You know who Warren Buffett is, right? For those who don’t, he’s the the chairman and CEO of Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B).
Berkshire Hathaway is an investment company. But it’s not just any investment company. No, it’s one of the most successful investment companies ever.
Warren Buffett took control in 1965. And then vice chairman Charlie Munger came on board in 1978. Both are famed for their value approach, and the success they’ve made of it.
Every year, Buffett posts his famous letter to shareholders.
It tells us how the company has done over the year, and sums up its long-term performance. The latest one might just blow your socks off.
Socks away
Between 1965 and 2022, Berkshire Hathaway shares provided a compounded annual gain of 19.8% per year.
To give us something to compare with, the S&P 500 index, with dividends included, averaged 9.9% per year.
So what do you think the total gains of the two were between the end of 1964 and the end of 2022? I’ll give you a clue. The S&P’s average of 9.9% totted up to a total return of 24,708%.
But do you want to guess what the total Berkshire Hathaway share price gain might be over the same period? Seriously, go on, give it a go. I’ll wait…
Huge return
The way compounding works, twice the annual return should generate a fair bit more than twice the total S&P return over the long term.
So what do you think? A return of 10 times the index, perhaps 20 times? So, maybe, as much as half a million percent?
I bet you didn’t come up with a figure of 3,787,464%. Yep, that’s right, Buffett’s company saw its valuation rise by nearly 3.8 million percent.
A pound
What would that have done for me, had I invested just a pound at the start of 1965?
As an aside, it’s not out of the question. I was six at the time, and inflation would make £1 back then worth £17.94 in 2022 money. I might have had that much saved up.
Anyway, my single pound would have grown to nearly £38,000. That’s staggering.
Someone who had £100 to spare in 1965 would still have been investing only the equivalent of £1,794 in today’s money.
And they’d now be sitting on Berkshire shares worth close to £3.8m. I could retire on that.
So what?
What should investors take from all of this?
For me, as I didn’t get the money, I take some valuable lessons. It’s all about only buying shares in the very best companies, when they’re trading at attractive valuations. And then holding, and holding…
Now, I see little chance of anyone replicating Warren Buffett’s long-term performance.
I suspect only a handful of investors per generation might have his brains, insight, persistence, and ability to detach emotionally.
But learning from him has helped me with my investments, for sure.
Or I could simply invest £1 today, and hope that Buffett’s successors will carry on just as well. And then see if I can live to 122.
