Warren Buffett’s often described as the world’s most successful investor. With an estimated fortune of $140bn, I can see why he’s credited with being number one. And given this status, it’s not surprising that he attracts a cult-like following with many of his quotes — so-called ‘Bufett Bites’ — being used to justify a value-driven approach to investing.
But my favourite piece of advice came from Ben Graham, the American economist. He once wrote: “The individual investor should act consistently as an investor and not as a speculator”.
It’s not particularly memorable. And it doesn’t have Buffett’s style. But I think it’s the most valuable. And one that I wish I’d followed when I started on my own investing journey many years ago.
Buffett has often credited Graham with being the inspiration behind his approach to buying stocks. Indeed, he has his own version of the quote — “Our favourite holding period is forever”.
So what does Graham’s (and Buffett’s) quote mean?
The father of value
In his book, The Intelligent Investor, Graham distinguishes between an investor, who’s keen to preserve their capital and seeks a reasonable return, and a speculator, who might lose everything in pursuit of a greater reward.
When I first started investing, I fell into the latter category. I wasn’t too reckless but relatively modest returns didn’t interest me. I soon realised this was a mistake. Trying to ‘time the market’ almost never works.
Since January 1986, the FTSE 100 has delivered an annualised return (with dividends reinvested) of 8.6%. Other markets have done better. For example, the S&P 500 grew by 11.4% a year during this period.
But if I’d invested £20,000 in UK equites 38 years ago — and matched the Footsie’s return — I’d now have £459,794.
The benefit of hindsight
And if I was to start my investing life again, I’d buy a share like National Grid (LSE:NG.) and forget about it. That’s because it’s a steady but reliable performer.
The company’s principal activity is the transmission and distribution of gas and electricity on both sides of the Atlantic.
Due to the huge investment required, it’s not practical for more than one company to operate in its markets. This means it enjoys monopoly status. Although it’s regulated, which means it can’t charge what it likes, as long as it keeps the lights on it’ll know with a reasonably degree of certainty how much money it’s going to make.
In turn, this makes its dividend reliable. The stock’s currently yielding a very healthy 5.9%.
And the group’s anticipating growth in its earnings per share of 6%-8% up until 2029. This should help it grow its dividend.
Of course, nothing’s guaranteed when it comes to investing. The company has large borrowings. And it surprised investors in June when it announced a rights issue, to help fund its massive capital investment programme.
However, if I was looking for an investment to hold for the next 20 years (I’m not, because I hope to be retired by then) I’d pick National Grid.
Finally, to those who disagree with me about the value of long-term investing, I’d refer them to the performance of Berkshire Hathaway, Buffett’s holding company.
An investment of $20,000 in 1964 would have grown to $88bn by the end of 2023!