When it comes to investing, one of my top rules is never to bet against Warren Buffett. I did this five years ago (sort of) and it worked out very badly.
A £10,000 investment in Berkshire Hathaway (NYSE:BRK.B) shares from May 2020 has a market value of around £27,436 today. So what was I thinking when I sold my shares back then?
Growth
For context, five years ago saw the depths of the Covid-19 pandemic. And at the annual shareholder meeting, Buffett said two things that I thought were concerning.
The first was that Berkshire had sold its shares in the major US airlines – at prices well below what they had paid for them not long before. That wasn’t great, but it wasn’t what concerned me most.
Buffett also stated that – despite a stock market crash – the firm didn’t see significant opportunities to use its cash. To my mind, that was much more alarming.
Being greedy when others are fearful has been the key to Berkshire’s success. But it looked to me as though a potential once-in-a-lifetime opportunity was slipping away.
Lesson learned
Since 2020, Berkshire stock has handily outperformed the S&P 500, meaning my decision to sell was a mistake. But I did learn an important lesson along the way.
More than anything, this illustrated the importance of a long-term approach. While I was focused on what the company was doing in the next few months, I should have been thinking in terms of years.
Berkshire’s long-term strength is its structure. Its ability to invest the float generated by its insurance subsidiary in opportunities like railroads and utilities gives it an advantage over most insurers.
Equally, the capital-intensive rail and energy projects benefit from easier access to funding. In other words, Buffett’s company has a self-reinforcing structure that gives it a long-term advantage.
Leadership transition
Replacing Warren Buffett in the CEO role at Berkshire Hathaway will be virtually impossible. And that’s probably the biggest ongoing risk with the stock in the short term.
The firm will retain a lot of its distinctive strengths and successor Greg Abel should be a more than competent chief executive. But something will still be lost in the leadership transition.
About five years ago, I underestimated Buffett during the Covid-19 pandemic. More generally, I became concerned about Berkshire’s scale and ability to invest its vast cash reserves.
Fast forward to today and the company has even more excess cash than it did back then. But I’m determined to not make the same mistake twice.
Buying and holding
In my own portfolio, I managed to go some way towards undoing my mistake. Having sold Berkshire shares at around $177, I did then buy them back again at around $265.
Despite the stock being my largest investment, it’s still on my list to consider buying. And I’m not making the mistake of selling them again.
I think it’s only natural to focus on the short term, whether it’s opportunities or threats. But the lesson I’ve learned from Berkshire Hathaway is that it’s the long term that matters most.
