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REUTERS/Rick Wilking

CANCELLED: my weekend with Warren Buffett

Peter Switzer
2 May 2020

I hate the Coronavirus for many reasons but one really big and odd reason I hate this damn virus and what it rained down on us with its lockdowns and closures, was that it stopped me hanging out with Warren Buffett this weekend! So when you’re reading this, understand that this piece should’ve been ‘penned’ from my hotel room in Omaha, Nebraska ahead of my Saturday session with arguably one of the greatest investors of all time — Warren Buffett.

My wife and I bought a share or two in Berkshire Hathaway (BRK), which qualifies you to attend the AGM of Buffett’s famous company.

The BRK A-shares now sell for $284,749 and no, that’s not a misprint (we bought the ‘cheaper’ version!). That’s the price and it underlines just how good Buffett has been for the company and the shareholders who jumped on board in 1964 and took over the company. Number crunchers say the effective price of BRK was about $12.37, so anyone who has backed Buffett would love the guy — big time!

Apart from attending, we were going to film Buffett and share it with our followers but alas, that damn Coronavirus ruined that good idea.

Is there anyone in the world who doesn’t hate the Coronavirus? Believe it or not there are those who pathetically would love it! Yep I know a rather odd guy who has made millions because he shorted the stock market for other reasons and ‘got lucky’ that the pandemic came along!

Meanwhile, there are others who are natural doomsday merchants who saw the problems in China in early January and threw their switch to panic and prepared for the worst of circumstances. They did the same with so many virus scares — SARS, Ebola, Mers, HIV and so on — and bought gold and sold all their shares. They did it with the GFC, expecting a recession and a collapse of house prices. They did it with Trump’s trade war, Grexit, Brexit and September 11.

They are often scared, spooked and given to forecasts of doom and gloom. And they’re often wrong, with a capital W. But like author Harry Dent, they keep believing and one day they might get their perfect storm of bad stuff that ends in a Great Depression, and that’s just the way they are, except, unlike Harry, they don’t consistently make much money out of their gloomy view on life.

I know very wealthy investors who play the doom game through a hedge fund but I don’t know many normal people who have doomed themselves into consistent wealth-building, leaving them fabulously rich.

On the other hand, I do know many who have played the optimist’s game over time and have made themselves very rich. Despite some younger, go-getting types laughing at buy and holders out there, Buffett is a ‘buy and hold’ investor, so long as the key reasons for buying the business remain the same.

Some companies are worth buying and holding forever because things change. Take Seven West Media  owns the 7 Network. In January 1992, this was a $1.26 stock but under great leadership from Kerry Stokes it became a $15 stock by April 2007. It’s now 84 cents but don’t blame Kerry. Blame the Internet, Netflix, Foxtel, deregulation of the industry and the new age of generations who are very different from their parents whose viewing habits made Kerry and his shareholders rich.

I know I flog this chart to death but it rams home why you should be a long-term investor in quality companies.

Let’s imagine you invested $10,000 in something like an exchange traded fund (ETF) for the S&P/ASX 200 index between 1970 and 2009 — one year after the GFC crash of the stock market. And along the way  you reinvested your dividends. Believe it or not, that $10,000 became $453,166. If you did the same in the US market, it would have become $601,747!

That was by doing nothing except simply believing in the Australian or US economy and the stock market that’s driven by them!

That’s Buffett’s most memorable lesson that he has taught me over the years. Sure, other smarties/fund managers or lucky traders could have done better but this more reliable way to play stocks is best for the time-poor or inexperienced share investor.

So given I was supposed to be hanging out with Warren this weekend, what are the lessons he’s taught us over the years?

The guru’s guru was Benjamin Graham and he taught Warren that the goal should be to buy stocks at a price below their intrinsic value. He says Graham’s Intelligent Investor was “by far the best book on investing ever written”.

Graham believed the stock market wasn’t always good at pricing assets such as companies and really screws up when threats such as pandemics and undefined and possible trade wars are on the table.

Buffett advocates long-term value investing rather than greed-and-fear buying and selling. He also tells us to invest in companies we understand and that have a stable runway for success over a 10-15 year period.

More than anyone, he has made me think of the fact that when you buy a share, you’re deciding to be an owner of the business. So I try to know all I can about the Strengths, Weaknesses, Opportunities and Threats relevant for or to the business. Yep, I do a SWOT analysis, which all business and asset buyers should commit to before parting with their hard-earned money.

Buffett searches for companies with a competitive advantage that have a ‘moat’ around them to protect others from invading their space and reducing their competitiveness.

The US fund manager WCM, which my operation brought to Australia to list on the Australian stock market, searches the world for companies that not only have a moat, but a growing moat, which says that they are growing their competitive advantage. Their returns have been some of the best in the world and they explain this in terms of the Buffett idea of a moat that’s getting bigger and more protective.

Have a look at WCMQ and WQG:

Source: finance.yahoo.com

This chart shows how WCMQ has performed with the threat of the Coronavirus over the past six months.

Now look at our S&P/ASX 200:

Source: finance.yahoo.com

The Index is down 17% but WCMQ is up 9.5%, while the great local fund Magellan is up 7.7% over the same period (its founder Hamish Douglass is also a big fan and follower of Warren Buffett).

It’s about chasing quality companies and Warren has argued that he’d “rather pay a fair price for a great company than a low price for a mediocre company.”

He wants companies with manageable debt and good cash on hand. And he loves it when he works out a value of a company at say $5 a share, and then the market during a panic takes it down to $2.

At a time like now, stock market prices have plunged below intrinsic values of many quality companies so it’s an ideal time to understand the Buffett way and get on board the benefits of compound interest from top companies that are profit and wealth-making machines.

One of Benjamin Graham’s most famous observations that top fund managers find hard to forget was: “In the short run, the market is a voting machine but in the long run, it is a weighing machine.” And it weighs up the quality and the substance of a company and you when you invest like Buffett, you end up with companies that stand the test of time.

Berkshire Hathaway (BRK-A)

Source: finance.yahoo.com

Top Warren Buffett stocks by size

Here are the top 10 Warren Buffett stocks by number of shares held as of 31 December 2019, based on Berkshire Hathaway's most recent 13-F filing from February 1:

Bank of America (BAC) 925.0 million
Coca-Cola (KO) 400 million
Kraft Heinz (KHC) 325.6 million
Wells Fargo (WFC) 323.2 million
Apple (AAPL) 245.2 million
American Express (AXP) 151.6 million
Sirius XM (SIRI) 136.3 million
U.S. Bancorp (USB) 132.5 million
Bank of New York Mellon (BK) 79.8 million
General Motors (GM) 75 million

This is how he has invested in what Americans use and need on a daily basis. He doesn’t always get it right but the chart above proves that, over time, he’s been on the money.

Gee, I wish I’d been able to hang out with Wazza this weekend! And it’s just another good reason to hate the Coronavirus!

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