Warren Buffet turned 93 on 30 August 2023. His business partner Charlie Munger is 99!!
And these two gentleman still run Berkshire Hathaway, one of the most successful investment firms that ever existed. They still host the Berkshire Hathaway AGM in Omaha each year, where thousands of people from all over the world gather to hear the wisdom of the two men, who sit on the stage eating candy and drinking Cherry Cola. Warren Buffet still lives in the same house that he bought in Omaha in 1958. He drives a modest car, and only upgraded his flip phone for an iPhone in 2020! He eats a McDonalds’ breakfast each morning on his 5 minute commute from his home to his office.
As an aside, in a world where people retire to pursue a life of leisure from an early age, it is interesting to know that in 1880 three quarters of American men over 65 were still in the labour force. By 1950 it was about 50% and these days it’s closer to 20%. Most people simply couldn’t afford to retire, with 40% of the elderly American population being looked after by their children. A 20 year old in 1880 could expect to spend an average of 2.3 years in retirement – less than 6% of their expected lifespan. Today retirement could last one third of your life or longer!
But not Warren and Charlie. They are both going strong and by all accounts, loving it! Buffet was one of three children. His father, Howard was a stock broker. Buffet discovered the book “The Intelligent Investor” by Benjamin Graham – now widely considered the father of value investing – and went on to study under Graham at Columbia Business School. Graham became his mentor and a significant influence on his investing approach. Graham’s key thesis was that you invested in businesses that had a good margin of safety, typically meaning that the price of any bad news was reflected in the share price. A good company, trading at a discount to it’s intrinsic value was a good investment.
Buffet started his first investment company in Omaha in 1959 investing money for family and friends. It was at this time that he met Charlie Munger, who would later become his long term business partner. Buffet’s investments did well and in 1965 he acquired a struggling textile company called Berkshire Hathaway. The textile company proved to be unprofitable, but Buffet decided to use the company as his own investment holding company. Interestingly – Berkshire Hathaway has never paid a dividend nor had a share split, and all the gains that have accrued to the various investments have been rolled up into the value of the share price. The share price of one Berkshire Hathaway A class share is around $540,000! The B class of shares ($360) is listed on the New York Stock Exchange at a price much more manageable to most retail investors.
The patience and diligence of Warren Buffet and Charlie Munger is legendary. Forgive me for saying it, but I think if anyone had the patience to invest over 65 years they would also have compounded their wealth significantly. But not to take anything away from the team, they had a style, a thesis and they stuck to it. Other than Benjamin Graham, the other significant influence on Buffet’s investing style was Phil Fischer. They weren’t friends, although they met once or twice, and most of what Buffet learnt from Fischer was through reading his books. Fischer introduced the concept of “Scuttlebutt Investing” which is the skill or practice of learning absolutely everything you can about a company, or industry from any connected person – who will give you different angles or views. So talking to competitors, vendors, customers or ex-employees will give you very different insights into a company. From here it is up to the manager to distil the information and make a well informed investment decision. The idea here was that you would buy a small number of companies that you knew really well, and then held them for the long term as the value was unlocked.
You might ask why this is called Scuttlebutt investing – the name generally refers to rumour mongering or gossip. Water for long distance sailing trips was stored in a Scuttle Butt and when the sailors would gather for a drink of water they would exchange gossip and stories, so scuttlebutt became slang for gossip or rumours.
Dare I say it, but Charlie Munger may be the cleverer of the two. It was Charlie Munger who convinced Warren Buffet to invest in companies with a long term view. He had a time horizon of ten or twenty years when he picked a company, and was famous for saying that he knew with quite a high probability what would happen to a company over ten or twenty years, but had not the faintest idea what would happen tomorrow or next week. It seems counterintuitive, but it makes a lot of sense. It is very difficult for investors to sit still and wait for the perfect opportunity. The fear of missing out, or the urge to be involved is often proves too strong to overcome. It you have conviction, sometimes you can sit on the sidelines for long periods of time! Charlie Munger looked for companies that had a sustained competitive advantage, with high barriers to entry – his term for this was businesses that had an “economic moat”.
I could write for days about the life and times of Warren Buffet and Charlie Munger – they are both fascinating characters. Let me know if you’d like to hear more, but for today, the takeaway for investment success is (1) buy good companies and hold them for a long time – Charlie Munger, (2) buy them at the right price – a company trading below it’s intrinsic value is a good investment – Benjamin Graham and (3) focus on a small number of companies and know them well – Phil Fischer.
There are many styles of investing. The boys from Omaha are classic “value” investors, but there are styles like “growth”; buying companies that are expected to grow their earnings faster than the economy or other companies in their sector (almost regardless of price); or “momentum” investing, where fund managers track the companies are doing well and stick with them until they stop doing well and then switching into the next company or trend; “macro” investors make a top down approach on what the economy is doing and then invests to capture those movements – think of companies that do well in an inflationary environment or companies that will benefit from lower interest rates, etc; while “thematic” investors may pick regions (the rise of Asia) or themes (electric vehicles and battery production) or sectors (energy, resources, etc) and try and take advantage of the growth in what they believe will be the next best thing!
There is no right way or wrong way – such is the nature of the market overall, but like Buffet and Munger are looking for the right companies, we are looking for the best fund managers. We want to invest alongside people who take a long term view and have conviction in the calls that they make. We may blend managers who use different styles, but mostly we like to know who we are investing with, why they are picking the stocks they like and whether they can deliver over the long term regardless of what happens in the next week or month!
Buy the right funds, at the right price and hold them for the long term. That’s it. Investing is easy!
The Oracle of Omaha
Warren Buffet turned 93 on 30 August 2023. His business partner Charlie Munger is 99!!
And these two gentleman still run Berkshire Hathaway, one of the most successful investment firms that ever existed. They still host the Berkshire Hathaway AGM in Omaha each year, where thousands of people from all over the world gather to hear the wisdom of the two men, who sit on the stage eating candy and drinking Cherry Cola. Warren Buffet still lives in the same house that he bought in Omaha in 1958. He drives a modest car, and only upgraded his flip phone for an iPhone in 2020! He eats a McDonalds’ breakfast each morning on his 5 minute commute from his home to his office.
As an aside, in a world where people retire to pursue a life of leisure from an early age, it is interesting to know that in 1880 three quarters of American men over 65 were still in the labour force. By 1950 it was about 50% and these days it’s closer to 20%. Most people simply couldn’t afford to retire, with 40% of the elderly American population being looked after by their children. A 20 year old in 1880 could expect to spend an average of 2.3 years in retirement – less than 6% of their expected lifespan. Today retirement could last one third of your life or longer!
But not Warren and Charlie. They are both going strong and by all accounts, loving it! Buffet was one of three children. His father, Howard was a stock broker. Buffet discovered the book “The Intelligent Investor” by Benjamin Graham – now widely considered the father of value investing – and went on to study under Graham at Columbia Business School. Graham became his mentor and a significant influence on his investing approach. Graham’s key thesis was that you invested in businesses that had a good margin of safety, typically meaning that the price of any bad news was reflected in the share price. A good company, trading at a discount to it’s intrinsic value was a good investment.
Buffet started his first investment company in Omaha in 1959 investing money for family and friends. It was at this time that he met Charlie Munger, who would later become his long term business partner. Buffet’s investments did well and in 1965 he acquired a struggling textile company called Berkshire Hathaway. The textile company proved to be unprofitable, but Buffet decided to use the company as his own investment holding company. Interestingly – Berkshire Hathaway has never paid a dividend nor had a share split, and all the gains that have accrued to the various investments have been rolled up into the value of the share price. The share price of one Berkshire Hathaway A class share is around $540,000! The B class of shares ($360) is listed on the New York Stock Exchange at a price much more manageable to most retail investors.
The patience and diligence of Warren Buffet and Charlie Munger is legendary. Forgive me for saying it, but I think if anyone had the patience to invest over 65 years they would also have compounded their wealth significantly. But not to take anything away from the team, they had a style, a thesis and they stuck to it. Other than Benjamin Graham, the other significant influence on Buffet’s investing style was Phil Fischer. They weren’t friends, although they met once or twice, and most of what Buffet learnt from Fischer was through reading his books. Fischer introduced the concept of “Scuttlebutt Investing” which is the skill or practice of learning absolutely everything you can about a company, or industry from any connected person – who will give you different angles or views. So talking to competitors, vendors, customers or ex-employees will give you very different insights into a company. From here it is up to the manager to distil the information and make a well informed investment decision. The idea here was that you would buy a small number of companies that you knew really well, and then held them for the long term as the value was unlocked.
You might ask why this is called Scuttlebutt investing – the name generally refers to rumour mongering or gossip. Water for long distance sailing trips was stored in a Scuttle Butt and when the sailors would gather for a drink of water they would exchange gossip and stories, so scuttlebutt became slang for gossip or rumours.
Dare I say it, but Charlie Munger may be the cleverer of the two. It was Charlie Munger who convinced Warren Buffet to invest in companies with a long term view. He had a time horizon of ten or twenty years when he picked a company, and was famous for saying that he knew with quite a high probability what would happen to a company over ten or twenty years, but had not the faintest idea what would happen tomorrow or next week. It seems counterintuitive, but it makes a lot of sense. It is very difficult for investors to sit still and wait for the perfect opportunity. The fear of missing out, or the urge to be involved is often proves too strong to overcome. It you have conviction, sometimes you can sit on the sidelines for long periods of time! Charlie Munger looked for companies that had a sustained competitive advantage, with high barriers to entry – his term for this was businesses that had an “economic moat”.
I could write for days about the life and times of Warren Buffet and Charlie Munger – they are both fascinating characters. Let me know if you’d like to hear more, but for today, the takeaway for investment success is (1) buy good companies and hold them for a long time – Charlie Munger, (2) buy them at the right price – a company trading below it’s intrinsic value is a good investment – Benjamin Graham and (3) focus on a small number of companies and know them well – Phil Fischer.
There are many styles of investing. The boys from Omaha are classic “value” investors, but there are styles like “growth”; buying companies that are expected to grow their earnings faster than the economy or other companies in their sector (almost regardless of price); or “momentum” investing, where fund managers track the companies are doing well and stick with them until they stop doing well and then switching into the next company or trend; “macro” investors make a top down approach on what the economy is doing and then invests to capture those movements – think of companies that do well in an inflationary environment or companies that will benefit from lower interest rates, etc; while “thematic” investors may pick regions (the rise of Asia) or themes (electric vehicles and battery production) or sectors (energy, resources, etc) and try and take advantage of the growth in what they believe will be the next best thing!
There is no right way or wrong way – such is the nature of the market overall, but like Buffet and Munger are looking for the right companies, we are looking for the best fund managers. We want to invest alongside people who take a long term view and have conviction in the calls that they make. We may blend managers who use different styles, but mostly we like to know who we are investing with, why they are picking the stocks they like and whether they can deliver over the long term regardless of what happens in the next week or month!
Buy the right funds, at the right price and hold them for the long term. That’s it. Investing is easy!
Asset Class Returns
The table below represents a rolling year view of the major asset class returns that we track. It offers a view of the asset classes we use to diversify your portfolio.