Content provided by Grant Engelbart, CFA, CAIA, Senior Portfolio Manager & Co-Director of Research

Warren Buffett turned 88 years old on Thursday, August 30. Quite possibly the most famous value investor of all time, Buffett took control of Berkshire Hathaway in 1965 (“that is, when current management took over”). Since then, the company has transformed from a dying (literally and figuratively) textile manufacturer in the northeast to a sprawling conglomerate and the fifth largest stock in the U.S., the third largest by revenue. Berkshire owns everything from candy to railroads to its latest investment — an India-based mobile payments company, Berkshire’s first private tech investment.

It is borderline cliché to expound on what has made Buffett and his partner, Charlie Munger, so successful all these years, but the lessons are timeless and worthy of repeating. Just a few reasons behind the tremendous success are what I’ll call the “Three T’s”: Time, Trust (sound familiar?), and Tenacity.

Time

Buffett took over Berkshire Hathaway more than 50 years ago. One dollar compounded even at a “measly” 5% (about the average nominal short-term interest rate over the period) for a half century will grow more than 10-fold. Imagine growing at more than 20% over that time period! That is what Berkshire’s stock price has done, resulting in a cumulative gain of more than 2,000,000% since Warren Buffett took over. It’s frankly unfathomable. There is a huge benefit to having time on your side when investing.

Trust

Those stellar returns, a friendly Midwestern attitude, becoming the richest man in the world, and man, those returns, have all earned Buffett a great deal of respect and trust amongst investors. Buffett’s style of investing — value with a splash of quality — requires a lot of trust. Take a look at the chart below. During periods such as the tech bubble at the turn of the century, when technology stock prices seemingly had no ceiling, Buffett stuck to his principles and underperformed dramatically. Up to -25% annually at one point!

Tenacity

That ability to weather the ups and downs of the value investing style reaped massive rewards over time, especially for those investors who stuck with Buffett through the aforementioned drawdowns. As Buffett famously stated, “Investing is simple, but not easy.”

I mentioned the amazing long-term returns, but I think it’s helpful to see them illustrated. The chart below shows what those returns look like over a more recent period. Growing your money 22 times over with an investment in an S&P 500 Index fund sounds great. How does 104 times sound? Pundits have quipped that Buffett has “lost his edge” recently and all the returns for Berkshire were earned back in the 50s and 60s. Clearly, not so.

All styles of investing will ebb and flow. Sure, most won’t lead to 2,000,000% returns. But, with time, trust in your investing style, and a little tenacity to stick with it, investors will be impressively rewarded.

The S&P 500 Index is an unmanaged composite of 500-large capitalization companies. This index is widely used by professional investors as a performance benchmark for large-cap stocks. An index is an unmanaged group of stocks considered to be representative of different segments of the stock market in general. You cannot invest directly in an index.

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