Warren Buffett had a lot to say in his latest annual letter to shareholders. As usual, he was as blunt as he was opinionated about the shenanigans in the market. He criticised the use of bold imaginative accounting as one of the shames of capitalism.
He launched a broadside against those who have turned the practice of second-guessing quarterly accounts into a game. Companies that can beat the market’s quarterly forecasts are generally hailed as geniuses. Those that can’t are often punished.
He said that the activity is disgusting. He pointed out that it doesn’t require any talent to manipulate numbers. It only requires a deep desire to deceive.
In his letter he also revealed the secret sauce of his investing success, namely, time. He pointed to his early investments in two American titans that have since turned into giant cash machines. Together, they have generated US$1 billion for him in dividends in 2022.
More important than the dividends, though, has been the exceptional gains in their stock prices. The holding in the two companies have grown between 17 and 20 times in value. That equates to an annualised increase of around 10%.
But as Buffett pointed out, it does helps to start early and to live into your 90s to achieve those types of returns. However, living beyond 90 years of age is something that is not only a statistical possibility but probably a reality for many of us.
In 1950, average life expectancy in Singapore was around 60 years. Today it is roughly 84 years. By 2075, it could easily be 90 years. So, someone born before 1985 could achieve nonagenarian status without even too much effort. Living to 90 years of age could be the norm rather than the exception for many of us.
Point is younger investors don’t have to rush to make money from shares. Investing is a marathon, not a sprint. As Buffet once said: Time is the friend of the wonderful company, the enemy of the mediocre. Our job as investors is, therefore, to identify those wonderful companies and continue to gradually add to our holdings in those businesses over time.
Additionally, great buying opportunities to invest can happen every now and again. When they do, we need to exploit them to the fullest. When it is raining gold, we should reach for a bucket not a thimble, which is another of Buffett’s nuggets of wisdom.
Put another way, don’t ever be afraid of market declines. They invariably happen. But they are always good buying opportunities, too. And whatever should happen in global markets, we need to always stay invested.
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Disclosure: David Kuo does not own any of the shares mentioned.
