moneyFYI
Financial Freedom Is Merely Organized Common Sense
What Were You Doing 2 May 1980?
It was a Friday, sixteen days before Mount St Helens erupted. Tax season finished 2 days before, so I was likely tidying up files and checking for people who had not yet filed. I might have been looking forward to weekend golf.
What is more important now is what I was not doing.
Berkshire Hathaway
On 2 May 1980, Berkshire-Hathaway stock was $275.00 per share. I did not buy any.
It was not inexpensive in terms of 1980 purchasing power but affordable. Ten shares would have cost US$ 2,750 plus a brokerage fee. That would have been about $3,300 Canadian dollars.
The signs were that it could be a good investment, It was down slightly from its IPO price six weeks earlier, but the Buffet partnership had enjoyed success and was unlikely to change its approach. I didn’t buy any.
It looks easy now. Ten shares now would bring $5,170,000 US dollars. That’s about $6.5 million Canadian. I didn’t buy any. That’s moderately disturbing.
Hindsight is 20-20
Looking backwards, it was an easy buy, but foresight is always fuzzy. There is always something else to do that seems more urgent. There is always the fear of the unknown future and the many alternatives for the money.
Backwards viewing says it is an investment that returns 19.8% annually, before taxes. Acceptable to even the greediest among us.
The two lessons about investments
- Capable investors do better than others. We can learn the fundamentals if we try.
- It takes a long time to make 2,000 times your money
Try to understand why paying attention to yield in the short run has little to do with long-run success. If you look at 90-day yields, you will lose track of the idea that buying a stock is buying a business in partnership with other investors. In 90 days, management doesn’t matter. Over 42 years, it does.
If you don’t understand the business and what Buffet calls its “durable competitive advantage,” you stray. You cannot see that by looking at the ticker symbols and today’s price.
Having 42 years to hold the stock is not so easy to manage. There is an advantage to starting young, and that advantage cannot be reacquired once it is lost. Do not carelessly give it up.
The bits to take away
Understand why businesses thrive and continue to do so over a long time.
If you don’t or cannot understand the durable competitive advantage, it should go into the too-hard folder. Buffett was criticized for not buying Microsoft. He did not because he didn’t understand it. The continuous reinvention of your product line looked to be not so durable. The year he was seriously criticized for the missing Microsoft stock, he purchased a company that made bricks. Predictable.
A 13-minute Buffet talk with some simple, yet important ideas about stocks. Three fundamentals.included
Start early.
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I build strategic, fact-based estate and income plans. The plans identify alternate ways to achieve spending and estate distribution goals. In the past, I have been a planner with a large insurance, employee benefits, and investment agency, a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business. I have appeared on more than 100 television shows on financial planning. I have presented to organizations as varied as the Canadian Bar Association, The Ontario Institute of Chartered Accountants, The Ontario Ministry of Agriculture and Food, and Banks – from CIBC to the Business Development Bank.
Be in touch at 705-927-4770 or by email at don@moneyfyi.com.
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