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The Best Investing Advice From Warren Buffett at Berkshire's Annual Meeting

By Todd Campbell - Updated May 7, 2018 at 4:45PM

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At Berkshire Hathaway's annual conference, the Oracle of Omaha offered up savvy advice on how to invest your money.

Every year, Warren Buffett and his partner at Berkshire Hathaway Inc. (BRK.A -2.26%)(BRK.B -2.53%), Charlie Munger, invite shareholders, Wall Street analysts, and the media to convene in Omaha, Nebraska, for Berkshire Hathaway's annual meeting.

The annual meeting is a county fair of sorts, featuring booths packed with products made by Berkshire Hathaway's companies and light-hearted games, including a challenge to beat Buffett in a newspaper-tossing contest in the past and a 5k road race sponsored by Berkshire Hathaway's Brooks Running this year. 

Warren Buffett smiles while meeting people at a Berkshire Hathaway annual meeting.

IMAGE SOURCE: MOTLEY FOOL.

Make no mistake about it, though, the main draw of Berkshire Hathaway's annual meeting is Buffett's discussion of the company's performance, which is often peppered with insightful investment advice that everyday investors can use to build a bigger nest egg.

Warren Buffett's most important message

It's been proven time and time again that long-term investing outperforms short-term investing, yet many investors still focus too little attention on the resiliency of the U.S. economy and too much attention on the day-to-day profit and loss of their investments.

Buffett's long been famous for his willingness to buy and hold onto investments for long periods of time, but it wasn't always the case that Buffett took such an unemotional approach to investing.

In this year's presentation to Berkshire Hathaway investors, Buffett shared with attendees the story of his first stock pick.

In March 1942, after watching the price of Cities Service preferred stock drop from $84 per share to less than $40 per share, he asked his dad to buy him three shares with all of his savings at the time. His father bought Buffett three shares when the market opened the next day at a price of $38.25 per share.

Cities Service preferred stock eventually traded up to over $200 per share, so Warren Buffett clearly had a knack for buying value stocks early on, however, the world was mired in World War II, and a constant stream of negative headlines caused Cities Service preferred share price to continue falling. At one point, Buffett was staring at a loss of over $10 per share. 

Holding onto that investment long term would've more than quadrupled his money, but he conceded to attendees that, sadly, this wasn't what happened. Having witnessed big losses on his investment early on, he happily sold his shares in July 1942 when they rebounded to about $40 per share, netting him just a $5.25 gain. 

The lesson Buffett was reinforcing to his shareholders with this story was a simple one: The best way to make money over an investing lifetime is to stay the course!

Warren Buffett drives his lesson home

To reinforce this point, Buffett asked people at the conference to consider how much money they thought they'd have today if, at the time Buffett had bought his first shares, they had bought $10,000 worth of the S&P 500 stock index and held onto it until now.

The answer: a staggering $51 million.

He then asked investors how much money they thought they'd have today if they'd bought gold -- arguably the best proxy for an investment type that people who are worried about political or economic woes buy -- instead of stocks with that same $10,000.

The answer: about $400,000.

The 100 times plus outperformance of stocks versus gold was made possible by the fact that companies continually reinvest their profit to produce inventions that result in greater growth in the future.

Undeniably, there have been plenty of reasons to sell U.S. stocks (war, political unrest, economic recession) over the past 75 years, but ultimately, the investors who have made the money have been those investors who've bet on American economic prosperity, rather than doom and gloom. 

The key takeaway

Buffett said at Berkshire Hathaway's annual meeting that the overriding question investors ought to be thinking about is "how is American business going to do over your lifetime."

Investing in America's success the way Berkshire Hathaway has over the years has made Warren Buffett worth more than $80 billion and in his view, the key to success isn't to buy and sell stocks rapidly over and over again but to invest across industries for the long haul. 

He's so committed to this idea that he's instructed the trustees of his wife's trust to invest 90% of the assets he leaves her when he passes away into an S&P 500 index fund. Perhaps, making the S&P 500 a core holding in a forever portfolio is good advice for you, too.

 

 

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Berkshire Hathaway Inc. Stock Quote
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