Warren Buffett. The man is the investing icon behind a US$105 billion fortune and what looks like an incredible track record of buying shares in winning businesses.
Indeed, shares in Buffett's holding company Berkshire Hathaway roared 3,787,464% higher between 1964 and 2022 – a compounded annual gain of 19.8%.
Fortunately for us ASX investors, the billionaire is also incredibly generous with his advice.
He outlined two strategies that arguably underpinned his investing success in his recently released 2022 letter to Berkshire shareholders. And here they are.
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Is this the key to Warren Buffett's investing success?
Don't buy shares, buy businesses
Buffett has time and time again reiterated that he and Berkshire Hathaway partner Charlie Munger "are not stock-pickers; we are business pickers".
You likely won't find the pair investing in the 'trendy' sectors that they don't fully understand. In Buffett's own words:
Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily-understandable business whose earnings are virtually certain to be materially higher five, 10, and 20 years from now.
Even so, Buffett doesn't always win. In his 2022 letter to shareholders, he said Berkshire's whopping results have come on the back of "about a dozen truly good decisions".
Two of those decisions were made in the mid-90s. That's when Berkshire finished buying shares in Coca-Cola and American Express – forking out US$1.3 billion for each.
By 2022, those investments provided US$704 million and US$302 million in dividends respectively. Interestingly, however, the billionaire said the dividend growth was "far from spectacular".
Indeed, much of it came down to the stakes' ballooning values – coming in at US$25 billion and US$22 billion at the end of last year.
Invest for the long-term
On that note, Buffett never buys shares with plans to sell in a few days, weeks, or even months. And that brings us to his second investing 'rule'. I think Munger best summed it up, saying:
Warren and I don't focus on the froth of the market. We seek out good long-term investments and stubbornly hold them for a long time.
By doing so, the pair have watched the value of their investments compound time and time again.
They've also seen many a market correction and crash – periods in which plenty of investors panic and sell their holdings.
Perhaps that's a lesson in patience for us unprofessional ASX investors. And, boy, has it paid off for Buffett, Munger, and Berkshire.
I'll leave you with some final words from the billionaire investing great's latest letter:
The weeds wither away in significance as the flowers bloom. Over time, it takes just a few winners to work wonders. And, yes, it helps to start early and live into your 90s as well.
