An initial investment of  $10,000 in Berkshire Hathaway when Warren Buffett took over in 1964 would now be worth more than $438 million!

Despite his reputation for picking winning stocks, Berkshire chairman and CEO Warren Buffett wrote to investors in his 2022 Berkshire Hathaway letter: “Charlie [Munger] and I are not stock-pickers; we are business-pickers.”

Over the decades, Buffett has refined a holistic approach to assessing a business—looking not just at earnings but also at its overall health, deficiencies, and strengths. He focuses more on a company’s characteristics and less on its stock price, waiting to buy only when the cost seems reasonable.

In short, Warren Buffett’s investing strategy is not complicated:

• Buy businesses, not stocks. In other words, think like a business owner, not someone who owns a piece of paper (or, these days, a digital trade confirmation).
• Look for companies with competitive advantages that can be maintained or economic moats. Firms fending off competitors have a better chance of increasing intrinsic value over time.
• Focus on long-term intrinsic value, not short-term earnings. What matters is how much cash a company can generate for its owners in the future. Therefore, value companies use a discounted cash flow analysis.
• Demand a margin of safety. Future cash flows are, by their nature, uncertain. Always buy companies for less than their intrinsic values to compensate for that uncertainty.
• Be patient. Investing isn’t about instant gratification; it’s about long-term success.

Other investing virtues prized by Buffett include candid communication with shareholders, patience in letting an investment bear fruit and emphasizing practical vehicles over investing fads.

Patience Pays:  An initial Investment of  $10,000 in Berkshire Hathaway when Warren Buffett took over in 1964 would have purchased approximately 808 company shares at a stock price of just $12.37 per share.

As of the end of 2023, Berkshire Hathaway’s Class A shares (which have existed since 1964) traded for just over $542,625 per share. The stock has produced an overall gain of 4,386,621% from 1964 to 2023. Your initial $10,000 investment would now be worth more than $438 million!

While Berkshire Hathaway’s past 60 years have been an impressive growth story, Buffett cautions that the company’s size has become too large to sustain the same 20% growth rates over the long term. He believes future gains will not be as dramatic as those of the past 60 years.

Nevertheless, Buffett’s core investment strategy prioritizes thinking like a business owner and viewing investments as actual companies, not just as stocks.

He has long advocated for “boring” investing and the notion that real moneymaking happens when you sit back and trust in a long-term plan instead of strapping in for a wild ride seeking short-term profit. He continues to focus on lifelong learning, whether that means unpacking what a new product is all about or reading up on interdisciplinary subjects.

And he intends to give away 99% of his wealth to philanthropy.

Source: Susan Dziubinski, How to Invest Like Warren Buffett, Morningstar, March 13, 2024.