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Thu, 01/16/2014 - 08:57 | 4337329 lemarche
lemarche's picture

since Phoenix Capital is NOT making ANY money for the past 2 years on its DOOM and GLOOM scenario, it is now turning to Warren Buffet to lift up its SALES !....

 

GOOD LUCK !!! LOL

Wed, 01/15/2014 - 22:59 | 4336560 laosuwan
laosuwan's picture

Buffet recipe:

 

Daddy's money

Government assistance and inside connections

Compound interest

Tax avoidance

 

Which, works.

Thu, 01/16/2014 - 09:32 | 4337416 JackWills
JackWills's picture

Add to that heavy investment early on in insurance companies at a time when there were really no major natural disasters, those holdings were his CASH COW.  That money fueled his empire.  Remember the cash banks and insurance companies have on hand by looking downtown and seeing all the big expensive skyscrapers built by them.

Buffet is a schmuck.

Thu, 01/16/2014 - 09:18 | 4337364 BeetleBailey
BeetleBailey's picture

Buffett made BILLIONS on options. shorting and putting his way to riches off of Coke and many others....

 

The symbol KO alone should be tattooed on his ass......

Wed, 01/15/2014 - 20:51 | 4336071 the0ther
the0ther's picture

He also made a bunch of money sucking at the tit of big fat USSA.

Wed, 01/15/2014 - 19:29 | 4335707 pupdog1
pupdog1's picture

WTF with this article ???

MCD doesn't remotely have a moat. They have food and service that is now hideous compared to what it used to be.

After my local MCD (you want sumpfin'?) got my simple drive-thru orders wrong 5 out of 6 times, I fired their ass, replaced it with any of the ten other choices in the neighborhood, and have been back once in the past year (an emergency coffee, small).

Go talk to any VC firm and they will tell you what an economic moat (or, more commonly, "barrier to entry") is.

Thu, 01/16/2014 - 09:41 | 4337439 Quinvarius
Quinvarius's picture

Yeah.  Food is food.  There is no barrier to entry.  If MCD has a "moat" it is government subsidies to keep their food cheap.  We already know they got bailout money in 2009.  As far as we know, they get subsidized like farmers to keep their food below production cost.

Wed, 01/15/2014 - 22:32 | 4336443 Freddie
Freddie's picture

Go to any town or city in the South or even other parts of the USA where there is a Chick Filet.  They destroy McDonalds.  MCD serves this fake slime that EBT users love.  They can use their food stamp cards at Mickey Ds.

Thu, 01/16/2014 - 09:22 | 4337375 BeetleBailey
BeetleBailey's picture

Indeed Freddie...spot on. I had a KFC multi-store owner for a client years back.

Chick Filet' has been around. They do swamp the competition most every where they are.

Of all the other FF shops and franchises, he feared them the most.

The local one here is in an AWFUL location for FF - awful. Yet it BANGS daily at lunch and dinner. Swamped.

Wed, 01/15/2014 - 19:14 | 4335641 Never One Roach
Never One Roach's picture

I'd like to see a series, "How XYZ Became a Billionaire" going back to Rock-ur-Fellow, Kennedy and Carnegie.

It'd be edukational.

Thu, 01/16/2014 - 09:23 | 4337388 BeetleBailey
BeetleBailey's picture

Buy John Stossel's books - dunno which one, but he goes into it - with some.

J Pierpoint Fucking Morgan - no matter how he got his fortune, is a motherfucker for the Fed - as all the Jekyll Island cunts....Warburgs...the fuckin huns....Rothchild's....cunts

 

 

Wed, 01/15/2014 - 18:54 | 4335585 no more banksters
no more banksters's picture

54 billion euros "flew" out of Greece since the beginning of the economic crisis!

http://failedevolution.blogspot.gr/2014/01/54-billion-euros-flew-out-of-...

Wed, 01/15/2014 - 18:20 | 4335471 dexter_morgan
dexter_morgan's picture

Feeding heavily from the gubmit trough. And other wise decisions along the way.

 

What do the initials GEICO stand for?

Thu, 01/16/2014 - 01:39 | 4336970 TheReplacement
TheReplacement's picture

Geckos Eat I Can Oh

Wed, 01/15/2014 - 16:58 | 4335208 kchrisc
kchrisc's picture

I know next to nothing about Buffet, but does anyone really think that over the past 50 years the powers to be have let him succeed without his cooperation with them?!

Or put more bluntly: the prettiest whore does more tricks.

Wed, 01/15/2014 - 16:52 | 4335187 RaceToTheBottom
RaceToTheBottom's picture

Moat, shmoat

His investment style is "Applied Cronyism".

He uses power others don't have to gain access and deals no one else can get.  Good deals if you can get it but don't pretend it is his investment skill.

Wed, 01/15/2014 - 17:36 | 4335334 Number 156
Number 156's picture

Right.

Buffet got rich by applying the old addage, 'If you want to get rich, never invest your own money.' or something like that...

Wed, 01/15/2014 - 22:37 | 4336468 Freddie
Freddie's picture

'If you want to get rich, never invest your own money.' or something like that...

Or make sure your daddy was a (Republican) senator who can tell young Warren the Democreep how to use Uncle Sam to make Warren rich.

Wed, 01/15/2014 - 16:28 | 4335104 MFLTucson
MFLTucson's picture

Buffett became rich by using Govermment bailouts and his fathers influence as a Senator.  You cannot bullshit everyone son.

Wed, 01/15/2014 - 15:43 | 4334913 Billy Sol Estes
Billy Sol Estes's picture

This article was written by a McDonald's Fry Salter in La Mesa, California.

Wed, 01/15/2014 - 19:13 | 4335637 Agstacker
Agstacker's picture

Yet, according to McDonald's own website, they advise their employees to stay away from fast food...

Thu, 01/16/2014 - 01:42 | 4336978 TheReplacement
TheReplacement's picture

Even if it were good for you, and some of it is, it is not economical for their employees compared to certain other sources of food.

Wed, 01/15/2014 - 14:51 | 4334691 U4 eee aaa
U4 eee aaa's picture

Did the author forget that Buffett's father was a senator? From the start he was and still is the ultimate insider's insider

Wed, 01/15/2014 - 14:46 | 4334668 mkkby
mkkby's picture

How is MCD a moat when fucking booger king builds stores right across the street?  What a DUMB FUCK this author is.

Wed, 01/15/2014 - 13:41 | 4334418 TheABaum
TheABaum's picture

People need to get over the idea that WB is some sort of benign national uncle. 

Wed, 01/15/2014 - 22:24 | 4336413 HardAssets
HardAssets's picture

'POP' - - - - the sound of the bursting of someone's bubble

and they bought all those "How Uncle Warren Got Rich & How You Can Too"  books

Wed, 01/15/2014 - 13:16 | 4334327 Rising Sun
Rising Sun's picture

Buffet sells premium and runs insurance companies - that's how he makes his cash - this horseshit about coca-cola, gilette and mcdonalds is a side show to distract the lemmings from the true way Warren makes his fortune

Thu, 01/16/2014 - 09:27 | 4337399 BeetleBailey
BeetleBailey's picture

selling puts yes...by the thousands of contracts...and pile up cash quickly....part of Buffett's "genius" (cough cough) was knowing when to short/go long/sit out..and that was from huge insider info.

NO body is that good....reference Hillary Fucking Clinton's short tenure as a cattle trading cunt.....see: Tyson....

Wed, 01/15/2014 - 13:15 | 4334316 Species8472
Species8472's picture

Where's the moat? Why not use an actual example from WBs holdings?

Wed, 01/15/2014 - 21:15 | 4336156 Andy Lewis
Andy Lewis's picture

Not only that, where's the meat?

Wed, 01/15/2014 - 14:01 | 4334479 disabledvet
disabledvet's picture

Coke...1973. "massive position...to hell with diversification." talk about "long clean drinking water." I've tasted the difference...the third world stuff will kill you. just make sure you use a straw (yes they have canning too.) since they recycle everything...as does the USA now...this is VERY efficient. costs about ten cents...and that's the real price even today save for the USA...or worse...Europe. these prices have collapsed already. the water is pretty much free. "trillion dollar budgets" say hello to scaled composites.

Wed, 01/15/2014 - 13:13 | 4334308 GOSPLAN HERO
GOSPLAN HERO's picture

Smashburger menu beats the snot out of MCD menu.

 

 

Wed, 01/15/2014 - 22:33 | 4336445 HardAssets
HardAssets's picture

I'll stick to small, independent family owned cafes and burger joints. They actually serve real food.

Wed, 01/15/2014 - 14:45 | 4334669 U4 eee aaa
U4 eee aaa's picture

I don't think you'll ever get the snot out of the McD menu

Wed, 01/15/2014 - 13:16 | 4334319 tarsubil
tarsubil's picture

BurgerFi is for people who don't want to spend less than $15 for a happy meal but also want diarrhea like they get at McD's.

Wed, 01/15/2014 - 13:13 | 4334307 trgfunds
trgfunds's picture

This is the stupidest article ever and completely disregards the fact that the ENTIRE MONEY SUPPLY (AND PRICES AS SUCH) IS CONTROLLED AND MANIPULATED BY A FUCKING CARTEL. So nothing matters. NOTHING.

Wed, 01/15/2014 - 17:15 | 4335262 Cpl Hicks
Cpl Hicks's picture

Lighten up, it's not quite that bad.

And the fries are pretty good.

Wed, 01/15/2014 - 13:08 | 4334300 Laughing Stock
Laughing Stock's picture

That was actually this guys first good post -- keep'em like this one and I'll STFU.

Wed, 01/15/2014 - 13:07 | 4334293 fijisailor
fijisailor's picture

Obviously MCD is not about food.  It's a successful marketing campaign like Coca Cola.

Wed, 01/15/2014 - 14:00 | 4334474 DadzMad
DadzMad's picture

MCD is a real estate company that sells shitty food on the side.  Their founder even said so.  He didn't say shitty food, but he admitted they didn't sell the best hamburger you could find.

Thu, 01/16/2014 - 09:29 | 4337405 BeetleBailey
BeetleBailey's picture

Correct. Kroc famously said he sells burgers to pay the mortgages back when....he was right...MCD for franchisees..the elite of any local town, are fucking gold mines....

Wed, 01/15/2014 - 13:14 | 4334311 tarsubil
tarsubil's picture

Why would MCD be about food? Food is not involved in their business.

Wed, 01/15/2014 - 13:02 | 4334280 Save_America1st
Save_America1st's picture

such a wise investor...his main portfolio was full of companies that received billions in TARP bailouts...the bailouts that HE helped devise so that he wouldn't go tits up.  He directly and indirectly received billions...cronyism all the way, and that's a big reason why he's a billionaire and the rest of "Main Street" America are continually falling into unemployment and poverty.

http://www.chron.com/business/article/Buffett-champion-of-bailout-is-als...

But oh, isn't he just so innocent when the state-run propaganda media only show Warren always smiling and eating his innocent little icecream cone wherever he goes?  How could he ever be a corrupt scumbag because he eats icecream for all the sheeple to see....he must be good because he eats icecream.

Makes me sick and it should make every American sick as well. 

 

Wed, 01/15/2014 - 14:17 | 4334539 Papasmurf
Papasmurf's picture

He would have been destroyed if it weren't for TARP.  He wouldn't have gotten where he was without inside gov't connections.  He is not self-made like he pretends. 

Wed, 01/15/2014 - 19:00 | 4335598 Clycntct
Clycntct's picture

" He is not self-made like he pretends. "

Oh yes he is. But we little people usually refer to it as Theft.

Berhsire Hathaway. In memory of the compony he rode into the dirt.

And refining the selling out of American manufacturing to a fine point of maximum profitability.

Robber Baron's reincarnate.

Wed, 01/15/2014 - 13:26 | 4334365 GrinandBearit
GrinandBearit's picture

Very good.  Also, don't forget strumming his ukulele.

I'll have a party when this scumbag dies... Charlie Munger too.

Wed, 01/15/2014 - 17:43 | 4335363 Stuck on Zero
Stuck on Zero's picture

Add George Soros to drop dead list.

Wed, 01/15/2014 - 16:38 | 4335144 SokPOTUS
SokPOTUS's picture

...and by "Ukelele" you mean Becky Quick?

Wed, 01/15/2014 - 12:59 | 4334270 Arthur
Arthur's picture

Sales Pitch - no moat.

MCD was the first mover and is well run.  No Moat.

A moat is a structural barrier to market entry for potential competitors.  Patents, rail line, pipelines etc.   that can't easily be replocated are moats.

Moats don't equal growth but offer downside protection from competition.  Moats allow for safe expansion and protection of profit margin.  

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