Why we need to heed Warren Buffett’s lessons
Where were you when you heard that Warren Buffett was stepping down as chief executive of Berkshire Hathaway?
Buffett made his announcement at this year’s Berkshire Hathaway shareholders’ meeting in Omaha, and I was among the thousands of shareholders overwhelmed with emotion and who rose to their feet in show of our appreciation.
For the past 12 years, I have participated in the shareholders’ meeting.
It is the Woodstock of capitalism; attended by tens of thousands of people who come to Omaha from all over the world on the first weekend in May.
The Stern family has been invested in Berkshire Hathaway for decades and Buffett’s principles have shaped me as an investor.
They are at the core of our approach to investing in quality companies for the long term.
The annual meeting on Saturday is the main event, but like many other festivals, the Berkshire Hathaway companies showcase their businesses.
Shareholders get discounts on all products and services, so people drive from far away to buy one of Nebraska Furniture Mart’s massive recliners or to renew their Geico car insurance.
For someone coming from London like me, it is an opportunity to see what great American businesses are up to.
There are also conferences, talks and gatherings where like-minded investors share ideas.
Nobody gets a reserved seat for the big event, and you get up at dawn.
The person next to you in line can be a retiree who has invested in Berkshire all their life and is standing in line with their grandchildren, a well-known fund manager, or the chief executive of a major business.
94
At 94-years-old Buffett announced he was stepping down as chief executive.
I will never forget this year’s historic meeting.
My friends and I realised immediately what was happening when Buffett said that he wanted to discuss something with shareholders for a few minutes.
He had just spent the past couple of hours answering questions from shareholders with his usual combination of humour and insight, in remarkable form considering his 94 years of age.
Then it happened. The world’s greatest investor said that the time had arrived for him to retire and that he wanted to spring that on his directors, his designated successor and his shareholders all at the same time.
He said that he would remain a shareholder and be around to provide reassurance.
We all gave him a standing ovation, but it was he who ended the meeting with a quip: “The enthusiasm shown by the audience’s response can be interpreted two ways, but I’ll take it as positive.”
Buffett stands for the best of American capitalism and is handing Berkshire over at the pinnacle of everything he has achieved.
The company is 60 this year and the stock price recently closed at an all-time high.
Buffett and his late business partner Charlie Munger built Berkshire Hathaway from his successful early investment partnerships into a company with leading businesses and a market value north of $1tn.
Buffett has taught us that investing is about the values of trust, integrity and decency, the quality of the businesses you invest in, the price you pay for the value you get, and the compounding returns you can achieve over a lifetime of investing if you take a long-term view.
It is also about surrounding yourself with good people, being open, curious and generous and trying to make the world a better place.
In markets there is a relentless push away from active investing to passive.
At his last meeting as chief executive, Buffett reaffirmed the principles that have underlined his convictions, his values and what is important to him — his commitment to capitalism, to free markets, to entrepreneurship, but also to the rule of law, to free trade, and to the positive role that government can and must have to work with business to address the challenges that we face in healthcare, energy and infrastructure, and many other areas.
Last Saturday was such a momentous day for me because these are the principles I believe in.
However, these principles are under assault like never before.
In politics there is a shift away from the policies that have allowed us to achieve the astonishing peace and prosperity we have after the cataclysms of the 20th century.
In markets there is a relentless push away from active investing to passive.
This means that pensions and savings are exposed to an ever smaller number of overvalued companies whose prices increase not because of the quality of their business or their cash generation, but because more and more money flows into them.
The index does not care if a business is sustainable or can ever deliver the value it should.
For long-term investors, short-term issues like market volatility, political and economic uncertainty, US President Trump’s tariffs can all be sources of opportunity.
That has not changed for 60 years.
The good news is that our quality companies are best placed to weather these challenges and to get stronger. As Buffett says, there are great companies we can buy at great prices and whether it is stocks or socks, we like buying quality when it is on sale.
Buffett has taught us many lessons.
As he stands down, it is now up to us, as individuals and as investors, to stand up for our principles, to honour his legacy, to carry it forward and make it our own.
Christopher Rossbach is the chief investment officer at J Stern & Co