Berkshire Hathaway chief’s legacy is much bigger than money and his remarkable track record
No one should have been surprised by Warren Buffett’s quiet resignation last Saturday. He will, after all, be 95 years old when he steps down at the end of the year. But it still came as a shock. A bit like Bob Dylan, he has just always been there. I was only two when he took over an ailing Massachusetts textile mill in 1965 and turned it into the world’s most consistently successful investment company.
The remarkable track record is the measurable bit of Buffett’s legacy. According to Berkshire Hathaway’s latest report and accounts, he grew the per-share value of the company by 5,502,284pc between 1964 and 2024. That’s what happens when you grow at an average of 19.9pc a year for six decades. The S&P 500 index, by comparison, managed 10.4pc a year over the same period, an overall gain of just 39,054pc. Buffett delivered 140 times more than the world’s most successful stock market.
But his legacy is much bigger than the money. Much more important than what Buffett achieved, is the way he did it. With integrity, wisdom and humility. As he said at last week’s farewell shareholder meeting in Omaha, Nebraska: “Be kind and the world is better off. I’m not sure the world will be better off, if I am richer.”
He continues to live in the same house he bought in his home town in Nebraska in 1958. He capped his salary at $100,000 (£75,000). He has never taken a share option because that would have diluted the holdings of the other owners of the company. He is worth around $160bn.
There are a few reasons why Buffett has been so successful. But one that’s easy to underestimate is simply that he kept at it for a very long time. The power of compounding starts to look miraculous after six decades, but it requires a unique temperament and character to stick to your principles for so long. Buffett’s greatest lesson to ordinary investors is the importance of focusing on the long term. He has held some of his most successful investments – American Express, Coca-Cola – not for years, but for decades. At the same time, he has been unafraid to not invest at all. Berkshire Hathaway currently sits on $350bn of cash. He has always waited for the “fat pitch”, the moment in baseball when the risk and reward ratio is most favourable. He is unusually patient.
Buffett is a great advertisement for what my colleague Andrew Oxlade calls “Chill”– career happiness, inspiring longer lives. He exemplifies the adage that if you do what you enjoy you will never work another day in your life.
One of the ways he did that was by surrounding himself with good people. Buffett did this in two important ways. He was fortunate in finding a business partner in the late Charlie Munger who was both a friend and an important intellectual sounding board – alerting Buffett early on to the importance of quality alongside value, for example. But he also hired well, and then trusted his business leaders to get on with it.
It is impossible to distil Buffett’s wit and wisdom into one short column. The 60 annual letters to shareholders are a better starting point for anyone seeking to learn from the master. But here are three things that I have found helpful.
First, the importance of knowing when to swim against the tide and when to go with the flow. Buffett steered clear of the internet bubble a generation ago and he remarked that investors would have been better off if someone had shot Orville Wright at Kitty Hawk in the early 1900s. But his contrarian streak was always tempered by flexibility. Last week, he complained, tongue in cheek, that Tim Cook had made more money for Berkshire Hathaway shareholders than he ever had. Buying into Apple in 2016 was a rare foray into tech for Buffett and one of his most successful investments. His great insight, of course, was that Apple is not really a tech company at all but the creator of a product that many consumers find indispensable.
https://cf-particle-html.eip.telegraph.co.uk/b990533b-f27a-4268-8758-fc788673a88e.html?direct=true&id=b990533b-f27a-4268-8758-fc788673a88e&template=cls The success of his Apple investment leads to my second take-away from Buffett’s career – the fact that you don’t need to time the market to perfection to be successful, but that doing so can deliver outstanding returns. When Buffett bought into Gillette in 1989 it had been making razors for decades. He was not exactly early to the party. But his $600m investment bought him an annual dividend of more than $50m and was worth $5bn by the time Procter & Gamble bought the company in 2005.
The acquisition of a $1bn stake in Coca-Cola likewise bought into a long-established company but it was also a triumph of market timing. The purchase just after the 1987 market crash was a classic exploitation of Mr Market’s tendency to give things away from time to time. Berkshire’s holding in Coca-Cola is worth more than 20 times as much today.
Which points to the third lesson. The importance of liquidity. Buffett was able to buy Coca-Cola after a market crash, and to invest in Goldman Sachs in the wake of the financial crisis, and to buy Apple when it briefly traded on just 11 times earnings, because he always has money in his back pocket. Not only does this allow him to buy opportunistically at times of crisis, it means he is never a forced seller when things go south. He hands his company on to his chosen successor, Greg Abel, primed and ready for Berkshire’s next great investment, having sold $175bn worth of shares during the strong markets of the past couple of years.
Buffett is bowing out on top of his game. Berkshire Hathaway has comfortably beaten the US benchmark over any period you choose to look at. The 5pc fall in the company’s share price on an announcement that should have surprised no one says it all. To hang up your boots at the age of 95, having not outstayed your welcome, is quite an achievement.
Tom Stevenson is an investment director at Fidelity International. These views are his own.
