What Would Warren Do?

10/3/2022

The news flow has been confounding of late. Almost everywhere you look the news is bad. Stocks are down. Bonds are down. Inflation is high and rates are rising. And if that weren’t enough, throw in a devastating hurricane to boot. All of this has us working double time to sort it out.

Last week I stepped out for a quick sandwich at the sub shop around the corner from the office. Before the pandemic, they were known for being freaky fast. After the pandemic, they’re still freaky, but they’ve lost a step or two with respect to speed. While I was waiting, I perused the kitschy signs decorating the place. My eyes landed on a black placard near the door: Warren Buffet’s Ten Rules.

No matter what is going on in markets, it is always a good time to be reminded of the Sage of Omaha’s discipline and wisdom, even if you are just waiting on a sandwich. When I got back to the office, I did some quick math. Warren Buffett started buying Berkshire stock in 1962 when it was valued at $7.50 a share. Last week, Class A shares were swapping hands at $406,470, down from the all-time-high of $539,180 reached earlier this year, but still up an amazing 19.9% annualized since 1962. That’s an impressive 60 year run no matter what your measuring stick.

It wasn’t all smooth sailing, of course. Investing never is. Reflect for a moment on some of the challenges we have encountered since 1962. We had a Cuban missile crisis. We had a sitting president assassinated. We had a civil rights movement. We had wars in Viet Nam, Afghanistan, and Iraq. We had 9-11. We saw Inflation in the low teens after the oil shocks of the early 70s. Unemployment was over 10% in the early 80s. There have been eight recessions since 1962, including the dot-com bubble and the Great Financial Crisis. I could go on. Suffice it to say there has been no shortage of significant challenges facing the markets over the past 60 years. And yet, Buffett and his team have been able to compound capital at nearly 20% annualized. 

None of this is meant to diminish the significant challenges we currently face. There is no denying the way forward is likely to be rocky for a while. It would not be surprising to see volatility persist for some time to come. Still, there is no denying that innovation and entrepreneurship can solve a lot of problems. It is never a bad time to own a good business. And volatility brings with it opportunity. Warren and his team have been active this year, adding shares of Occidental Petroleum to complement their Berkshire Energy endeavors. They have also taken a position in Activision Blizzard, a gaming company trading in the low 70s even though Microsoft has agreed to purchase the company for $95 a share in cash.  

No one knows what the future holds, but I would bet a ham sandwich that Warren comes out on top in the fullness of time.

Mike Masters