When you listen to Warren Buffett speak, you can always take away a few words of wisdom.
With a fortune of $83.5 billion, and a company that’s generated a 20.9% annual return, as compared to the S&P 500’s 9.9% return between 1965 and 2017, he’s worth listening to.
That’s why over this past weekend, 42,000 investors descended upon Omaha, Nebraska for Berkshire Hathaway’s annual meeting, otherwise known as the Woodstock of Capitalism, where one of Buffett’s key messages was to stay the course with long-term investing.
In fact, he noted that if he had held a stock he bought in 1942, it would have quadrupled his money. After watching the price of Cities Service preferred stock drop from $84 to less than $40 in 1942, he bought just three shares of the stock at the time.
While others panicked and sold that stock, Buffett instead saw that fear as an opportunity, choosing to get greedy by buying Cities Service, as others ran out of fear.
He would sell the stock months later with a $5.25 gain on the stock. However, had he held that stock, it would have quadrupled his money as it ran to $200 a share.
Lesson learned – the best way to make money is to stay the course.
To this day, Buffett still believes in getting greedy when others are fearful, and fearful when others are too greedy. Look at Wells Fargo, Geico, and American Express, for example.
Buffett noted that he believes that Wells Fargo is cleaning up its act after being mired in scandal over the last year. Buffett said Wells Fargo clearly had the wrong incentives in place and didn't act quickly enough when bank employees opened as many as two million accounts without getting customers' permission to meet sales targets.
Still, Buffett defended Wells Fargo as an investment.
"Some of our greatest opportunities came from similar situations," he said. In fact, investments in American Express and Geico came after scandals.
Again, the idea of grabbing the opportunity as others become fearful is clearly an attraction.
We use a similar approach in The Cheap Investor with fundamentally sound small cap stocks that are unfairly and temporarily beaten down.
In fact, we recently saw returns of:
- 533% on USA Technologies
- 139% on Halcon Resources
- 631% on Amicus Therapeutics
- 770% on Fate Therapeutics
- 738% on CymaBay Therapeutics
- 968% on Mirati Therapeutics
Other investing highlights of the annual meeting included Buffett’s love of Apple (AAPL).
He decided to invest in Apple after he realized that consumers were unlikely to switch to another product once they became established with Apple's system. In short, Apple has a wide economic moat.
“We very much approve of them,” said Buffett days after revealing that Berkshire bought 75 million shares of the tech giant. “I love the idea of having our 5% or whatever it may be grow to 7% or more without us laying out a dime.”
Buffett brought up an interesting fact about the advantages of investing in stocks rather than gold. He revealed that, if he had invested $10,000 in an S&P 500 index fund in 1942, it would be worth $51 million today.
However, $10,000 invested in gold at that time would have only produced $400,000.
"In other words, for every dollar you could have made in American business, you'd have less than a penny of gain by buying into a store of value which people tell you to run to every time you get scared by the headlines," Buffett said, as quoted by Business Insider. "While the businesses were reinvesting in more plants and new inventions came along, you would ... look into your safety deposit box, and you've have your 300 ounces of gold. And you would look at it, and you could fondle it, I mean, whatever you wanted to do with it. But it didn't produce anything. It was never going to produce anything. And what would you have today? You would have 300 ounces of gold just like you had in March of 1942, and it would be worth approximately $400,000."
You may not agree with everything the $83.5 billion-man has to say, but his advice and success speak volumes.