Tag Archives: Berkshire-Hathaway

Buffett’s Investment Strategy

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“Charlie [Munger, the late Vice Chairman Berkshire Hathaway], in 1965, promptly advised me [Warren Buffett]: “Warren, forget about ever buying another company like Berkshire. But now that you control Berkshire, add to it wonderful businesses purchased at fair prices and give up buying fair businesses at wonderful prices. In other words, abandon everything you learned from your hero, Ben Graham. It works but only when practiced at small scale.” ~ Warren Buffett

Berkshire’s biggest stock holdings are all among the top dogs in their respective industries. Many of them have another attribute that billionaire investor Warren Buffett loved — capital return programs of either paying dividends or repurchasing shares of their stock.

Berkshire, under Buffett, invested in companies that were good values (“wonderful businesses purchased at fair prices”) and had attractive capital return programs through dividends payments and share buybacks.

As an individual investor, it’s important to find the types of companies and sectors you like. It’s also vital to make sure you align your investments with your risk tolerance.

Buffett has often said that Berkshire purposely keeps a massive cash position and is conservative with its investments, but that’s because capital preservation and limiting downside risk are integral parts of his philosophy.

If you have a high risk tolerance or are multiple decades away from retirement, taking on more risk could make sense for you. But only if you are comfortable with risk and have the patience to hold onto stocks through periods of volatility.

Source:  https://www.fool.com/investing/2024/03/10/dividend-stocks-majority-warren-buffett-berkshire/

Warren Buffett and Berkshire-Hathaway’s Annual Letter

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“For whatever reasons, markets now exhibit far more casino-like behavior than they did when I was young. The casino now resides in many homes and daily tempts the occupants.” ~ Warren Buffett

Berkshire’s goal is simple: “To own either all or a portion of businesses that enjoy good economics that are fundamental and enduring. Within capitalism, some businesses will flourish for a very long time while others will prove to be sinkholes. It’s harder than you would think to predict which will be the winners and losers. And those who tell you they know the answer are usually either self-delusional or snake-oil salesmen,” writes Warren Buffett, legendary Chairman and CEO of Berkshire-Hathaway.

At Berkshire, they “particularly favor the rare enterprise that can deploy additional capital at high returns in the future. Owning only one of these companies – and simply sitting tight – can deliver wealth almost beyond measure,” writes Buffett.

Be patient when you find a wonderful business

“When you find a truly wonderful business, stick with it,” Buffett writes. “Patience pays, and one wonderful business can offset the many mediocre decisions that are inevitable.”

Never risk permanent loss of capital

The stock market is becoming more and more like a casino, offering daily temptations to ignore a long-term investment strategy and quickly turn over holdings when “feverish activity” brings all number of uninformed or ill-intentioned actors out of the woodwork.

He writes: “At such times, whatever foolishness can be marketed will be vigorously marketed — not by everyone but always by someone.”

The late Charlie Munger, Buffett’s long-time friend and business partner, argued that there were two types of individuals who buy shares in the stock market: investors and speculators. The investors tend to be disciplined, hard-working, and thoughtful when buying assets. But the speculators are those who seek nothing more than a quick buck without care for the intrinsic value of the underlying business they’re buying.

He notes do not fall for the marketing of the foolishness, or the scene could turn ugly, and the average investor may walk away “bewildered, poorer, and sometimes vengeful.”

Number One Rule

“One investment rule at Berkshire has not and will not change: Never risk permanent loss of capital. Thanks to the American tailwind and the power of compound interest, the arena in which we operate has been — and will be — rewarding if you make a couple of good decisions during a lifetime and avoid serious mistakes,” states Buffett.

The final statement from Warren Buffett as stated in Berkshire Hathaway’s Annual letter to shareholders:

“Berkshire can handle financial disasters of a magnitude beyond any heretofore experienced. This ability is one we will not relinquish. When economic upsets occur, as they will, Berkshire’s goal will be to function as an asset to the country – just as it was in a very minor way in 2008-9 – and to help extinguish the financial fire rather than to be among the many companies that, inadvertently or otherwise, ignited the conflagration,” commented Buffett.

Source:  https://www.berkshirehathaway.com/letters/2023ltr.pdf

Berkshire-Hathaway vs. S&P 500

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“An investment of $10,000 in Berkshire Hathaway stock in 1965 would have grown to approximately $355 million by 2022.” ~ Nasdaq

In 2022, Berkshire Hathaway outperformed the market, gaining 4% versus the S&P 500’s 19% drop.

Since Buffett took over in 1965, Berkshire Hathaway has beaten the market 39 out of 58 years. It has underperformed the market the other 19 years.

Since 1964, Berkshire Hathaway stock returns has outperformed the S&P 500 by a significant margin.

According to a report by Nasdaq, an investment of $10,000 in Berkshire Hathaway stock in 1965 would have grown to approximately $355 million by 2022, a compounded annual gain of 19.8%.

In contrast, an investment of $10,000 in the S&P 500 over the same period would have grown to approximately $2.3 million, a compounded annual gain of 9.9%.

Since that time, Berkshire Hathaway stock has gained more than 153 times the S&P 500’s gains over the same time period — good enough to give you roughly $355 million based on a $10,000 investment. That translates to a compounded annual gain of 19.8%, or nearly double the S&P 500’s 9.9% compound annual gain.

It’s worth noting that the above figures are based on past performance and do not guarantee future results.

Additionally, investing in individual stocks can be risky and requires careful consideration of one’s financial goals and risk tolerance.

Warren Buffett, Berkshire-Hathaway’s Chairman and CEO, is an advocate of buying stock in businesses that will last.

References:

  1. https://www.nasdaq.com/articles/you-wont-believe-how-much-more-warren-buffett-has-made-than-the-market-since-1965