As longtime readers know, we attend the Berkshire Hathaway shareholder annual meeting in Omaha, Nebraska, religiously every year. While we always learn something new from the pilgrimage, the experience is more about a renewal of faith in clear investment thinking. Examples of prior dispatches can be found here and here.
Each year, the “high priests” of investment rationality, Warren Buffett (shown in the pic above) and Charlie Munger, Berkshire's chairman and vice-chairman, respectively, have a way of cutting through all the noise and delivering the proper investment signal for long-term investment success.
This year was no different.
Buffett opened the meeting by holding up a copy of The New York Times from March 12, 1942. The headlines across the front page communicated one clear message: things were not well in the world. WWII was going very badly for the good guys at the time. Japan was dominating the war in the Pacific theater (the Philippines would fall two months later). Things were grim in Europe. U.S. military and merchant freight ships were being sunk left and right in the Atlantic. The world seemed to be quickly going to hell in a handbasket.
That was also the date an 11-year-old Buffett bought his first stock.
Ignoring the headlines — at 11 we have to assume it was out of sheer ignorance — he told his dad, a stockbroker at the time, to invest all ($125) of Warren's money in Cities Service Preferred. He bought three shares at $38.25. While he was in school the next day it fell to $27. He became very nervous and vowed to sell the stock as soon as he made is money back. He hung on for four months and was able to sell the stock at $40, pocketing a $5 profit.
Warren's real lessons from the experience came later when he saw the stock trading at $200. First, don't get overly concerned on the price you pay for an investment. Second, do not get overly emotional about an investment because it may make you do stupid things. In young Buffett's case, it cost him a profit of almost $500.
But Buffett's most important lesson from the experience had to do with focusing on the things that matter in long-term investing. The only thing that matters is the answer to one overriding question: "How is American business going to do over your lifetime?"
Think about it like this: $10,000 invested in March of 1942 when the U.S. was engulfed by the destructive uncertainty of WWII turns into $51 million today. American business did well over that time frame despite the Cold War, nuclear weapon proliferation, the Korean War, a presidential assassination, the Vietnam War, Nixon & Watergate, oil shocks, 15% inflation in 1980, the Gulf War, the Tech Bubble bursting, 9/11, War in Afghanistan, Isis — and say nothing about periodic recessions, geopolitical maniacs, terrorist attacks, the Kardashians and unpopular U.S. politicians.
And from Buffett's (and our) perspective, American business is going to continue to do well for a long time to come.