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Age may be just a number. But there is a new interest in the wisdom of people who have lived a long time and experienced a few economic and other crises.
The Queen’s indomitable spirit has much to teach us in this Platinum Jubilee year. There are lessons to be learnt too from that other doughty nonagenarian – the US investment guru Warren Buffett.
If you wish to navigate this tempestuous period in the stock markets, the views of this 91-year-old, at the top of his game for more than half a century, are more relevant than ever.
The S&P 500 index is down 19 per cent this year, its fall accentuated by this week’s panic selling. But shares in Berkshire Hathaway, the $639billion (£516billion) investment vehicle taken over by Buffett in 1964, are up – just about – by 0.4 per cent.
This is thanks to excitement over the way in which Buffett, aka the Saga of Omaha, is deploying the fund’s $106billion (£85billion) cash pile amid the market rout.
He is exploiting what he sees as a moment of opportunity, using a tried and tested system that, since 1964, has yielded compound annual growth of 20.1 per cent, compared with 10.5 per cent for the S&P.
Its key principles include buying when others are fearful, and opting for quality shares whose intrinsic value is not reflected in their price. This investing style is fashionable again, as higher interest rates derail technology and other growth stocks.
Berkshire Hathaway has stakes in 90 companies, including banks, insurers and railways. Apple is the largest holding, at 38 per cent, illustrating the way in which Buffett and his team are recalibrating the system for this decade and beyond.
This team is an ensemble of younger managers, notably Todd combs and Ted Weschler, the heirs apparent to Buffett’s crown. But another nonagenarian plays a leading role – Charlie Munger, 98, the Sage’s best friend.
It is said that the fund began to buy apple when Buffett took note of a friend’s distress at the loss of his iPhone and concluded it was a consumer essential – akin to the products of Kraft Heinz and Coca-Cola, two other core holdings.
A ‘wide moat’ protects these companies from competitors, giving them pricing power, and shields profits.
At least 20 books expound the tenets of the Buffett philosophy, including his counsel on counteracting inflation, which ‘swindles almost everybody’. You should excel at your job – and back ‘wonderful’ businesses whose goods and services are in demand. In past weeks, Berkshire Hathaway has pursued such companies, as was detailed on Tuesday.
The list of purchases include the insurer Alleghany, for $11.6billion (£9.3billion), and shares in Activision Blizzard, the Call of Duty video games group, the subject of a bid from Microsoft. Shares in Citigroup, Paramount Global, personal computer maker HP and oil firms Chevron and Occidental are other buys in what could be one of Buffett’s last spending sprees.
Yet even now he does not seem to make a quick buck. as Tracey Zhao, senior funds analyst at interactive investor puts it: ‘Buffett’s favourite holding period is forever.’
It’s a credo from which Buffett has made a fortune of $113billion (£90.5billion) and gained a mass investor following, many of whom have become millionaires. The current cost of admission to the movement is prohibitive, however: a single a share cost £369,000 this week. The B shares, with fewer voting rights, are a modest £245.
If, like Buffett, you regard current conditions in the Us market as a chance to make money, although more storms loom, you could add some of his recent buys to your portfolio. If this seem too much effort, the a shares make up 4.8 per cent of the CFP SDL Buffettology fund, run by Keith Ashworth-Lord (no relation), who follows the sage’s principles, including his watch-and-wait strategy. Ashworth-Lord says: ‘Buffett has been thinking about buying Alleghany for more than 60 years.’
Over five years it has returned 27.4 per cent, against 14.4 per cent for the all-companies sector. But lately it has been hit by the manoeuvring of private equity groups for whom patience is not a virtue.
Ashworth-Lord says: ‘They want to get companies that could provide rich future rewards for shareholders on the cheap. For example Homeserve, in which we have a stake, is in talks with the Canadian Brookfield infrastructure and other private equity groups could be circling other holdings.’
Buffett is no fan of private equity – or most fund managers.
He recommends that investors who want to diversify should buy a low-cost index ‘passive’ fund. interactive investor’s recommends Vanguard Us Equity fund.
This represents a gamble. But Buffett, a firm believer in US enterprise and ingenuity, preaches that ‘you should never bet against America’. Shareholders who have bet on him would agree.
Since 1990 Berkshire Hathaway’s share price has risen by 6,392 per cent.
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