As our economic climate turns challenging, would it make sense to learn about money management from a mature expert? Warren Buffett will turn 88, God willing, on Aug 30 of this year. He’s considered by market watchers and commentators as the greatest investor in the world. Right now, he’s also the third richest person on Earth.
According to the daily updated BBI or Bloomberg Billionaires Index (www.bloomberg.com/billionaires/), Buffett’s net worth stood at a towering US$86.7 billion on March 5, 2018. I’m not, however, writing on him because he’s wondrously wealthy. I’m doing so because Buffett’s track record has been proven over decades and because he is wittily wise!
Just possessing a lot of money doesn’t make for a high calibre individual. We all know — or know of — corrupt, covetous, contemptible, craven specimens throughout history, and even today, who have with equanimity amassed great wealth through unsavoury and sometimes downright evil means. That’s why learning the histories of economic (and philanthropic) giants of stature and class — high quality individuals like Robert Kuok, Andrew Carnegie, Loh Boon Siew, Bill Gates and, of course, Warren Buffett — is useful to mortals of lesser means, like us, who also aspire to improve our corner of Earth.
I have been a Buffett fan for 22 years. Not long ago I was invited to the studio of BFM Radio to discuss Buffett’s most recent letter to the shareholders of his investment vehicle Berkshire Hathaway. (You’re welcome to listen to my 21-minute interview at www.bfm.my/rns-rajen-devadason-rd-wealth-creation-3-investing-lessons-fr...)
More than half a century ago, Buffett patiently bought out the Stanton family, then the controlling shareholders of Berkshire. He gained control of Berkshire and its fading textile business on May 10, 1965.
According to author Roger Lowenstein’s fine book Buffett — The Making of an American Capitalist, Berkshire’s closing share price that day, almost 53 years ago, was US$18. (Nowadays, the main A class of Berkshire’s stock stands in excess of US$300,000 a share.) Buffett accomplished that awesome feat of corporate reinvention by allocating Berkshire’s capital into healthy growing areas like insurance, banking and publishing, and away from sun-setting textiles. From 1965 to 2000 Berkshire never once closed its annual accounts with a per-share book value loss. Then, in 2001, came a 6.2 per cent fall in that key metric!
Had Buffett lost his touch?
Apparently not! In 2002, Berkshire’s upward march resumed until 2008’s 9.6 per cent per-share book value contraction. Then from 2009 to 2017 its steady gains continued.
For full disclosure you should know I own a few shares of Berkshire stock, but not, I hasten to add, of the super-pricey Berkshire A class shares. You see, there’s also a B class of shares worth 1/1,500 of the A class’s share price! Those trade now at about US$200 per share; I own 10 shares (not lots but single shares) of Berkshire B.
The latest Berkshire annual report containing Buffett’s awaited 2017 letter to shareholders was released on Saturday Feb 24, 2018. Buffett’s folksy writing style is delightful. You may confirm this for yourself by downloading the current letter (and many previous ones) at www.berkshirehathaway.com/letters/letters.html
Berkshire’s vice chairman is Buffett’s long-time friend and investment partner Charlie Munger, a billionaire in his own right. It’s worth, respectfully, noting that while Munger is more than six years older than Buffett, he is, in terms of wealth and Berkshire shareholding, the junior partner! Also, the late author and investment legend Benjamin Graham was Buffett’s main mentor and his one-time Columbia University professor.
Storehouse of wisdom
Keep in mind both men as we contemplate five Buffett gems from his most recent letter. I hope they help you manage your money and investment portfolio better in the decades ahead:
1. “Our aversion to leverage has dampened our returns over the years. But Charlie and I sleep well. Both of us believe it’s insane to risk what you have and need in order to obtain what you don’t need.”
2. “Charlie and I never will operate Berkshire in a manner that depends on the kindness of strangers — or even that of friends who may be facing liquidity problems of their own. During the 2008-2009 crisis, we liked having Treasury Bills — loads of Treasury Bills — that protected us from having to rely on funding sources such as bank lines or commercial paper. We have intentionally constructed Berkshire in a manner that will allow it to comfortably withstand economic discontinuities, including such extremes as extended market closures.”
3. “Stocks surge and swoon, seemingly untethered to any year-to-year build-up in their underlying value. Over time, however, Ben Graham’s oft-quoted maxim proves true: “In the short run, the market is a voting machine; in the long run, however, it becomes a weighing machine.””
4. “Performance comes, performance goes. Fees never falter.”
5.“Investing is an activity in which consumption today is foregone in an attempt to allow greater consumption at a later date. “Risk” is the possibility that this objective won’t be attained.”
My goal for the next five weeks will be for us to focus intentionally and sequentially on each of these Buffett gems to extract profitable principles. I hope you’ll join me with pen and paper in hand as we dissect these tiny slivers from Buffett’s huge storehouse of wisdom.
© 2018 Rajen Devadason, CFP, is a Securities Commission-licensed financial planner, professional speaker and author. Read his free articles at www.FreeCoolArticles.com; he may be connected with on LinkedIn at https://www.linkedin.com/in/rajendevadason, rajen@RajenDevadason.com and Twitter @RajenDevadason