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oooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooo Warren Buffett is the most influential investment thinker of our time; he is also the wealthiest. Charles Munger is Buffett’s partner, both intellectually and in the running of one of the world’s largest companies.
They each started with very little capital. At first, they developed their investment philosophies independently. They were far away from each other, both in their investment approach and geographically (Munger in California and Buffett in Nebraska).
Despite the different approaches to stock picking they each created highly successful fund management businesses before coming together.
Buffett took managerial control of Berkshire Hathaway in 1965 when the book value per share was $19.46 (as measured at the prior year-end 30 September 1964).
Now each share sells for $283,000 per share. The gain in value over 51 years came to 20.8 per cent compounded annually. At this rate of return an investment of $100 becomes worth $2m over 51 years.
There are people who are multimillionaires today because in the 1960s or 1970s they invested a few thousand dollars in Berkshire Hathaway.
Buffett owns around 40% of Berkshire Hathaway (He is gradually reducing his holding to give away his fortune mostly to his friends’ Bill & Melinda Gates’ charity, assisting developing countries, particularly with medical aid.), a company with a market capitalisation of over $460bn (it was valued at a mere $20m in 1965).
Some investors have been with Buffett long before he took control of Berkshire. An investor who placed $100 in one of his investment partnerships in the late 1950s, and placed it in Berkshire after the partnership was dissolved, would find that investment worth more than $20m today.
In the 13 years of the partnership funds (1957–69) investors made annual returns greater than that on Berkshire, at almost 30 per cent per year.
The funds managed by the young Buffett outperformed the Dow Jones Industrial Average in every year and made money even when the market was sharply down. If you put the two phases of his career – first the partnership, then Berkshire – together then you have a quite remarkable performance record, one that, to my knowledge, has not been beaten.
Buffett is one of the three richest people in the world. Imagine being one of the lucky people to have trusted Buffett in the early days. It is what investors’ dreams are made of. Apparently, the following conversation between two Berkshire shareholders was overheard at the annual meeting in 1996: ‘What price did you buy at?’ The reply: ‘Nineteen,’ says the first. ‘You mean nineteen hundred?’ ‘No, nineteen.’ These shares are now worth over $283,000 each!
If you would like more detail on how he did it, my book on the making of the first $100m of Buffett’s fortune comes out next month in the US and in Europe (The Deals of Warren Buffett – currently being translated into half a dozen languages).
That book started as a series of Newsletter on this site (don’t tell the publishers, but there is actually more in the Newsletters than in the book – you can read these old Newsletters here if you want).
On the subject of whether the market prices shares efficiently Buffett said:
“I’m convinced that there is much inefficiency in the market . . . When…………
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