Warren Buffett’s investment track record is absolutely incredible. Since taking over at Berkshire Hathaway in the 1960s, the Oracle of Omaha has generated an annualised return of 19.8% (as of 31 December 2022). That’s roughly double the total return of the S&P 500!
It’s little wonder then that 40,000 people flock to Omaha, Nebraska, every year to listen to him speak at Berkshire’s annual shareholder meeting. The event has been dubbed ‘Woodstock for Capitalists’.
But the meeting isn’t just for millionaires and grizzled market veterans. Some of the shareholders are new to investing and are there to pick up nuggets of wisdom. His tips and tricks are relevant to everybody, including someone just entering their 40s with no significant savings.
What is unchanging?
Around three-quarters (or $250bn) of Warren Buffett’s $335bn investment portfolio is invested in just five stocks:
- Apple
- Bank of America
- Coca-Cola
- American Express
- Chevron
Additionally, Buffett is a big fan of insurance companies, so much so that Berkshire owns many outright.
The thing that immediately sticks out here is that all these industries and firms are absolutely embedded within capitalist society.
Consumers will always need bank accounts, insurance, and access to credit. Oil still makes the world go round (at least for now) while Coca-Cola and its portfolio of brands including Fanta and Sprite are found in most restaurants and supermarkets across the Western world. And many people sleep with their iPhones next to their beds (or even heads!).
In short, then, Buffett likes things that are unchanging. And he avoids things that may not stand the test of time.
Patience really is a virtue
A key Buffett trait is patience. He has been known to wait years before finally putting cash to work in the market.
Why does he do this?
Well, cheaper prices, basically.
Take the latest quarter, for example. Berkshire was a net seller of stocks and its cash hoard ballooned to a record $157bn. The US market is highly-valued right now, meaning Buffett likely sees no deals around.
So he will wait while collecting dividends and interest on Treasury bills. The cash pile will grow larger and this will give him more options during the next market meltdown.
Of course, if I’m new to investing, then I don’t want to sit around forever. It’s better to start and get the compounding process underway because nobody knows when the next market crash will happen.
But once the ball is rolling, I reckon it’s wise to follow Buffett and keep some powder dry.
The long game
Pulling all this together, I think there are two important things here.
The first is that it’s crucial to find dividend-paying companies that are extremely high-quality and whose products and services are in constant demand.
The second is that price matters. I’m likely to do far better buying top-notch shares when they’re down than when they’re soaring high. This means having some cash on the sidelines to take advantage of such opportunities when they arise.
Finally, it’s important to remember how powerful compounding is. Buffett has basically averaged 20% a year. If I can achieve half that return by investing £150 a week, while also reinvesting dividends, then I’d end up with about £802,000 after 25 years (discounting any platform fees).
