Can You Replicate Berkshire Hathaway Warren Buffett's Investing Wisdom?

Can You Replicate Berkshire Hathaway Warren Buffett's Investing Wisdom?

Most years thousands people make a pilgrimage to Omaha, Nebraska, for the annual Berkshire Hathaway Shareholder’s Meeting. This year the AGM - colloquially known as 'Woodstock for Capitalists' that has seen over 10,000 attendees - was scheduled to take place on Saturday (2 May) at a convention centre. Not so this year. 

Instead of making the trip given the Covid-19 pandemic, folks instead will be cheering on the 'Sage of Omaha' Warren Buffett, who is 89 and considered the undisputed rockstar legend of the financial world along with his pal Charlie Munger, 95 -  online at Yahoo Finance.

As an American multinational conglomerate also headquartered in Omaha, Berkshire Hathaway owns significant minority holdings in a number U.S. public companies including Kraft Heinz Company (26.7%), American Express (17.6%), Wells Fargo (9.9%),  Coca-Cola (9.32%), Bank of America (6.8%), Apple (5.22%) as well as big stakes in US-listed airline carries like United Airlines and Delta Air Lines.

As of April 2020, Berkshire's Class B stock is the eighth-largest component of the S&P 500 Index and the company is famous for having the most expensive share price in history with Class A shares costing some $274,000 as of Friday 1 May 2020 (down around $71,000 from a high of $344,000 on 17 January this year). Company revenues in 2018 came in at an eye popping $247.5 billion.

That said, these are unprecedented times in the world with over 230,000 people globally having lost their lives to the virus to date and the financial world being rocked big time. Reinforcing the latter this Saturday (2 May) Berkshire Hathaway Inc. released its results for the first quarter (Q1) showing a record net loss of almost $50bn as the coronavirus pandemic pummeled its common stock investments (see report: https://www.nytimes.com/2020/05/02/business/berkshire-hathaway-warren-buffett.html).

And, consider that just 10 weeks ago on 19 February, U.S. stocks were standing at all-time highs and the nation’s unemployment rate stood at record lows. Fast forward five weeks to 23 March and US large-cap stocks had lost over one-third of their value.

The average U.S. small-cap stock had over the same period given up nearly 50% in value, which equates to the fastest decline in history. Add to that unemployment claims in America are now higher than at any time since the 1930s and the picture is decidedly dodgy. For sure it's an unnerving time.

Around the world it's been a similar roller coaster ride for the stockmarkets. In the UK, the FTSE 100, the leading index of blue-chip stocks, last week saw a 400-point round trip between Monday and Friday having been as high as around 6,100 and as low 5,700. Still it's around 14% up since it troughed out late this March from around the 5,000-point threshold.  

Although aggressive intervention by the U.S. Federal Reserve (Fed) with financial stimulus packages as well as federal and state measures have assisted the market to recover over half those losses, few if anyone thinks we are out of the woods economically. Elsewhere across the world central banks have stepped up their actions.  

The financial world has taken on a surreal kind of 'Alice-in-Wonderland' quality in which nothing seems to make sense. It's all rather dystopian.

Just when global investors were trying to get used to negative interest rates whereby borrowers are paid to take money, on April 20 the price of crude oil went negative. So, if you had the capacity to store it, you could have been paid to accept $37.63 for every barrel of oil you took off the hands of oil producers who had nowhere to store it.

Now what are investors to do in such a bewildering, dystopian and dangerous world? Where can they turn for guidance? And, where are individuals to turn for solace and wisdom?

Of course talk of investing in the middle of a pandemic might sit uncomfortably with some and make them uneasy, but then many are nursing heavy losses on their share portfolios and pension funds right now.

Buffett, the world’s most successful investor and its most generous philanthropist, having pledged to give away his entire fortune to charity (inspiring over 200 other billionaires to make a similar pledge to donate at least half their fortunes) - has been around the block and seen it all.

Born in 1930, Buffett has lived through the Great Depression, World War II, the Korean War, the Great Recession in the mid-1970’s, the implosion of the 'tech bubble' back in 2000, the global financial crisis that began in 2007, and now - this.

Buffett, known as the 'Oracle' or 'Sage of  Omaha' and his lifelong friend and business partner Charlie Munger, who is 95, have shared their investing wisdom in the legendary Berkshire shareholder letters each year plus in numerous presentations and interviews. They are seen as brilliant investors who happen to philosophize.

“Not so! Buffett and Munger are actually philosophers who happen to invest,” contends Adam Robinson, a New York Times bestselling author, who has written a new book titled 'Warren and Charlie’s Bedtime Story'.

A graduate of Wharton and Oxford, a rated chess master and one of the two co-founders of The Princeton Review, Robinson is now a global financial advisor to the heads of some of the largest hedge funds in the world.

Everyone knows, he says, that Messrs Buffett and Munger are the world’s greatest investors. And, if you had been around 56 years ago in 1964 and lucky enough to invest with them through Berkshire Hathaway’s Class ‘A’ shares at the start at $19 a shares, $1,000 (or 52 shares) would have grown to c.$18 million this January. That is pretty stratospheric by any measure.

The performance of Berkshire Hathaway has averaged an annual growth in book value of 19.0% to its shareholders since 1965 (compared to 9.7% from the S&P 500 with dividends included for the same period), whilst employing large amounts of capital, and minimal debt.

How did they do it you might well ask and could anyone have replicated their investment results?

“Yes!” ventures Robinson. “That’s why I wrote Warren and Charlie’s Bedtime Story." Equally you could have read every one of their letters to shareholders, which can be accessed via Berkshire Hathaway's website (see: http://www.berkshirehathaway.com/), but it might be somewhat consuming.

It should be noted that both have generously shared all of their insights and Buffett himself is no stranger to a few pithy comments and holds his hands up when he has picked a bum stock (but there only a few occasions such as with Berkshire's investment UK supermarket group Tesco's a few years ago). His annual letter always provides a few nuggets of investing wisdom and humour.

He has made some judicious comments over the years. For example, take: "Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.", or "It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently", or even "I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful."

Robinson explaining the process for the book says: "I deconstructed everything Buffett and Munger ever said and then demonstrated how they actually derived their investment philosophy from basic principles. I also wanted to celebrate Buffett’s generosity and philanthropy as a way of life. The world’s greatest investor has shown us not only how to invest our money and capital - but also how to invest our most precious and limited resource - our time, our lives.”

So, in order demystify everything the two veteran investors have ever said in their inimitable way and to make it accessible to everyone, Robinson embedded within his short novel, 'Warren and Charlie’s Bedtime Story'.

It tells of the exploits of Billy Smith on his 12th birthday. Think here of 'Ferris Bueller’s Day Off', but with a far cleverer youngster, "whose shenanigans were designed to do good, not just to goof off" according to Robinson.

“In the full span of interviews Buffett has given going back decades, a single word has appeared in almost every one: fun," Robinson points out. "As a young boy, Buffett set out to become the richest man in the world in order to give it all away. And, he did just that."

Ten years ago Buffett started 'The Billionaire Pledge' with Bill Gates as something he thought would inspire other billionaires to give away their fortunes. Currently over 200 billionaires and their families have taken the pledge.

Robinson says: “I don’t see why just billionaires should have all the fun of making money to give it all away. So I wrote Warren and Charlie’s Bedtime Story to inspire anyone to do the same, and to demonstrate how much fun it can be!”

The author has pledged 100% of the profits of the sale of this book including author royalties will go to charity.

One bit of small advice I could give you is that given most people are unlikely to afford near on $300,000 for a single Berkshire Class ‘A’ stock, the ‘B’ stock is priced at around $200 and far more affordable. It comes too with entry to the company’s AGM in Omaha for up to four people. As to the respective benefits of each class, holder of one Class B share has 1/1,500th stock rights and 1/10,000th of the voting rights of a Class A shareholder.

Berkshire Hathaway's 2020 Annual Shareholders Meeting was scheduled to begin at 3.45pm central time (US) on Saturday May 2, 2020 and is being streamed live on the Internet by Yahoo (accessed via: https://finance.yahoo.com/brklivestream) with a pre-meeting show beginning at 3:00 p.m. central time.

Note: Adam Robinson has appeared on Tim Ferriss’s podcast three times: Episodes 219, 210 (live group) and 322. See: https://tim.blog/2017/02/02/lessons-from-warren-buffett-bobby-fischer-and-other-outliers/

Warren Buffett, Berkshire Hathaway's CEO. (Source: CNBC).

Warren Buffett, Berkshire Hathaway's CEO. (Source: CNBC).

Billionaire investor Warren Buffett interviewed by Becky Quick on CNBC's 'Squawk Box', 25 February 2019. (Source: CNBC).
Warren Buffett at the opening bell at the New York Stock Exchange.