What’s the secret to financial success in the stock markets? A million dollar question….or in this case, $50bn, the amount that Warren Buffett has amassed over the years.

A research paper published by academics claims to reveal the secrets of Warren Buffett’s incomparable stock market success. The professors involved found that the returns from his investment company Berkshire Hathaway, which far exceed those achieved by any rival that has operated for 30 years or more, were “neither luck nor magic”.

They deduced that his success hinged on a clever use of borrowing money, or “leverage”, in order to make large purchases of cheap, safe, quality stocks. They also added that Warren Buffett’s returns were down to stock selection rather than any effect on management of the companies he owned. Effectively, by using a leverage of around 1.6-to-1, or in other words, investing £1.60 for every £1 of capital held by borrowing money, Warren Buffett amplified the returns from a low-risk portfolio of stable, profitable companies which had fallen out of favour with other investors.

The academics created a portfolio that mirrored the way Warren Buffett borrowed to invest and then followed the stock-selection themes he favoured and achieved similar returns to Berkshire Hathaway. They concluded that Warren Buffett’s genius appears to be at least partly in recognising early on that these factors work and applying leverage without ever having to fire sale. Warren Buffett’s bravery and sticking to his principles through ups and downs, particularly when other investors were retreating from the markets was crucial.

There’s no doubt that bravery must have figured somewhere in the equation, but one may beg to differ on their deduction that Warren Buffett’s success was ‘neither luck nor magic’. Bearing in mind his family wealth and connections, perhaps it’s fair to say a little luck did come into play. But at the end of the day, you make your own luck, so although it’s unlikely that most of us will match Warren Buffett’s fortunes, it’s nice to know that maybe…just maybe, there’s a chance we could benefit from some of his know-how and experience just a little of his stock market success!