Many Investors Made Rich
Over the past 54 years, Buffett has successfully increased the book value of his investment company, Berkshire Hathaway, by an average of 18.7 percent per annum. Those who only invested 1,000 USD in Berkshire shares during the early stages are now multi-dollar millionaires. But even investors who did not start investing until the later decades, can now buy an entire house with a single Berkshire Class A share.
Those who have made a lot of money with the Berkshire shares come to Omaha to thank Buffett for his life’s work and to gather new investment ideas. But the truth is: even a man like Warren Buffett does not have a 100-percent success rate. Despite the outstanding overall balance, every year there are investments in the Berkshire portfolio that have gone badly. This year, the negative development of the ketchup group, Kraft Heinz, was the focus of critical discussion.
“Nobody Wants to Become Rich Slowly”
The Berkshire shareholders’ meeting is the unofficial annual meeting of value investors. From Friday to Sunday, around 40,000 investors from all over the world discuss value strategy and the companies that fulfil the value criteria.
A quick side note on value strategy: the intrinsic value and price of a company (stock price) do not have to be identical. If you, as an investor, manage to regularly find shares whose current price is below their intrinsic value, you will almost automatically make high profits – even with low risks.
Whilst many “modern” investment strategies only work for a short period of time, the value investing strategy that Buffett adopted from his teacher, Benjamin Graham, and then developed further, has been delivering top results for 50 years. Now you might ask yourself: if this value investing strategy is so good, why don’t all investors adopt it? Buffett’s answer to this is simple: “Value investing is the easiest way to become wealthy, but very few people use it. Nobody wants to become rich slowly”.
With the value strategy, you will not become rich in two or three years. With Berkshire, Buffett only had a few years with outstanding high plus values. His secret to success is that he achieves strong profits in good stock market phases and avoids losses in bad ones. There were only two years out of 54 when the book value of the share fell over the course of the year. Typical Buffet shares, such as Coca-Cola, are often extremely boring. However, over a long period of time, share prices rise and pay higher dividends from year to year. And if financial crashes occur, these blue chips recover relatively quickly.
A Berkshire shareholder from New York summarised it nicely at this year’s shareholders’ meeting: “Coming to Omaha to see and hear Warren Buffett is in many ways is like going to church. Even though you know the message, you always leave inspired”.
About the Author:
Since 2002, the analyst Rolf Morrien is editor in chief of the investor service "Der Depot-Optimierer" and author of the books "How do I invest 10.000 Euro optimally?" and "Stock Market Easy to Understand".