On Saturday 5th May 2018 Berkshire Hathaway held its annual AGM meeting. During the course of this day long event, most of the time is spent by Warren Buffet and his long-time colleague Charlie Munger fielding questions from shareholders.
Warren started the day off by sharing some nostalgia from his first experience in investing. The event took place in March 1942 when he was 11 years old. He settled on buying 3 shares in an oil and natural gas producing company, he placed the trade through his father. The newspaper headlines of the day did not make for pleasant reading. Spooked by geopolitical headwinds of WW2, shortly after buying his 3 shares, the Dow Jones saw a large decline.
Warren held his position, however he sold in July after a short bounce in the share price and made a $5,25 profit on each share. The chart below shows the continued growth of the company over the ensuing years. Warren went on to say that this experience taught him a valued lesson, “patience in time of stock market volatility”. He regrets not holding onto this share for the long term, and that this incident has dictated the buy and hold strategy that has served him so well through his stellar career.
Warren went to ask the audience to guess what $10,000 invested at the same time in March 1942 on the S&P500 would be worth today. The S&P500 is a broad-based index that tracks the top 500 companies in America, a virtual proxy for the American economy. The answer to Warren’s question, is that today the value of $10,000 invested in 1942, would be $51 million. To rub in his point he said that $10,000 invested in gold in 1942, would only be worth $400,000 today.
Warren’s take on this analogy is, “In other words, for every dollar you would have made in American business, you’d have made less than a penny of gain by buying into a store of value which people tell you to run to every time you get scared by headlines.”
Stock markets have been extremely volatile of late with wild swings, both on the up and down sides. Current newspaper and political headlines have not made for comfort reading. The lesson we can all learn is that a quality equity portfolio is NOT a high-risk investment, it just needs time to yield the right rewards. In the interim, investors must not be panic, but just stay the course.
Berkshire Hathaway is a diversified investment holding company, holding shares in listed companies and direct business interests. It has shown consistent performance over the years. Berkshire Hathaway currently has $100bn in cash, waiting to be deployed into viable business acquisitions. Warren’s message to investors was that America and China are well placed to be the major two trading economies for the foreseeable future, and he is extremely positive on the long term growth prospects of both economies.
Investors wanting to ensure that they have an investment strategy that is appropriately suited to their circumstances and stage of life should make contact with one of Activ8’s advisors.
