Berkshire Hathaway, Warren Buffett’s sprawling conglomerate, topped a $1trn market cap in recent days. This was the first non-tech company to do so — an incredible achievement in this day and age.
To top it off, the ‘Oracle of Omaha’ then celebrated his 94th birthday!
Buffett has been dispensing snippets of stock market wisdom longer than most investors have been alive. Here are three that I try to keep in mind at all times.
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Keep things simple
Warren Buffett famously likes to keep things simple. As UK fund manager Nick Train said: “What [Peter] Lynch and Buffett have demonstrated is that sometimes simple, even obvious ideas can be more than enough to beat the market.”
I’ve found this to be true myself. Take the recent artificial intelligence (AI) revolution. Who will be the long-term winners in this disruptive space? Nvidia or Advanced Micro Devices (AMD)? Super Micro Computer? Or perhaps it’ll be a small up-and-coming firm like SoundHound AI.
Faced with this uncertainty, I opted to keep things simple and invested in Taiwan Semiconductor Manufacturing Company (NYSE: TSM). As the world’s largest third-party semiconductor foundry, it makes the chips for nearly every firm battling it out for AI supremacy.
Whoever wins that battle, they’ll almost certainly be relying on TSMC for many more years to come.
My thinking here was to just keep it simple. Invest in the company making all the chips, especially when it’s shares are cheaper than nearly all of its Big Tech customers.
TSMC stock is up 66% year to date, easily beating the market.
Keep an inner scorecard
That’s not to say TSMC isn’t risk-free. Ironically, Buffett bought the stock a couple of years ago, only to sell it soon after because of political risk.
This is a legitimate concern, as an invasion of Taiwan by China can’t be ruled out. Therefore, Buffett’s decision was understandable because he and his team are making investing decisions on behalf of millions of Berkshire Hathaway shareholders. That’s not to be taken lightly.
However, I’m not. I’m a private investor accountable to myself only. And this relates to a second piece of wisdom from Buffett: the inner scorecard.
At heart, this concept means not trying to keep up with the Joneses (outer scorecard). So it’s about measuring ourselves by our own inner scorecard, not that of others.
For me as an investor, it means not slavishly following the crowd. This includes following Buffett, who doesn’t really invest in small and mid-cap stocks because they’re unlikely to move the needle for Berkshire Hathaway’s massive portfolio. But that doesn’t mean I can’t invest in them.
Stay patient
Warren Buffett is often credited with the phrase: “Someone is sitting in the shade today because someone planted a tree a long time ago.”
It reflects his long-term investment philosophy and the idea that the benefits we enjoy today are often the result of smart investing decisions taken long ago.
For him, one would be his Coca-Cola holding that he first bought in the 1980s. Those shares are now paying Berkshire $194m in dividends approximately every 13 weeks. And rising!
Buffett’s quote emphasises the importance of patience and investing for the future to build wealth.
