The Key for an Investor to Succeed

Warren Buffett’s famous for his investments in brand-name companies like Coca-Cola and American Express. But, not many may know that one of Buffett’s best investments in percentage-returns is actually Washington Post, which has since been renamed as Graham Holdings.

Buffett first bought Washington Post’s stock back in 1973 and by 2007, his position in the company had gained more than 12,000%! From any perspective, Buffett’s investment in Washington Post had been a smashing success. Here’s an interesting question: Would it have been tough for an investor to have made the same investment back in 1973?

The answer, for me, is both a No and Yes.

In Buffett’s 1985 Berkshire Hathaway shareholder’s letter, he described what it was like back then when he first set his sights on Washington Post:

“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 [Washing Post’s] intrinsic business value at [US]$400 to [US]$500 million just as we did. And its [US]$100 million stock market valuation was published daily for all to see.”

From the passage just above, we can see that it wasn’t hard to determine Washington Post’s value at all. Everyone could see in plain sight that a US$400 to US$500 million business was being offered for only US$100 million in the market – in this sense, it wouldn’t have been too tough to have identified the bargain and thus to make the investment.

Now, here’s the “yes” portion to my earlier question. In the same shareholder letter and directly after the quoted passage above, Buffett continued:

“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.”

Attitude is key here – and that’s what actually makes it so tough. For Washington Post’s stock to have reached bargain-bin levels, it had to have dropped hard. It’s never easy to buy when the environment’s fearful and everyone else is selling, and that’s why having the right attitude is so important when it comes to investing.

Singapore’s market barometer, the Straits Times Index (SGX: ^STI), is sitting at 2,845 points as of the time of writing (3:40 pm). This level represents a steep 19.8% fall from the index’s 52-week high of 3,550 points that was reached in April. It also signifies that fear may be rampant and that many stocks have likely fallen hard in price as well over the past few months, creating potential bargains.

The volatility, however, may cause some investors to wish to sit on the sidelines and wait for things to ‘tide over.’ But like Buffett has shown and written, what separates a good investor from the bad is attitude – the willingness to buy sensible investments when others aren’t. To borrow another quote from Buffett, “if you wait for the robins, spring will be over.”

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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.