Ask the Rational Investor: Lessons from Warren Buffett
Famed investor Warren Buffett and CEO of Berkshire Hathaway recently released their annual report and investor letter. Most investors can only hope for similar returns as Berkshire Hathaway’s share price has compounded at over 20% per year compared to 10.5% for the S&P 500 from 1965 to 2021.
Berkshire Hathaway’s approach to investing has been to purchase great businesses and hold them for the long term. Some of the companies Berkshire owns are privately held like Geico Insurance or Burlington Northern Railroad, but many are publicly traded like American Express, Apple Inc., Moody’s Corporation, and Verizon Communications.
A key to Buffett’s approach has been investing in times of uncertainty and then holding those investments for the long-term.
In Warren Buffett’s 2021 shareholder letter he discusses his approach to making investments. Balancing new investments or repurchasing Berkshire Hathaway’s common stock. Over the last two years, Warren Buffett has had trouble finding attractive investments in the broad stock market as valuations have remained high. As a result, he repurchased almost 9% of the common stock in Berkshire Hathaway.
These share repurchases have an ‘easily-overlooked’ benefit called ‘float’ or insurance policy premium that is held by the insurance company and invested. Eventually, if a claim is paid these monies are used, but in the interim, they are invested. According to Buffett during the last two years, the ‘float per share’ increased nearly 25%.
Investors looking for compelling long-term investments might want to examine Warren Buffett’s, Berkshire Hathaway.
Sources: Company reports
Beese Fulmer Private Wealth Management was founded in 1980 and is one of Stark County’s oldest and largest investment management firms. The company serves high-net-worth individuals, families, and non-profits, and has been ranked as one of the largest money managers in Northeast Ohio.