The above table is the ‘current value (2014) of USD $1000 of Berkshire stock purchased in a given year’ (Source – Business Insider). I tried to go on a fact finding mission from the table & here are the results…
$1000 invested in 1964 with Warren Buffet is now (2014) valued at $11.64 Million. That is 50 years of compounding at 21.6% CAGR vs 9.9% on the S&P 500.
The tonnes of money was made between the holding period years 30 – 50 ?. That is what compounding is. It will not deliver anything in 3, 5 & 10 years or more. Berkshire never paid out any Dividends. Everything it delivered was ‘Growth’. The stock lost more than 50% of its value 3 times in the 50 year period. And countless times between 25 – 30% or more. Imagine someone selling it off, every time it fell ?.
The best CAGR returns were made by investors who gave him money during 1964 & 1975 & still holding onto him.(20.15% – 23.29%). The worst time to invest would have been between 1997 & 2006. An investor would have earned a single digit CAGR, until 2014. The in-between year investors (1975 – 1997) earned anywhere between a lower double digit to a higher double digit (10.13% – 19.81%).
2004 – 14, he delivered 9.7% vs 5.8% for the S&P 500….He still outperformed ?. The average American inflation for this 50 year period was 3.98%.
So, the next time; a neighbor, a colleague, a friend, a fund manager, a banker, a wealth manager, a financial adviser or one’s cook – claim to have delivered a CAGR of 20% ……..then, one would have discovered the ‘Next Warren Buffet’ ?
This is what is CAGR (Compounded Annual Growth Rate). A ‘stealth total return’ and the only return that an investor ever needs to bother about. The world’s best investor makes 21.6% CAGR for 50 years. Can we do better ???