Some wise investment advice (but Warren Buffett didn’t say it first)
Warren Buffett’s established a reputation for delivering some pithy investment advice. But long before the ‘Oracle from Omaha’ was born, Benjamin Franklin wrote: “An investment in knowledge pays the best interest”.
In other words, becoming more informed about something is likely to lead to better results. This sounds like good advice to me, even if it’s rather obvious.
Franklin, one of the Founding Fathers of the United States, died in 1790. By coincidence, this was the year that America’s first stock exchange was established in Philadelphia. Despite its relevance for the modern investor, it therefore seems unlikely that he was thinking about stocks and shares when he came up with the quote.
By contrast, since the age of 14 when he made his first investment, Buffett appears to have done little else other than focus on making money from the stock market. And he’s been an advocate of undertaking detailed research before parting with any cash. Over 200 years after Franklin died, Buffett came up with a similar message when he told a group of students: “Risk comes from not knowing what you are doing”.
But Buffett thinks it’s important not to confuse knowledge with intelligence, claiming that you don’t need to be a rocket scientist to make money from the stock market. So he also once said: “Investing is not a game where the guy with the 160 IQ beats the guy with the 130 IQ”.
A smart move
Those who invested in Berkshire Hathaway (NYSE:BRK.B) in 1965, the company which the American currently serves as chairman and chief executive, probably think they’ve been very clever. To the end of 2024, they enjoyed a 5,502,284% return on their investment.
It’s sometimes forgotten that the group’s more than just an investment vehicle. It owns operating companies in the insurance, railroad, utilities and energy sectors. But it’s most famous for taking minority positions in other listed companies. The group’s 2024 post-tax earnings were $89bn, of which unrealised investment gains contributed over $52bn.
At 31 December 2024, the company’s top five holdings accounted for 71% of all equity investments, which I think is a relatively high level of concentration. But these are quality companies with long track records of delivering above-average returns.
However, many commentators have noticed that Berkshire Hathaway’s been switching stocks for cash over the past year or so. But at the most recent meeting of shareholders, Buffett said that the “great majority of your money remains in equities” and that this will continue “forever”.
Final thoughts
But there are risks. In 2022, the group reported unrealised investment losses of nearly $68bn. And even Buffett can’t go on forever. It’s difficult to know how much of the group’s success is attributable to the man himself.
Also, the group has a clear preference for American stocks, which could experience further volatility if President Trump’s on-off approach to tariffs continues.
However, it stands to reason that being knowledgeable about something is likely to deliver better results than being ignorant. And those looking to benefit from the decades of research and experience of probably the world’s most famous investor, could consider investing in Berkshire Hathaway.
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James Beard has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
