In 83 years, could I turn $115 into $133bn, like Warren Buffett?

This week marks the 83rd anniversary of Warren Buffett buying his first stock. Our writer considers how difficult it would be to replicate his success.

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Warren Buffett at a Berkshire Hathaway AGM

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On 11 March 1941, Warren Buffett spent $114.75 buying three shares in Cities Service. In his own words: “I had become a capitalist, and it felt good”. Eighty-three years later, according to Fortune, the American is worth $132.9bn.

Achieving a compound annual growth rate (CAGR) of 28.6% is impressive. Not even Berkshire Hathaway, Buffett’s own investment vehicle, has achieved this feat. From 1965 to 2023, its stock price grew by an average of 19.8% each year.

To try and match near-30% annual growth, I think it’s necessary to look at smaller companies that could be the ‘next big thing’. Although long-established businesses are less risky, their share prices — over the longer term — tend to perform more conservatively.   

One place to look for future stars is the Alternative Investment Market (AIM).

But since March 2019, the three stocks on the FTSE AIM 50 with the most impressive share price growth are all in — what I would term — ‘old-fashioned industries’. I can’t see their performance being sustained over an extended period.

StockPrincipal activityShare price performance 9.3.19-8.3.24 (%)
Ashtead Technology GroupSubsea equipment rental345
VolexManufacturer of power products214
CVS GroupVeterinary services provider205
Source: TradingView

The index doesn’t appear to contain many artificial intelligence (AI) stocks.

I think AI has the potential to transform everyone’s lives. But the commercial applications of AI are still being assessed. It’s therefore going to be difficult to pick winners.

A possible solution to this problem is to buy an exchange-traded fund (ETF). An ETF invests in several stocks, enabling risk to be spread across many companies through a single investment.

An AI-focussed ETF

One option is the WisdomTree Artificial Intelligence and Innovation Fund (NYSEMKT:WTAI). It specialises in companies with the investment theme of AI and innovation. All of its holdings are in companies involved in the software, semiconductor or AI-related hardware industries.

The table below shows its five biggest holdings at 31 December 2023.

StockProportion of fund at 31.12.23 (%)
NAVER Corporation1.96
Alphabet1.82
Arm Holdings1.80
Meta Platforms1.80
Qualcomm1.65
Source: Fund quarterly report at 31 December 2023

All of the names are familiar to me except NAVER Corporation. It operates a search engine in South Korea. The company’s also involved with augmented reality, robotics and autonomous vehicles. 

But since its inception on 12 September 2021, the fund’s price is down 12%. This demonstrates how difficult it is to make double-digit returns. Picking winners in a sector that’s still in its infancy is fraught with danger.

The fund (like the sector) is high-risk. Competition in the AI industry is intense and there’s a big chance of product obsolescence.

The level of investment required is also huge. By 2030, the UK government says it’s likely to cost “many billions“ to train a large language model, compared to the estimated $50m needed for ChatGPT-4.

As a risk-averse investor, this doesn’t sit comfortably with me.

An admission

I therefore have to confess that, even if I had another 83 years left to live, I don’t think I’d be able to replicate Buffett’s success.

But I’m not worried.

From 1984-2022, the CAGR of the FTSE 100, with dividends reinvested, is 7.48%. Investing £10,000 over 83 years, at 7.48% a year, would grow to £3.98m. Of course, there’s no guarantee history will be repeated.

Okay, nearly £4m is a lot less than the American billionaire’s fortune, but I’d still be happy.

So instead of spending lots of time looking at small technology companies, or assessing the prospects of ETFs that invest in high-risk shares, I’d rather buy some solid and dependable FTSE 100 stocks.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. James Beard has no position in any of the shares mentioned. The Motley Fool UK has recommended Alphabet, Meta Platforms, and Qualcomm. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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