The well-known US investor Warren Buffett has repeatedly attracted a lot of attention with catchy remarks about his recipes for success. What can private investors learn from this?
He currently ranks sixth on the Bloomberg billionaire list with a fortune of $120 billion, in his free time he likes to play the ukulele and bridge, his favorite drink is Cherry Coke – and compared to his 99-year-old partner Charlie Munger, he’s almost a youngster: We’re talking about Warren Buffett, who is celebrating his 93rd birthday today.
Berkshire Hathaway – the most expensive stock in the world
Warren Buffett is considered a stock market legend, as he created his wealth through clever investing. Since 1970 he has managed the fortunes of the investment holding company Berkshire Hathaway. None of the bosses of the companies in the US stock index S&P 500 have managed the same company as long as he has. Under his aegis, Berkshire became the nominally most expensive stock in the world – it can currently be had for just under $540,000.
Buffett is not only a particularly successful investor, but also in great demand as a source of ideas. His sayings about the stock market have inspired many private investors as well as professional investors.
Buffett likes to take his time
Of course, Robert Rethfeld, market expert at Wellenreiter-Invest, also has a favorite Buffett quote: “Because someone planted a tree a long time ago, someone is sitting in the shade today.” But what connects Rethfeld with it? “Apple, Tesla and Nvidia are examples of companies that are making products that are in high demand today. Back when they planted the tree, hardly anyone wanted to be there,” Rethfeld said tagesschau.de.
Buffett himself takes his time, adding growth stocks to his portfolio late. “Tesla and Nvidia are not in his portfolio list, but the Taiwanese semiconductor giant TSMC is,” said the Wellenreiter expert. “Apple didn’t join until 2016.”
Apple as best deal
Buffett also coined a saying about Apple: “It’s just a better deal than any other we own.” In fact, Apple stock has more than sevenfold since Buffett’s entry in 2016. The iPhone group is the most expensive listed company in the world – with a current market value of 2.8 trillion dollars.
As Apple’s stock market value grew, so did the proportion of Apple stock in Buffett’s holding company Berkshire Hathaway’s portfolio. At the end of 2022, they accounted for around 40 percent of the market value of the shares located there.
Should investors diversify their shares widely?
“Buffett runs a concentrated portfolio,” explains surfing expert Rethfeld. “A mix of big brands and successful growth stocks is something that private investors can easily understand and implement for themselves.”
In fact, Buffett has his own take on diversification: “Broad diversification is only necessary if an investor does not know what he is doing.” This goes with a piece of advice that is probably one of the most well-known Buffett quotes: “Only invest in a company whose business you understand.”
Why an ETF is sometimes the better choice
So if private investors don’t understand a company’s business model or generally don’t have the tools of an investor, Buffett believes they should diversify their investments widely — for example, by investing in a low-cost ETF. That’s advice Buffett never tires of repeating.
Even in his will, the “Oracle of Omaha” recommends his family put most of their money into a low-cost ETF on the S&P 500. He himself also invests in two ETFs via Berkshire Hathaway, both of which try to replicate this market-wide US index as well as possible.
Greatest yield after years or decades
And how long should investors hold their shares or ETFs in the opinion of the old master of the stock market? “My favorite holding period is forever.” In fact, statistically speaking, shares bring the greatest return if they are held in a portfolio for several years, better decades.
Bert Flossbach from Germany’s largest independent asset manager Flossbach von Storch also appreciates Buffett’s long-term approach. It is not for nothing that a longer quote from Buffett in the American original hangs on the wall in his office, which – translated – begins like this: “American companies will do well over time. And stocks will certainly do well as well.”
Opposite tagesschau.de Flossbach explains: “Warren Buffett and Charlie Munger don’t follow trends – knowing full well that they perform worse than the market in certain stock market phases.” The two were characterized by a special understanding of opportunities and risks.
Crises and crashes as opportunities
Even stock market crashes – situations that every investor actually fears – are an opportunity for Buffett: “Be fearful when others are greedy and be greedy when others are fearful.”
Buffett was “greedy” during the financial crisis. At that time he was a well-calculated lifeline for numerous hard-pressed companies. He invested five billion dollars alone in preferred shares of Bank of America, which was badly hit at the time. In 2017, he exchanged them for common shares via an option – and thus made a book profit of 11.5 billion dollars in one fell swoop. In general, Buffett has done well over the years with his anti-cyclical trading approach, repeatedly buying cheap shares in a company when the market panicked.
What investors keep getting wrong
Keeping calm even in turbulent times on the stock exchange and concentrating on the long-term goal – financial research has shown that the typical investor does not behave in exactly the same way. Instead, investors often blindly follow the herd, buying and selling at the worst possible times.
We have to learn from such mistakes – or to paraphrase Warren Buffett: “The only person to blame if you get bad results in the stock market is yourself. You know that, right?”