Image source: The Motley Fool
Many investors name the name Warren Buffett about.
That's partly because he's well known for explaining his investment approach in a very clear way.
But that's partly because Buffett is so good at it.
Next month we should get the latest shareholder letter from it Berkshire Hathaway summarizes last year's performance, Buffett's last at the helm.
But we already know that, in the 60 years from 1964 to 2024, the market value of each Berkshire share under Warren Buffett's leadership grew dramatically. 5,502,284%.
To put that into perspective, someone investing $1,000 in Berkshire when Warren Buffett took over would be sitting on $55bn worth of stock 60 years later.
How did Buffett treat you?
Buffett had an idea about what investing is
Many people invest – some very well – without having a the idea about what investing is.
Maybe they just invest in the stocks of companies they like, hoping that the prices will go up. Since that approach can work, it may seem unnecessary to have an idea about what investing is.
But Warren Buffett's success came from his willingness to learn from experience and change his way of thinking over time.
After trying several investment methods, he came up with the idea of buying stakes in companies.
He only wanted to buy stakes in what he thought were big companies. He will aim to do so only at an attractive price (note that that is not a cheap price) and hold on for a long time.
Focus on quality and long-term investment
Why is this important?
Having a strong, consistent vision helped shape what Warren Buffett did and helped him stay the course.
For example, consider Berkshire's holdings American Express (NYSE: AXP).
In the 1960s, the company's stock price was marked down significantly as the market learned of a fraud involving an Amex subsidiary issuing warehouse receipts for vegetable oil that did not exist.
Buffett realized that, since American Express was an unwitting victim, not a perpetrator, and it was not a norm in Amex's business, the long-term impact may be minimal. American Express had a strong, proven business with a strong brand and a large customer base.
Warren Buffett's thinking was that its fundamental value had not really changed. Even allowing for some risks like some cardholders defaulting on their bills, Buffett smelled opportunity when others panicked.
You call that”greed when others fear“.
That turned out to be the right call. Berkshire bought a great business at an attractive price – and has held onto the shares for decades since.
Benefits include
Buffett's impressive long-term gains have come because Berkshire has kept reinvesting profits.
That is known as compounding.
During the sixties it can have incredible strength. The 5,502,284% profit I mentioned above was just 19.9% per year.
That's amazing – but it doesn't sound unbelievable. By compounding at that rate over the decades, however, Buffett has delivered really big returns to shareholders.
