Warren Buffett Didn’t Get Rich Buying Apple and Facebook

Did you realize that Warren Buffett returned 81% a year from 1980 to 2003?

Guess what? He didn’t do it by buying Wall Street darlings like an Apple Inc. (NASDAQ:AAPL) or a Facebook Inc (NASDAQ:FB). Buffett accomplished this amazing feat by using a strategy called “takeover speculation.” He bet big, and with leverage, on stocks he thought had a very high likelihood of being acquired.

The average person on the street thinks Warren Buffett is a safe value investor who holds stocks forever. This is only partially true. The other half of his portfolio, and the part of his strategy that has juiced the biggest returns for him, was takeover speculation, where he used significant leverage and options to produce 80+% annualized for 24-years.

Buffett said in a New York Times interview that he made the greatest returns ever in his portfolio employing this takeover speculation strategy.

But Buffett ran into a problem. He became too big. He had to stop using this strategy because the assets he was managing, which in 2003 reached $50 billion, were too big to successfully execute it.

He said in a BusinessWeek article that he guaranteed he could make at least 50% a year if he were managing smaller assets. And he can back it up. We have documented proof from Berkshire Hathaway letters, and from an academic paper on Buffett, which showed that he produced an 81% annualized return over a 24 year stretch.

For those who are interested in what 81% annualized compounds to over 24-years here are some scenarios:

1) A $1,000 account compounded at 81% for 24-years would turn into $1 billion.

2) A $10,000 account compounded at 81% for 24-years would turn into $15.2 billion.

3) A $20,000 account compounded at 81% for 24-years would turn into $30.2 billion.

Learn more about me and how we follow Billionaire Investors into stocks by visiting the Billionaires Portfolio.

Will Meade
President of The Billionaires Portfolio
Providing Sophisticated Hedge Fund Strategies and Analysis For The Everyday Investor