The Secret Bet of Warren Buffett
It was 1985, and Warren Buffett was enjoying a quiet evening in Omaha when he received an unexpected call from a young Wall Street trader. The man, full of confidence, told Buffett:
Mr. Buffett, I’ve developed an algorithm that can predict stock market movements with 90% accuracy. I’d love to show you.
Buffett, always skeptical of anything promising easy money, smiled and replied,
Tell you what, let’s make a bet. You run your algorithm for five years, and I’ll stick to my boring old way of investing. Whoever has the better returns wins.
The trader, eager to prove himself, quickly agreed.
The Five-Year Test
The trader’s algorithm worked wonders in the first year,
making quick trades and delivering staggering returns. Buffett, on the other
hand, continued his usual strategy—buying solid businesses and holding them
patiently.
By year three, the algorithm started struggling. The market
conditions had changed, and the once-powerful formula was now producing losses.
Buffett? He was quietly enjoying the steady rise of his holdings in companies
like Coca-Cola and The Washington Post.
By the end of five years, Buffett’s portfolio had grown
significantly, while the trader’s algorithm had lost nearly all its gains.
Humbled, the trader called Buffett and admitted defeat.
The Lesson
Buffett simply chuckled and said:
The stock market isn’t a casino where you make quick bets. It’s a place to own great companies and let time do the work. If you want to get rich quick, you’ll likely get poor even quicker.
The young trader left Wall Street shortly after and went on
to build a successful business—using Buffett’s investment philosophy.
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