Posted: March 1, 2023 | by: Thomas F. McKeon, CFA
Words of wisdom from Warren Buffett in the 2022 Berkshire Hathaway Annual ReportTweet
We look forward each year to download and read the Berkshire Hathaway Annual Report, release just last weekend. Berkshire’s Chairman is Warren Buffett, widely regarded as one of the world’s most successful investors. Mostly what we like to read is his annual letter where his usual wisdom and humor combine for entertaining and insightful reading.
We except a portion below to remind investors how fleeting current volatility usually is and how powerful staying invested really is.
From the 2022 Berkshire Hathaway Annual Report
In August 1994 – yes, 1994 – Berkshire completed its seven-year purchase of the 400 million shares of Coca-Cola we now own. The total cost was $1.3 billion – then a very meaningful sum at Berkshire.
The cash dividend we received from Coke in 1994 was $75 million. By 2022, the dividend had increased to $704 million. Growth occurred every year, just as certain as birthdays. All Charlie and I were required to do was cash Coke’s quarterly dividend checks. We expect that those checks are highly likely to grow.
American Express is much the same story. Berkshire’s purchases of Amex were essentially completed in 1995 and, coincidentally, also cost $1.3 billion. Annual dividends received from this investment have grown from $41 million to $302 million. Those checks, too, seem highly likely to increase.
These dividend gains, though pleasing, are far from spectacular. But they bring with them important gains in stock prices. At yearend, our Coke investment was valued at $25 billion while Amex was recorded at $22 billion. Each holding now accounts for roughly 5% of Berkshire’s net worth, akin to its weighting long ago.
Assume, for a moment, I had made a similarly-sized investment mistake in the 1990s, one that flat-lined and simply retained its $1.3 billion value in 2022. (An example would be a high-grade 30-year bond.) That disappointing investment would now represent an insignificant 0.3% of Berkshire’s net worth and would be delivering to us an unchanged $80 million or so of annual income.
The lesson for investors: The weeds wither away in significance as the flowers bloom. Over time, it takes just a few winners to work wonders. And, yes, it helps to start early and live into your 90s as well.
In the fullness of time, the weekly-monthly-quarterly-annual market volatility grows ever more insignificant while market appreciation accrues over time. Don't get scared out of achieving your goals and objectives.