Warren Buffett famously focuses on long-term investment, saying you should “only buy something that you’d be perfectly happy to hold if the markets shut down for 10 years.” His favourite holding period is, famously, forever.
Buffett celebrated his 88th birthday on 30 August, so how did he mark it?
Well, at Berkshire Hathaway he topped up his holding in Apple, and even bought back some of his own stock. The latter is the first time he’s done that since 2012. For me, it suggests Berkshire must be a good buy now if the man himself wants to buy it.
Over his lifetime, Buffett amassed a personal fortune of an estimated $86bn, which is pretty good. However, you look at it and is just a shade behind his friend Bill Gates. And as an aside, those two are among the world’s most generous philanthropists, with Gates having given an estimated $35bn to charities and Buffet just behind on $30bn.
Investors who’ve followed him with Berkshire Hathaway have done pretty well too, with the market-cap of the company having soared to $520bn during Buffett’s stewardship.
What can you do?
Now, even if I had the chance to start all over again, I’m in no doubt that I couldn’t come close to Warren Buffett’s investment performance. But what could you achieve over such a great lifetime?
You’re not going to be calling up your broker the minute you’re out of the womb. But let’s suppose you have 18 years of education and then take up the investing challenge. If you invest just a modest £200 per month, what could you achieve after 70 years of investing?
If you managed an average annual return of just 3%, you’d have to put yourself in the “really could do better” classification of investment success — and you’d be better off just buying an index tracker instead. But that £200 per month would still have grown to approximately £560,000 by your 88th birthday if you’d reinvested your profits.
Now, I reckon you could beat that on dividends alone. The FTSE 100 is currently offering average dividend yields of around 4.1%. That would get you close to doubling your result for a total of around £940,000. And, of course, you’d also have 70 years of capital growth from the shares in the Footsie to add to it. So what might that come to?
The FTSE 100 hasn’t been around for 70 years, but average long-term returns from the developed world’s stock markets have been coming out at around 6% per year. If you could achieve that, while still reinvesting all your profit from dividends, you’d take your final sum to £2.4m.
From birth?
Now, what if your parents had started investing for you from birth, perhaps in a Junior ISA, with the same monthly investment and the same 6% return?
How does £6.9m sound? That surprising result shows those first 18 years of investment would be worth almost twice the subsequent 70 years! The lesson, obviously, is start as early as you can.
Of course, this is all from a very modest investment. Suppose that could be upped to £500 per month. A full 88 years of investing at that level, with 6% annual returns, would net you a whopping £17.3m.
You’d still be a pauper compared to Warren Buffett, but I’d be happy with a result like that.