When the world’s most successful living investor speaks, I reckon it’s worth listening. I’m talking about self-made billionaire Warren Buffett here, the brains behind Berkshire Hathaway.
Buffett’s annual letters to shareholders are legendary, and have provided us with some of the most memorable investing advice over the decades. The 2022 letter is just out.
I have to start with his long-term returns. Between Buffett taking the helm in 1965 and 2022, Berkshire Hathaway shares gained 3,787,464%.
The S&P 500, including dividends, returned 24,708%. The equivalent annual returns are 9.9% from the index, doubled by Warren Buffett’s huge 19.8%.
Now, 9.9% per year could turn a long-term investor into a millionaire. But 19.8%, well, that’s the stuff that billionaires are made of.
Buybacks
Buffett strongly defended the use of share buybacks. It’s a political issue in the US, after the introduction of a tax on buybacks. But that aside, why would it be controversial?
Some people believe that there are better uses for spare capital. But as Warren Buffett puts it:
The math isn’t complicated: When the share count goes down, your interest in our many businesses goes up. Every small bit helps if repurchases are made at value-accretive prices.
And what I think might just go down as the investing quote of the year:
When you are told that all repurchases are harmful to shareholders or to the country, or particularly beneficial to CEOs, you are listening to either an economic illiterate or a silver-tongued demagogue (characters that are not mutually exclusive).
Buy big
The latest letter was short by past standards, and didn’t contain too many new insights. But something Buffett said really hammered home what I think is key to long-term investing.
He spoke of investing in shares in companies that have “long-lasting favorable economic characteristics and trustworthy managers“. And he made the point that “Charlie [Munger] and I are not stock-pickers; we are business-pickers“.
Some look at shares as something to buy and sell, to try to pocket quick profits. Warren Buffett and his fellow managers instead look for attractive businesses to buy and hold. The results show clearly in that 19.8% annual shareholder return.
The secret
It’s easy to think Warren Buffett has the golden touch. That he never makes bad decisions. And that everything he buys turns to profit.
But he stressed this year that he’s made plenty of mistakes in his time. He reckons that his “satisfactory results have been the product of about a dozen truly good decisions – that would be about one every five years“.
Encouragement
I find that remarkable, and also encouraging. As long as we can avoid wipeouts, we really only need to find a relatively small number of truly great companies in order to succeed.
He does add that “yes, it helps to start early and live into your 90s as well“.
There’s not much I can offer about emulating his long life. And if we haven’t started early, well, I think the answer is surely to start now. And, as always, invest for the long term.
