(2 December, 2004) Building wealth – it’s not rocket science

Back in the winter of 1996, Detroit businessman Robert Miles decided to buy some Berkshire Hathaway stock. Up until then shares in the Warren Buffett-owned company were trading at $30,000 each — the highest price by far of any stock on the New York Stock Exchange or indeed any stock exchange in the world. Miles, apart from being impressed with the remarkable performance of Berkshire Hathaway, was prompted to buy the stock by Buffett’s decision to offer ‘B’ shares at a discount price of $1,000 each. But these weren’t the only factors that influenced Miles to buy.

Like so many others around the world, from all sorts of backgrounds, whether they be financial services professionals, journalists or regular retail investors, Miles admits he was enticed by the cult of Buffett, a man who went from a teenager with $100, with no inheritance, who made his first profits selling old golf balls, to become the second richest person in the world.

And when Miles’ shares in Berkshire Hathaway started to pull in phenomenal returns (B shares in the company are now trading at $2,800), his admiration of Buffett became so powerful that he decided to publish on the Internet a unique reason why he bought the stock, each day for 101 days.

Today when he’s not running Miles International, an investment advisory service largely based on Buffett’s investment philosophy, Miles devotes most of his time touring the world telling audiences how they too can benefit from Buffett’s methods. These presentations also give him the opportunity to promote the three books he has written about Buffett.

“Basically I’m just a passionate shareholder,” Miles says.

“I recommend that people study Buffett because he’s the best. I’m just sharing observations for people to take away whatever they want to take away.”

As you would expect, Miles is full of quirky Buffett anecdotes. He recounts a recent incident where a Singaporean businessman forked out $250,000 on Ebay to have lunch with the 74-year-old, whose number plates Miles says read ‘Thrifty’.

So what is it about Buffett that has made him so successful?

“He does posses some unique skills — he’s a genius when it comes to mathematics and linguistics, having an excellent memory has certainly aided him in his career. But you can’t discount the fact he was born a white male in the heart of capitalism.”

Miles, a keynote speaker at this year’s convention, says Buffett made his fortune basically by buying undervalued companies then using the profits to buy more undervalued companies — investment strategies that are relatively simple but not necessarily easy to mimic.

Miles says investing in a good company takes hard work and patience — Buffett would wait until companies came up that were at least five times undervalued (like when he bought the Washington Post). Miles says investors also need to bone-up on their accountancy skills, learn how to go through annual reports with a fine-tooth comb, and take special care assessing the competence of a company’s staff.

Miles advises Australian investors to look at businesses that have durable competitive advantage and a reliable stream of earnings. In other words, old economy companies that are easy to value. Businesses that are what Miles calls “boring companies” that make “vacuum cleaners, encyclopedias, candy and newspapers”.

Thanks to these principles, Buffett didn’t get burned by the tech crash in 2001.

“Even though his good friend is Bill Gates, he [Buffett] still only owns 100 shares in Microsoft, because he can’t value it.

“I know in Australia you have an index called the All Ordinaries. I would say Buffett’s companies are all ordinary.”

In fact, Buffett’s five biggest holdings, representing 70 per cent of his portfolio, are Coca Cola Amatil, American Express, Gillette, a Californian bank and the Washington Post newspaper.

“Other people have made a lot of money using other techniques but Warren’s are actually quite simple and there really aren’t any secrets, but it is quite amazing what he’s done and I enjoy telling his story because it shows that it is possible to become extraordinarily wealthy and not compromise your principles.”

Robert P. Miles is speaking on ‘How to Build Wealth Like Warren Buffett: Principles and Practical Methods Used by the World’s Greatest Investor’ on Thursday December 2 at 4:45pm-5:30pm.