Just over a week ago, Berkshire Hathaway released the latest annual shareholder letter from its chairman – the legendary investor Warren Buffett.
The letter revealed that the overall gain in the per-share market value of Berkshire Hathaway since Buffett took the reins is an astounding 3,787,464%. To put that huge number into context, it means if I had spent £100 on Berkshire shares when Buffett first took the top job there, my shares would now be worth £3.8m. Wow!
What I think is most interesting for me as a private investor is that the way Buffett achieved this return is well-publicised. Indeed, I can apply many of the same principles myself when choosing shares to buy, even with a small amount.
Investing for the long term
Buffett is, without a shadow of a doubt, a long-term investor.
Indeed, he has said that his favourite holding period is “forever”. In reality, he has sold plenty of shares over the years. But he has also held some stakes for decades, including holdings of Coca-Cola and American Express.
The return above is for the period between 1965 and last year. That shows the benefit Buffett has derived by taking a long-term approach to investing. When investing in great businesses with enduring competitive advantages, time can be a friend of the investor.
Thinking like a part-owner
Buffett has bought many businesses outright. But he also has a large portfolio of shares in publicly listed companies.
Some investors simply think of a share as a bit of paper that has a price attached. If they can buy it now and sell it later for a higher price, they see that as a good deal.
That is not the approach that led Warren Buffett to his phenomenal investment returns. He sees a share as a stake in a business. He therefore thinks like a part owner. Practically, that means he only buys shares if he thinks a business is really good. Share price alone is not enough if he does not rate the business highly.
Waiting for great shares
As it has for decades, the Buffett portfolio contains a fairly small number of companies. That is because he has tried to improve his returns by concentrating large sums in a focused collection of businesses he sees as outstanding.
Judging by his track record, I would say that approach has worked in spades.
Yet a lot of investors do something different. They buy into a vast range of different firms. This means that even if they do invest in an incredible success story, it will be a smaller proportion of their portfolio than might otherwise be the case.
By waiting patiently to find great not merely good investment ideas, then going into them in a big way, Warren Buffett has been hugely successful.
Like him, I am looking for brilliant shares I can add to my portfolio!
