Let’s face it. The phrase ‘Patience is a virtue’ can sound like a broken record. And, when you’re in the investment world, you hear it so often that it starts to sound monotonous.
Warren Buffett, however, has given this age-old wisdom a fresh spin in his famous quote: “The stock market is a device for transferring money from the impatient to the patient.”
More than just wise sayings, Buffett is a living testament to the power of value investing. His advice to invest in businesses that offer real, tangible value over fad-driven trends is legendary.
Buffett’s words of wisdom don’t just end with his quotes. His letters to Berkshire Hathaway shareholders are revered almost like investment scripture.
But the story of Buffett’s accomplishments really begins when he took over Berkshire Hathaway.
Berkshire Hathaway, a relatively small textile company in the early 1960s, was far from being a Wall Street darling. From 1965 to 1975, the firm managed around $19 million in total – a modest sum by investment standards.
However, in the years from 1975 to 2022, under Buffett’s stewardship, the company’s value exploded from $19 million to a whopping $695 billion.
The force behind this transformation? Warren Buffett.
Buffett, as Berkshire Hathaway’s Chairman and CEO since 1970, steered the company to become an investment powerhouse. Under his guidance, the firm saw its stock grow at an annual rate of 19.8% from 1975 to 2022.
The story of Buffett’s success is not one of overnight riches but a tale of sustained, consistent returns over 40+ years.
To put it into perspective, achieving a consistent double-digit return over 40+ years is virtually unheard of in the investment world.
Buffett’s success story drew in hordes of eager investors, hoping to ride the wave. The funds managed by Berkshire Hathaway soon dwarfed those of its competitors.
Yet, while Buffett might have turned Berkshire Hathaway into an investment behemoth, not all of his investors shared in this financial fairy tale.
The paradox here is that while the firm posted substantial returns, the average Berkshire Hathaway shareholder did not fare as well.
Why? It’s simple: the inconsistency of the investors, not the investment.
Achieving 19.8% annual growth over 40+ years does not equate to a steady 19.8% return each year. Some years boasted higher returns, some lower, and sometimes the numbers dipped into the red.
A majority of investors couldn’t stomach this volatility. Fearful during the lows, they would withdraw their investments, only to pour money back in when the returns started to climb again.
This sporadic investing strategy, unfortunately, repeated itself time and again over those 40+ years.
The end result: investors never truly reaped the benefits of staying invested over long periods.
This pattern is not exclusive to Berkshire Hathaway’s investors but is a common trend among investors globally.
Buffett’s wisdom holds true: ‘Our favourite holding period is forever.’
While it may sound cliché, the power of patience is undeniably real. Yet, it only works if investors have the nerve to stick with their investments, allowing the magic of compounding to do its work.
Yes, ‘Patience is a virtue’ may sound cliché, but if harnessed correctly, patience in investing is not just a virtue, it’s a money-maker.
