Warren Buffett is a renowned investor. I’m almost certain you know who he is. It’s pretty rare that an investment manager becomes a household name. But Buffett is in a league of his own.
He’s basically a finance rockstar. Some might even say he’s the most successful investor in the world. There’s no doubting he’s had a very strong track record. And he’s become incredibly rich from investment over his 85 year lifespan.
In March 2015 Forbes ranked Buffett as the third richest person in the world. His net worth? US$72.7 billion. It’s fair to assume he’s done pretty well for himself.
His investment holding company Berkshire Hathaway [NYSE:BRK.A] has seen incredible returns over the last 50 years. Not always a holding company Berkshire was originally a textiles company. Buffet took it over in 1964. At the time the company was failing. It was the last kind of investment a typical investor would look at.
No one could predict what he’d do with it. Within a few years he began to expand into insurance. Over the years Berkshire has invested in a range of companies. Today it has holdings in major companies like Coca Cola and American Express. And it owns companies such as insurance giant GEICO outright.
How to turn $1,000 into $9.815 million
However back in 1964 US$1,000 invested in Berkshire would have bought you 52 shares. They were about US$19 a shire.
At the closing price on Thursday of US$188,750 your 52 Berkshire shares would be worth US$9.815 million dollars. That’s a pretty handy return for 52 years of investing.
But, is Buffett as good as everyone says? And is he the kind of investor you want to mimic today? Is ‘investing like Warren’ a smart way to go in today’s world?
Well if you look at the annualised return over the 52 years it works out to be around 19%. Rain hail or shine if for 52 years you could consistently get 19% I reckon you’d take it.
Most investors would. I say most because there are some investors that are looking for far more than 19% annualised returns over 52 years.
For a start, hand to heart tell me you’d really invest in one stock for 52 years? Let’s say you started investing when you were 20. That would make you 72 now. That’s a long time to hold an investment that would have gone from $1,000 to $9.815 million.
For a start most investors (Buffett aside) would have sold out after perhaps a few hundred per cent gain. Few would hold on into the 1,000% range. And I’m happy to hear from anyone who would honestly have held the stock for 52 years.
Sure people would have made money on Berkshire Hathaway over the years. But I struggle to think anyone apart from Buffett invested in 1964 and still holds the stock today.
Do you really want just 19% per year?
$9.815 million from $1,000 while technically correct, is rubbish. It’s made Buffett incredibly wealthy but not you. Investing like Buffett makes sense if you’re buying companies. If you own a company, if you’ve got enough wealth to buy and sell more, then in 52 years you might be like Buffett.
But for you, a typical investor, buying entire companies is a bit out of reach. Instead you have to buy shares in companies — like Berkshire Hathaway. But your time frame probably isn’t 52 years. It’s probably 10 years, maybe 20 years.
How do you think Berkshire has done in the last 20 years? 508%. What about the last 10 years? 110%.
Now I’m not having a crack at Berkshire Hathaway. To be straight with you, 508% and 110% gains are fantastic for any company.
But I know of companies that can make those kinds of returns in less than a year. In fact I’ve recommended companies that have increased in price by more than 100% in a week.
These companies that can bolt like lightning are typically small cap stocks on the ASX. And even in some pretty terrible markets you can find winners that buck the trend. I’ve found three that I think are the perfect shockproof stocks, you can find out more about them here.
Berkshire Hathaway and Warren Buffett are historically legendary when it comes to investing. But we all know past performance isn’t always an accurate indication of future performance.
While Buffett and Berkshire have made their billions in the last few decades. Not every investor has. Have you? Perhaps it’s time to think about things a little different. Look into areas and opportunities you might have dismissed before.
Long term investing has its place and that should always be a part of any solid portfolio. But so should some higher risk opportunities. Stocks that could return 100% in a week, or 500% in a year.
These wealth building stocks are out there. And they live in the small cap section of the ASX. The only question left is, are you prepared to take on some risk and invest there?