Benjamin Graham, Buffett’s mentor and the acclaimed father of value investing, said it similarly: “To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks”.
There’s even an echo of Albert Einstein’s famous maxim in these pronouncements: “Everything should be made as simple as possible, but not simpler.” There’s also a common link for today’s investor: Remain focused and try not to be distracted by a hyper headline-seeking media, frenzied traders, greedy speculators and rapacious “2 and 20” hedge funds. Instead, stay single-mindedly focused on building longer-term wealth in superior, personalized fashion, be prepared to give it time and watch how well you do!
Attendance at this year’s Berkshire Hathaway’s annual meeting was most likely down because of it being webcast worldwide in its entirety. Nevertheless, some forty thousand turning up in Omaha, Nebraska (of all places) on the last Saturday morning in April is still to be marveled at. No annual meeting anywhere continues to have such drawing power: And this time with the added potential of a billion Chinese would-be investors to whom it was being simultaneously translated in Mandarin. Just imagine the switch to value investing that this could bring in that wildly speculative market. In all, the investment wisdom and proven value approach of Warren Buffett, 85, and his worldly-wise partner, Charlie Munger, 92, being transmitted into an ever-expanding global market has to be truly exciting!
For those of us still preferring to attend in person there remained the incalculable rubbing of shoulders with investors from all over, catching up with friends old and new, and touring the massive Century Link exhibition hall with its booths and samplings of Berkshire’s vast – and ever-growing – array of products and services. There was also the night-before opening cocktail party at Borsheims and a weekend during which to visit Berkshire’s awe-inspiring and ever-expanding Nebraska Furniture Mart (latest with huge success in Dallas). Add the setting of a pleasing and historic mid-western U.S. city and there still can’t be anything to replace the personal experiences of this amazing annual Woodstock of Capitalism.
In the final instance however, it is the five-hour question and answer session with Berkshire’s ageless duo – Warren Buffett, its iconic chief executive, and Charlie Munger, his phlegmatic partner – that we aficionados keep on coming for. Their wit, wisdom and perspicacity was as riveting as ever. If Charlie Munger at age 92 could confess to having lots of ignorance left, just think of the rest of us. What a thrill, even at my stage, to be once again treated to an annual master class in investing like no other.
It there was an uplifting central message this latest time round, it was that life in America, and indeed in the market-driven world beyond, continues to be better than today’s scary headlines would suggest. And hence that competitive, ably-managed companies the world over will continue to thrive and grow as superior investments.
Both Buffett and Munger are unperturbed by the political risks of what is shaping up as a visceral U.S. presidential election. Buffett reiterated his faith in a country that has done “staggeringly” well over the past 240 years, and whose real GDP per capita has risen six-fold in his lifetime! He also sees the babies being born in America today as the luckiest crop in history. Hear their reasoning and no wonder their unflagging optimism in what is still the world’s premier capital as well as entrepreneurial market.
Neither do they foresee any adverse political fall-out for Berkshire Hathaway which under their stewardship has operated with resounding success for over half century as presidents and their administrations have come and gone. It was conceded that politics could temporarily bend national and corporate trends like these, but in no way could they permanently change them.
Hence, rather like the British adage about keeping calm and carrying on, they will keep on investing in exceptional companies and welcoming their owner-managers as long-term partners, of which they are doing more and more as Berkshire grows ever bigger and is increasingly driven by operating earnings. There will be failures, as they too make mistakes. But then just look at the Berkshire record since they took over a struggling New England textile manufacturer in 1965!
Average annual growth of 19-20% in Berkshire’s book and market value per share are both more than double the total return on the benchmark S&P 500 over this same period. While they’ve also had under performing and occasionally negative years, there could hardly be a simpler, more hands-off or proven way to build value and with it superior investment wealth over time. A record like no other is there for all to see!
Pleasingly, theirs is an approach I’ve successfully patterned my distinctive Canadian Equity and Dividend 6-Paks on – investing in, and growing and staying with, great world-class Canadian companies through thick and thin.
Since their launch in 2004-05, my Canadian Equity 6-Pak has more than doubled in value and the Canadian Dividend 6-Pak is up over 3 times. Both were set back in the market collapses of 2008 and 2015, the Dividend 6-Pak less so because of its underlying income protection. Berkshire’s per share market value was similarly impacted in each of these years. However, this year each are back on track – Berkshire up by 7.4% year-to-date, the Canadian Equity and Dividend 6-Paks returning 11.9% and 17.7% respectively at latest count. And in the case of my 6-Paks now even more so in a transitioning and excitingly investable “new” Canada.
In the final instance, Messrs. Buffett and Munger wouldn’t keep drawing record attendances and an ever-growing worldwide following without that most indispensable ingredient of all – trust. The wealth they’ve made for tens of thousands of investors, large and small, is why so many of us keep being drawn annually to Omaha, also never forgetting the trust that goes hand in hand with their exceptional record.
All of which begs the question as to what will happen to Berkshire Hathaway and its loyal investor following once its illustrious and trusted leaders are gone? Buffett’s answer to this growing (and speculated upon) question is similar to his reply on the impact of the upcoming U.S. presidential election; namely, that there shouldn’t be any need for concern given what has been accomplished and the outstanding management Berkshire has in place within its group.
Similarly, Berkshire’s share of the earnings in its Big Four investments is only recorded to the extent of dividends received. Adjust for more realistic valuations of subsidiary and portfolio investments like these, and what a difference it makes.
For good reason Buffett repeatedly points to Berkshire’s intrinsic values as much the better criterion. While this metric is by definition subjective (the annual report gives pointers on estimating it), there is no doubt Berkshire’s intrinsic value significantly exceeds its current market value. The mechanism put in place to buy back shares should they fall to 120% of book value adds further to this sense of comfort. Together, a substantial hidden value above and a protective cushion below comprise a fail-safe, if not unique, investment combination.
Despite the question marks over succession, I have every confidence that the simple partnership approach and trusting wealth-creating culture instilled by its indomitable champions will live on in the Berkshire of the future – in the process continuing to bring its investors and shareholders superior growth and accumulating wealth in an investment treasure chest like no other!