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OPINION

Sage advice

Sage advice
March 6, 2015
Sage advice

This year marks Mr Buffett's golden anniversary at the helm of Berkshire Hathaway. In those 50 years its returns have been spectacular. Between 1964 and 2014 the per-share book value of the group rose 751,113 per cent - not bad compared with the 11,196 per cent returned by the S&P 500 over the period, but dwarfed by the 1,826,163 per cent increase in the per-share market value of Berkshire Hathway. That equates to a 21.6 per cent compound annual growth rate, more than double the return of the benchmark US index with dividends included. It also demonstrates the power of compounding, something that, despite his brilliance, Mr Buffett cannot claim credit for and which, in terms of his aggregate gains, has done much of the hard work for him.

Unsurprisingly, Mr Buffett has generated quite a following as a result - 954,000 on Twitter alone, despite the fact that he has only tweeted five times. His annual letters are much richer though - a lesson, in fact, in disclosure that other company or fund managers would do well to heed. And like cold war Kremlinologists, so-called Buffettologists pore over his every musing, trying to extract the hidden meaning that will bring them similar success. In celebration of Buffett's half century, the Wall Street Journal employed no fewer than three dozen of them to analyse and annotate the latest Berkshire Hathaway newsletter.

Is the effort worth it? There's evidence to suggest it may well be. One UK fund manager, Keith Ashworth-Lord, has established a fund based on Buffett's investment principles and is doing rather nicely: his ConBrio Sanford DeLand UK Buffettology OEIC has returned a cumulative 77 per cent in three years, comfortably ahead of its benchmark, the Investment Association UK All Companies index, up 44 per cent over the same period. And as our personal finance editor, Moira O'Neill, pointed out to me, two other managers we might put on our 'best investors' shortlist, Nick Train and Terry Smith, are not dissimilar to Warren Buffett in the approaches they take: buy shares in great companies with strong consumer brands and hold them forever.

Buffett himself attributes much of his success to his longstanding business partner Charlie Munger, who he credits with the simple blueprint of buying "wonderful businesses at fair prices" rather than "fair businesses at wonderful prices". While they are talking of buying businesses outright to sit within Berkshire's conglomerate structure, private investors would do well to consider this one piece of advice when buying shares, and remember that the quality that will deliver the best long-term returns often comes at a price.