The Unknown Secret to Warren Buffett’s Best Investment Ever

The coming weekend is a very special time for investing aficionados as it’s the weekend when Warren Buffett would be holding Berkshire Hathaway’s annual general meeting in Omaha, Nebraska.

I was there last year, but this time, my colleague Stanley Lim will be the one making the long trek down to the middle of the USA to attend and bring back insights from the meeting. So, do keep a look out for Stanley’s posts about his Omaha adventure.

In any case, given the upcoming Buffett extravaganza, I thought it might be a good time now to look at and learn from Buffett’s best investment ever.

The champion

Shares of The Washington Post (now known as Graham Holdings Company) was first bought by Buffett back in 1973.

The newspaper publisher, though not a huge holding in Berkshire, was by all means, a smashingly successful investment by Buffett – the US$11 million Buffett had paid for Washington Post’s shares in 1973 had morphed into nearly US$1.4 billion by the end of 2007. That’s a gain of more than 10,000%! In terms of percentage-returns, the investment is likely Buffett’s best ever.

But while Buffett’s longstanding devotion to the well-run Washington Post was well-known, what isn’t widely known is the fact that the company’s shares had dropped by more than 20% shortly after Buffett had bought them and then stayed there for three years.

What’s also very interesting is that the Washington Post was widely considered to be a great bargain when Buffett started buying shares. Here’s how the Oracle of Omaha describes it in his 1985 Berkshire Hathaway annual shareholder’s’ letter:

“We bought all of our [Washington Post] holdings in mid-1973 at a price of not more than one-fourth of the then per-share business value of the enterprise. Calculating the price/value ratio required no unusual insights.  Most security analysts, media brokers, and media executives would have estimated WPC’s intrinsic business value at $400 to $500 million just as we did. And its $100 million stock market valuation was published daily for all to see.

Our advantage, rather, was attitude: we had learned from Ben Graham that the key to successful investing was the purchase of shares in good businesses when market prices were at a large discount from underlying business values.”

I doubt most investors would have the patience to sit on three years’ worth of losses, no matter how good the eventual pay-off could possibly be. But therein lies the key to successful investing – patience. It is sorely needed, even when you might have purchased the best companies around at bargain-basement prices.

Some local flavour

For some local context, healthcare services provider Raffles Medical Group (SGX: R01) is one of the best examples I know of that can showcase the power of patience when it comes to investing in great companies. Here’s what I wrote about it in a previous article:

“Healthcare services provider Raffles Medical Group Ltd was trading at S$0.545 per share at the start of March 1999, with a profit of 1.22 cents per share. By 15 November 2008, the company’s earnings had nearly sextupled to 5.84 cents per share – but its shares were selling for S$0.56.

[As of 6 February 2015], Raffles Medical’s shares are exchanging hands at S$4.01 apiece – a 635% increase from March 1999 – and the company’s profit is at 15.94 cents per share.”

To put some perspective on the numbers, Raffles Medical’s shares had gone essentially nowhere for close to 10 years (from March 1999 to November 2008) despite seeing its profit grow by more than 600%. By early February this year though, shares of Raffles Medical have gained 635% from its March 1999 level after seeing its profit soar by 12 times over the same timeframe.

A Fool’s take

Not many may have the investing acumen that Buffett possess. But, there are times when all that’s needed to make a great, Buffett-like investment is common sense and patience. As Buffett himself said, no special insight was required to determine how valuable Washington Post’s shares were back in 1973. What was needed to make the Washington Post a smashing investing-success though, was the right attitude and lots of patience thereafter.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Chong Ser Jing owns shares in Berkshire Hathaway and Raffles Medical.