Value Investors Tribe

In the 2018 Berkshire Hathaway Annual meeting, Warren Buffett shares an interesting story of his first share purchase back in 1942 summarized below-

• Buffett reflects on a challenging time in 1942 when the US was involved in a war and the stock market was experiencing turmoil. Buffett shares headlines from The New York Times (shown below) indicating that US was losing war at that point in time.
• Despite bad news, Buffett decided to invest in City Service preferred stock which was trading at $38.25 which was priced at $84 the previous year. After Warren bought it, he faced a significant drop in the stock price the next day.
• Eventually over the years, the price went up to over $200 per share however it was not a happy ending. Warren sold the shares in July of 1942 for $40 pocketing in a gain of $1.75 per share. This highlights that Warren did gain profit however because of the impatient behavior ended up missing out on phenomenal gain of over $160 per share.

Entire video clipping can be found on YouTube at the link below. However the key point here is about the timeframe of investing. Compounding is severely affected by the time periods. As a result having a longer timeframe for investing and having a temperament to ride downturns can prove to be a significant advantage in investing.

Warren Buffett also shares that with $10,000 invested in 1942 in S&P 500 with a single premise in mind that US will do well economically in future, the sum would be worth $51,000,000 (yes, $51 million!) in 2018 with mere 12% annual compounding. In essence average rate of compounding can produce miraculous results with long holding periods.

Key Takeaways:

1. Invest in stocks with long time horizons in mind.
2. Short term fluctuations are bound to happen and developing temperament to ride this wave can prove beneficial.
3. Average rate of compounding is bound to produce exponential wealth with long holding periods. Don’t interrupt compounding!

YouTube link- https://www.youtube.com/watch?v=XqvuLYkHjXc