Warren Buffett is one of the most admired and practical investors of our time, who's investment approach saw great success. We examine how his approach can power long-term returns for portfolios.
Summary:
On Saturday, May 3, Warren Buffett surprised the world by announcing his intention to retire as CEO of Berkshire Hathaway (BRK) at the end of 2025—a post he has held since 1965. His successor, Greg Abel (born in Edmonton), has been transitioning into his role since 2021. The news caused the stock to drop 5% on the following Monday, but had a negligible impact on the overall broad market.
Buffett’s approach
It is well known that Buffett’s approach is synonymous with value investing and long-term strategies—once quoted saying, “…our favorite holding period is forever.” The success of his approach is seen through the returns of Berkshire Hathaway’s stock during his time at the helm.
Berkshire’s compound annual growth rate between 1965-2024 is approximately 19.9%, whereas the S&P 500 returned 10.4% annualized over the same period. In absolute terms, $100 invested in BRK in 1965 would be worth approximately $27.5M in 2024, compared to just over $92,000 for an investment in the S&P 500.
These numbers are staggering, and many may wonder how Buffett was able to produce such returns—some of which occurred before the advent of algorithms and AI. The answer lies in employing a rather simplistic investing style—one that focuses on the business behind the stock, long-term value, and most importantly, patience.
Much of what we can learn from Buffett’s investing style can be found in his highly anticipated annual letter to shareholders, where he provides an outlook of the future and reviews the past year. For example, much has been made of Berkshire’s increasingly large cash holdings in the last year, which had grown to $334B at the end of 2024. Many people have wondered why the cash holdings have increased. He reassured investors in the annual letter by stating, “Berkshire will never prefer ownership of cash-equivalent assets over the ownership of good businesses, whether controlled or only partially owned.” The fact Berkshire still holds significant equity in companies that they have owned for years shows they are long-term investors.
Powering long-term returns
Like Buffett, at NEI, we’re also proponents of staying invested for the long term. We’re continually innovating investment solutions that support this approach and power returns by uncovering the unseen and using proprietary asset allocation strategies.
We can’t underscore enough the importance of staying the course with a long-term investment plan, especially during uncertain, volatile times, and bear markets. We have a couple of resources to help you understand the opportunity and learn from the past.
- Our Market Volatility Chartbook illustrates why it literally pays to stay invested, with historical examples and indisputable evidence.
- Our Navigating opportunities with optimism whitepaper delves deeper into navigating unpredictable markets, and explores four essential strategies to offer actionable solutions for thriving in uncertain times.
Pillars for success
To successfully invest long-term, you first need to begin investing. And if you already have started, you may need to tailor your approach from time to time to ensure long-term success. Below are four pillars for investing:
- Start early – the sooner you start investing for the future, the more time you’ll have to benefit from compound growth.
- Invest regularly – making regular and consistent contributions to your retirement savings allows you to benefit from dollar-cost averaging (DCA).
- Stay invested – when markets decline for an extended period, it can be hard to stay invested. Historically speaking, strong gains tend to follow weak performances.
- Diversify – certain types of investments tend to rise when others are declining.
For more information on investing, check out our Four pillars of investing – planning your financial future booklet.
Warren Buffett will always be one of the most admired and practical investors of our time. Although he is stepping down as the CEO of the conglomerate he shaped, and while we may hear from him less, his wisdom and wit will forever remain relevant.
“Someone is sitting in the shade today because someone planted a tree a long time ago.” – Warren Buffett
For more information on NEI or resources to help support you in making informed investment decisions, visit our Resources page.
