But, achieving that level of wealth hasn’t necessarily been easy - when you look at the numbers, Buffett didn’t ‘beat’ the market as you might expect. He keeps things simple – choosing discipline in the face of setbacks and most importantly, remaining invested over a long period of time. He’s also always had an infallible belief in the power of capitalism to create wealth - which requires discipline, patience and fortitude.
- He’s comfortable being different - He famously avoided tech stocks in the 90s because he didn’t ‘get’ them
- He detests high fund management costs - they reduce the returns investors should be benefiting from
- He’s in it for the long term – he’s been investing for almost three quarters of a century and faced inevitable setbacks along the way
By age 32 Buffett was worth just shy of $2 million – he’s now almost 90 now. If he had chosen to retire at 60, he would’ve been worth a paltry $3.3 billion - under 5% of his net worth today.
Figure 1: Warren Buffett’s wealth – born in 1930 and still going strong
Data source: Yahoo Finance
A steadfast approach
It’s worth noting that beating the market has become harder over the years. In the early days, there were fewer research analysts and fund managers in the market and a far higher level of amateurs playing the game. But Buffett had a plan and he stuck to it.
This is evident when you look at Buffett’s listed investment holding company, Berkshire Hathaway – the chart below shows how tricky beating the market has become and shows the annualised return achieved to the end of 2019.
Imagine Buffett had been persuaded to run an investment fund, not a listed investment holding company. A manager with such a track record would be justified in charging a 1% fee per annum. In the past 24 years, he would not have beaten the market. Even without these fees Berkshire Hathaway’s shares have struggled to beat the markets in the past decade or so.
Figure 2: Berkshire Hathaway annualised performance relative to the US market (from specific year to present)
Data source: Berkshire Hathaway Letter to Shareholders 2020
17 years of underperformance during which Buffett remained steadfast in his approach to investing.
We’re all capable of having a plan - sticking to it in times of underperformance and facing the emotional challenges that come with this is the real test.
‘It’s not necessary to do extraordinary things to get extraordinary results’.
The enduring advice from Buffett still simple, direct and relevant today.
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