How Warren & Charlie Invest In Shares

Warren Buffett, worth a cool $US 75 billion according to Forbes, made 99% of his fortune after the age of 50.

That’s right, the ‘Oracle of Omaha’ and CEO of Berkshire Hathaway Inc. (NYSE: BRK.A), was worth ‘just’ $300 million at age 50.

More than 96% of his wealth came after age 60, according to Collaborative Fund’s Morgan Housel.

Skill + Time = Wealth

More than 2,000 books are dedicated to how Warren Buffett built his fortune,” writes Housel. “But few pay enough attention to the simplest fact: Buffett’s fortune isn’t due to just being a good investor, but being a good investor since he was literally a child.”

Buffett started investing at age 10. Had he waited until age 22 (around the time I started) he would be worth ‘just’ $1.9 billion today, according to numbers from Collaborative Fund.

Clearly, one of Buffett’s greatest strengths is his ability to compound his money over uber-long periods of time.

Time is The Secret Ingredient

Morgan is right. So much attention is focused on ‘how Buffett picks shares’ or ‘why Buffett bought Heinz and Gillette’. For a Buffett and Charlie Munger disciple that’s undoubtedly important.

But many people and investors overlook an equally important element behind their success: time.

Sure, Buffett’s company, Berkshire, has achieved remarkable average yearly returns of 20.8% since 1965, according to his latest annual letter to shareholders.

However, $1,000 invested in the US market in 1965 for 50 years would have turned into $2.8 million, with $100 added each fortnight. That’s because the US stock market’s ‘average’ return was 9.7% per year.

(click here to watch our “index funds” video which explains these “average” returns)

Meaning, some lonely househusband could have stuck $1k in the stock market, added $100 per fortnight, and left it to do its thing. Today, that lonely househusband would be a multimillionaire.

Pretty cool, right?

No cheesy property investment seminars.
No sleazy finance gurus.
No Bitcoin.
No Ripple (whatever the heck that even means).
Or, middle-aged balding.

Just patience…

But speaking of balding middle-aged Bitcoins, there was a study done on Donald Trump’s fortune a few years ago. It found that if he stuck his money in an ‘average stock market investment fund’ (which costs next to nothing), he would have done better than by actually investing his money as he did.


Meaning, if he did nothing with his money he would be richer than he is today. Poor Donald.

Anyway, back to Buffett’s secret sauces.

So although most of us aspiring investors are fixated on Buffett’s recipe for investing success, his cooking time is as important and likely easier for us to copy. Yet few people do it.

Why? Investing for super-long periods of time requires a cool temperament, ‘faith’ in capitalism and a commitment to regular savings.

The 4 Things Buffett & Munger Look For in Companies

According to this BBC interview with Charlie Munger, Buffett’s long-time investing partner and fellow billionaire, the duo look for four key characteristics in an investment.

1. They buy shares of companies they can understand.

I think this goes for anything we buy or invest in. As the famed investor Peter Lynch once wrote: “If you’re prepared to invest in a company, then you ought to be able to explain why in simple language that a fifth grader could understand, and quickly enough so the fifth grader won’t get bored.

Alarmingly, most of us struggle to explain even our largest investments.

2. The business must have a durable competitive advantage.

This is a harder one to determine. When buying a share, ask yourself: What makes this company stronger and better than any other? Could it withstand years of competition? Those are the key questions you must ask.

For example, just because everyone shops at Forever New or Smiggle now, does that mean it will be the best for the next 1, 2 or 10 years?

Things like regulation, patents on design, technology or size are forms of advantage. But knowing whether they are “durable”
advantages is another question entirely.

For example, for a long time, everyone was going nuts about air travel being the greatest innovation of all time. Founder of Virgin, Richard Branson, famously said:

“If you want to be a Millionaire, start with a billion dollars and launch a new airline.“

3. Management must have integrity and talent.

Like any employee or manager, CEOs must have a purpose for doing what they do. My goal as a small silent investor in a company is making sure the CEO’s purpose or reason for doing something is aligned with mine.

It can be hard to determine someone’s integrity and talent but a quick scan of a company’s Annual Report, specifically the section on ‘remuneration’ (aka ‘pay packet’), should reveal a CEO and executive team who own a lot of their own shares and have long-term incentives in place.

For example, if the CEO of a big retail chain owns no shares in her own company, she’s less likely to do what’s best for the company in the long run (she’ll be sailing on a yacht in a few years).

Worse still, if the CEO owns no shares and has yearly bonuses based on short-term targets she will likely grow the business in ways that are unsustainable and destructive.

4. A company is not worth an infinite price, the price must “make sense”, and you must have a margin of safety.

A “margin of safety” is the difference between price and value. As Buffett says, the price is what you are asked to pay, but the value is what you’re willing to pay.

You wouldn’t buy a pair of Nike’s for $100 which you think are worth $50. Likewise, you shouldn’t do it with your investments.

Is Buffett’s strategy perfect?

All types of investing have some risk, but especially shares. Perhaps that’s why Peter Lynch also said:

In this business, if you’re good, you’re right six times out of ten. You’re never going to be right nine times out of ten.”

Cheers to your financial future!
Owen Raszkiewicz

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Disclaimer: Please note this article should not be taken as financial advice. Shares can be very risky, so you must speak to a licensed financial adviser before acting on any information you read here. By using our website you agree to our Code of EthicsTerms of Service, Disclaimer and Privacy Policy.