In the glory days of ancient Greece, people facing important decisions would travel to Delphi to consult the Oracle, a priestess of Apollo who was famous for her insightful, if cryptic, glimpses into the future.
Today, investors seeking guidance flock to another oracle, Berkshire Hathaway Chairman Warren Buffett, a.k.a. The Sage of Omaha. But unlike the Delphic Oracle, Buffett’s advice is always straightforward and consistent. The modest billionaire’s wisdom is showcased every year at Berkshire’s annual meeting; and the 2018 edition, which took place recently in Omaha, was no exception.
While the meeting touched on numerous topics and trends, there was an over-arching theme: the power of compounding and holding on to good stocks for the long-term.
Buffett opened up with one of his classic tales. In 1942, when World War II was still a toss-up, Buffett made his first stock purchase investing $114 in a business called Cities Services, when the stock went on a roller coaster ride, Buffett, scared by the market’s volatility, sold his tiny stake. But, he continued with a twinkle in his eye, if he had invested that $114 in the S&P 500 in those dark days, his stake would now be worth $400,000. A $10,000 investment in the S&P would now be worth $51 million.
Warren Buffett has many such stories, all of which are summarized by his observation that for almost 250 years it has been a mistake to bet against the U.S. and its economy. That advice is particularly powerful in these days of turmoil both at home and abroad.
Buffet’s belief in America informs his core philosophy for building wealth: tap into the remarkable productivity of U.S. business and be patient. Conversely, attempting to time the market is a flawed approach to investing.
Back in October, Buffett predicted that the Dow would hit 1 million in 2218. The number sounds crazy, but it’s simply a projection of the trends that form the basis of Buffett’s philosophy. The Dow would need to compound about 4% annually to get to a million. That’s less than half its rate of return over the past hundred years. If Berkshire’s A shares slightly out-perform the Dow and compound at 10% annually they’ll be worth $4 billion each in 2218.
There is a very Zen aspect to Buffett’s philosophy and Buffett is a Zen master. As his partner, Charlie Munger, told the assembled shareholders, “[W]hen there is nothing to do, Warren is very good at doing nothing.”
The Sage of Omaha understands that Investor patience is sometimes tested in this age of 24-hour financial news and the pressure for quick returns. To help reduce the media stress on Berkshire shareholders, Buffett releases the company’s earning on Saturdays, which gives his investors time to digest the reports before they are swamped with media coverage of the results.
Buffett’s long-view strategy applies to individual stocks as well as the overall economy and market. Many of the headlines from this year’s meeting centered on Buffett’s support for troubled Wells Fargo. While the bank’s scandals doubtless scared off other investors, Buffett has repeatedly stated his belief in the Wells Fargo’s future prospects and its new CEO.
Of course, not even an oracle can see the future perfectly. Buffett acknowledged that Berkshire’s acquisition of Duracell has been a disappointment. But, he added, Berkshire is investing heavily in Duracell to help the battery maker reach its full potential.
Asked for his thoughts on crypto-currencies, like Bitcoin, Buffett predicted a “bad ending” for such investments. His reasoning: they are “non-productive assets” that deliver no value except supposed scarcity.
In response to another shareholder question, Buffett offered some insight into the danger of investing on emotion. He told the meeting that he would not consider his personal beliefs about guns when making investment decisions for Berkshire Hathaway.
There are innumerable sources of financial advice in today’s world. Many of these are wise and insightful. But the simplicity, consistency, and effectiveness of Warren Buffett’s teachings, combined with his unparalleled real-world success, sets him apart. He truly deserves the title Sage.