Dear Smart Investor,
Everyone wants to be as rich as Warren Buffett.
But not everyone is able to.
Amazon’s (NASDAQ: AMZN) founder and Chairman Jeff Bezos once asked the Oracle of Omaha a simple question:
“Your investment [style] is so simple, why isn’t anyone copying you?”
To which Buffett replied:
“No one wants to get rich slowly”
Buffett was not joking in his reply. He’s walking the talk.
In the book, The Psychology of Money, author Morgan Housel noted that the Oracle of Omaha’s net worth was US$84.5 billion. Remarkably, over 96% of this wealth was generated after his 50th birthday.
So, how did Warren Buffett achieve it?
The answer: by investing in stocks.
Your time horizon
Your time horizon will play a big part in whether you are successful in stock investing, or not.
As we stand here today, the S&P 500 has suffered one of its worst starts in decades for the first half of the year.
While the first half of the year has been a tough period to live through, the duration is hardly sufficient to measure your results.
Let’s take a look at data over a longer time horizon.
Wisdom Tree’s (NASDAQ: WETF) Jeremy Schwartz recently shared some interesting performance data stretching from 1802 to 2021.
Source: Jeremy Schwartz
His analysis shows that stocks outperform bonds in six out of every 10 one-year periods.
When you lengthen the time frame to a decade, the odds of stock returns outpacing bonds increases to three out of every four 10-year periods.
Finally, if you extend your time horizon to rolling 30-year periods, the number of times stock returns outrun bonds raises to almost 92%.
In short, the chances of stocks doing better than bonds increase the longer you hold.
Of course, it’s not only about holding onto stocks. How do you know which shares to buy?
Buffett’s secret recipe
Berkshire Hathway (NYSE: BRK.B), where Buffett is Chairman and CEO, has long resisted paying a dividend, believing that it is not the best use of its cash.
Yet, while Oracle of Omaha doesn’t like paying out a dividend, he certainly does not mind receiving them.
Here is a case in point: last Friday, Berkshire Hathaway received an estimated US$210 million in dividends from Apple (NASDAQ: AAPL), the largest shareholding in the Omaha company’s portfolio.
Buffett is certainly pleased with his investment in the iPhone maker.In fact, he considers Apple to be one of the “Big Four” among the many assets that Berkshire Hathaway owns. That is high praise indeed.
Get Smart: Passive income with a Singapore twist
The good news for us as investors is that Singapore is a great place to be a dividend investor.
When The Smart Investor’s co-founder David Kuo arrived in the city-state almost a decade ago, he could not stop talking about dividends.
Being an income investor all his life, seeing dividends being available and untaxed in Singapore is as good as it gets for someone seeking passive income.
Take industrial REIT Mapletree Industrial Trust (SGX: ME8U) as an example.
The REIT’s unit price has surged by 47.3% in the last five years, while its distribution per unit has climbed from S$0.1139 to S$0.138 over the same period.
If you had purchased S$1,000 of the REIT back then, you’d be sitting on a juicy distribution yield of 7.5% on your cost.
In addition, your S$1,000 would have grown to S$1,470.30 plus you’d have received around S$401.6 of distributions along the way.
Your total return would be an impressive 87.5%, or around 13.4% compounded, not shabby by any standards.
At The Smart Investor, we are passionate about income investing. It is our continued mission to help investors like you invest more smartly.
At our free website, thesmartinvestor.com.sg, we are committed to continue providing free content, in the form of articles and longer reports, available to everyone.
For those who want more than that, we are here to help you take the guesswork out of stock market investing. We journey with our members to help them better narrow down what stocks to buy, when to buy it, how much of it to buy.
We hope you continue to enjoy our content.
To your wealth…
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Disclosure: Chin Hui Leong owns shares of Apple, Berkshire Hathaway, Mapletree Industrial Trust and Amazon.
