Is it possible that Buffet made no money for 40 years?
Warren Buffet's letter - actually Berkshire Hathaway's annual letter to shareholders - gives us yet more evidence of the severity of this crisis. It appears that the investments held by Berkshire Hathaway, Buffet's company, have lost all their gains. They're basically worth what Buffet originally paid for them. Many of these stocks were purchased over years and bought at what Buffet thought were bargain prices. (He's famous for being a "value" investor - someone who buys companies that he believes are priced well below their intrinsic value.)
But don't be too shocked. Buffet's not fool. He sold many companies over the years for a fat profit. And he typically invests in businesses that throw off lots of cash - typically dividends. And these dividends are not calculated into the "cost basis" - the amount he originally paid for the company.
Still, it does give us some idea of 1) just how far and how fast the stock market has fallen 2) why it's generally not a good idea to invest in companies based strictly on the hope that the share price will increase: you want to collect a reasonable dividend along the way.
Don't feel sorry for Buffet. Berkshire Hathaway net worth has increased an average of 20.3% over the last 44 years. And that, in the end, is the number that Buffet cares about. As for us lesser-mortal investors, the lesson should be that getting a return on our investment in the form of dividends should be a primary characteristic of what we consider a sound investment opportunity.
But don't be too shocked. Buffet's not fool. He sold many companies over the years for a fat profit. And he typically invests in businesses that throw off lots of cash - typically dividends. And these dividends are not calculated into the "cost basis" - the amount he originally paid for the company.
Still, it does give us some idea of 1) just how far and how fast the stock market has fallen 2) why it's generally not a good idea to invest in companies based strictly on the hope that the share price will increase: you want to collect a reasonable dividend along the way.
Don't feel sorry for Buffet. Berkshire Hathaway net worth has increased an average of 20.3% over the last 44 years. And that, in the end, is the number that Buffet cares about. As for us lesser-mortal investors, the lesson should be that getting a return on our investment in the form of dividends should be a primary characteristic of what we consider a sound investment opportunity.
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