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Let's say you had the opportunity to go back to 1965 and invest alongside Warren Buffett. Would you do it? Well, I think you'd definitely want to invest with Warren Buffett because, as you know, he's had an outstanding performance over the past 50 years. But I'd argue that most of those who could do that today, who say yes, they would, would n't ultimately achieve the same profits as Warren Buffett.
Anyone could buy the exact same stock, and why that is, is explained here in this video. And if you're interested, definitely join the club now! Let's go way back to 1965. I wasn't even born yet. Berkshire Hathaway had bought the company, which was a textile factory, because he simply thought it was a cheap business and that they could do something with it, or that it produced clothes.
But he quickly realized that this was n't working with all these textiles, and that's why he started to restructure everything. to restructure, gradually reducing textile activities and instead investing in other companies. If you had invested back in 165, you would be a rich man today, regardless of the amount invested.
If you had invested as much as some people invest today— a few hundred euros or perhaps 10,000 euros—and that amount doubled over the same period, you would be a multi-millionaire today, probably a nine-figure millionaire. If you had had the money back then to invest less than $100,000 or $200,000, you would even be a billionaire today.
Warren Buffett achieved this gigantic growth in value over these 54 years. And if you simply look at it, during this time the S&P 500, the 500 largest American stocks (which, of course, have always changed), has seen an average return of 97 percent between 19 and 65 percent, ending in 2018. 9.7 percent over these years results in a total profit of over 15,000 percent.
So, the S&P 500, what did they do now? Together with his partner Charlie Manga, they gigantically beat the performance of the S&P 500. To remind you, one can see that S&P 500, founded by Buffett with Charlie Manga and Berkshire Hathaway, yielded 20.5 percent, more than double. And now we've heard that the return on the S&P 500 was approximately 15,000 percent.
One might think, okay, then that must be 30,000 percent. With the compounding effect, it 's obviously significantly more, namely, in total, I note, 2.47 million percent, over 2.4 million percent. So now take any sum, okay, and calculate what would have become of it if I had invested over 100 dollars back then.
Investing $10,000 to $100,000, as I said, is incredible, what's being accomplished over that time. So, now the question again: would n't you like to go back to 65 and invest then? I definitely would, and probably everyone listening would too. But, and here's my theory: I'd say a large portion, not just a few, would n't have been there after all and wouldn't have achieved this gigantic performance.
And the reason is very simple: looking back, it was of course a super run, and the markets developed fantastically. By the way, the S&P 500 didn't perform any differently than if we looked at it since 1900, or even further back to around 1800. That means this 89 percent return on the S&P 500 on major international stocks that we've seen over the last 200 years— not just 50 years and 200 years.
But what, of course, is in this... Time happens with both the broad markets and with Warren Buffett or Warren Buffett's holding company, Berkshire Hathaway. This hasn't been a linear process, meaning the value didn't increase smoothly from the bottom left to the top right with a nice guarantee. It was accompanied by significant pullbacks.
And I just want to give you a few figures. I'm taking these figures from the annual Berkshire Hathaway shareholder letter, where everything is listed. Let's start in 1973. I was just two years old then, and in 1973, the stock lost... we've never... after only 72 years... Let's go back another year. We're going to 1971.
I was born in 1971, and just to celebrate my birth, the SMP rose by 14.6 percent. 14.6 percent is a very, very good annual performance. But Berkshire's stock rose by 80 percent. 80 percent... Now, please imagine the following: Now you say... After you see that, hey, the stock has risen 80 percent, the broader market has risen 14 percent, so I'll invest in that one.
And now, of course, you're going to go against the SVP with its 14 percent rise, or do you go into the company that's making the 80 percent gain? What do you do? Obviously, you go into Buffett's stock. So, the year is 1972, and the broader market rises sharply again, this time by four percentage points more, even by 18 percent, 18.9 to be precise.
The year before, it was 14 percent, now it's almost 19 percent. Gigantic! Warren Buffett transfers 71.18 percent in 1972, only 8 cents. That means you've already underperformed the broader market by 50 percent. I'm sure at this point you can shake your head for the first time and say, okay, maybe I should have gone into the broader market after all.
Okay, but do n't go any further. In 1973, the broader market loses, this time by 14.8 percent. The S&P 500 falls almost 14 percent this year, and Berkshire Hathaway's stock also declines, by 2.5 percent. At that moment, you might say to yourself, " Okay, after two years, I'm still in the black. I gained eight percent in the first year and lost 2.5 percent in the second.
That's all still okay. It was perhaps a good idea to go ahead. That was fine." And now comes the bad news: 1974 brings another bad year for the S&P 500, as it loses 4 and 9 percent, a quarter of its value within a single year in 1974. And what does Berkshire Hathaway's stock do? It also loses, by 248.7 percent, almost 50 percent.
Now, imagine this: you invested in 1972, you gained eight percent in the first year, and you quickly calculate that... Let's do this with today's figures, okay? That means... Let's say you initially invested €10,000, which is a gain of 8.1% in the first year. That means you're at €10,800. Okay, now it's the second year.
You've lost 25%, so you're now at €10,500.39. So, after two years, you're still up about 5 %. Everything's okay, it wasn't quite what you expected after seeing it go up 80%, but you're still up 50%. And now comes the third part: the stock loses 48.7%, and with it, the entire investment. Let me quickly recalculate that, and now you have €5,400.6 left from the €10,000 you invested three years ago.
That means you've lost almost half of your investment within three years. And now I'm absolutely convinced that 95% will... People who throw in the towel will say, " Maybe this time it's different, maybe this time it wo n't work after all, maybe the world has changed." Let's think about the seventies.
I'll take a quick look at 1974. Look here, what happened in 1974? In 1974, there was the oil crisis, Richard Nixon, the American president, despite his resignation because of the Watergate affair, and in 1973 there was the Yom Kippur War in the Middle East. And what else happened? In Cyprus, Turkish forces invaded.
In Portugal, there was the Carnation Revolution. In Berlin, in Germany, in Bonn back then, Willy Brandt resigned because of a spying scandal. At least in Germany, the football world champions became champions. But there was already a lot going on in the world. And now I have to tell you about the following: whenever something like this happens, when stock prices fall, when your investments lose money, the news that comes around...
Disaster, they are catastrophic. You hear nothing good, you don't see that everything is continuing, that the economy isn't disappearing into the abyss. But you hear about bankruptcies, you have this company, it's under pressure, people are being laid off, things are going badly, and all of that affects you.
And that's why it's perfectly normal that you simply stop believing in the future. And that's why I'm absolutely convinced that a large part of Warren Buffett's success wasn't just due to the brilliant selection of companies he made, but also to the fact that he was such an extreme optimist and always believed in the future.
That's why he bought in bad times and simply stayed in during good times, rather than becoming frantic. But he stayed in during bad times. That's how it is, and we all, the way we're wired, probably wouldn't do that. And that's why it's so difficult to achieve such extremely large gains as private investors because we're doing the wrong things.
Every one of us is always busy saying, "I want to find the next stock that will go through the roof." I want the next Apple, I want the next Google, I want the next Amazon, but I'm absolutely convinced that 's the wrong approach because, let's say you go back in time—well, not quite that far back, but let's go back to the year, let's say 1998, 1997.
In 1997, Amazon went public. Cool, Amazon went public and at an incredible price, then within a very, very short time, namely to its peak at the end of 1999, it rose by 5000 percent. 5000 percent. So, now the following happens: then comes the dot-com bubble, and this stock falls, and somehow it just fell.
I've looked at exactly when—I have a short position in front of me—the Fed fell by 94.35 percent during this time, so let's say 95 percent. It drove through the 95 percent. And now you think you would have been there, that you would have stayed there? How about... I do n't believe I would have stayed in either, no, of course not.
Of course I would n't have stayed in if a stock had plummeted or fallen 90 percent. So either you've got it, you really have it, you're too pain-resistant and say, "Okay, if it's fallen that far once, then it doesn't need to fall any further, it doesn't matter." But what would have happened then? The stock, we all know, recovered again.
It then performed gigantically. Converted to today's price, this stock back then cost about five dollars. Today it's at almost 2000. But what would have happened? Even those who bought in at the highest point in 2000 would have had to wait quite a while, at least until 2009. Then they would have reached their old price again.
And what would many people have done then? Finally get out without a loss. They would have sold at a price of about 100 or 110 dollars. And well, the next few thousand percent would have been earned by others. And that's why we have to We simply need to focus on other things. We do n't need to look for the next Microsoft, the next Amazon, the next Berkshire Hathaway.
Instead, we need to work on how to stay afloat in tough times. That's the crucial question, and it's where you should focus your full attention. It's not about having the best stock if you can't handle the temporary fluctuations. And these fluctuations can be extreme. Amazon is an extreme example, but you've also seen Berkshire Hathaway's 50 percent drop in two years.
We've seen that with Apple, we've seen that with Microsoft, yes, we've seen that too. But the price... I saw some great stock on Google.de that has made its shareholders millionaires in recent years. And I'll show you a stock that has fallen by 30, 40, 50 percent at times, sometimes even without the stock exchange announcing it.
That's why we simply need to concentrate on building a solid portfolio. We have to program our minds so that no matter what happens, we try to look to the future and believe in the positive, that the world won't end. And that's very, very easy to do in a time when we're new to the highest. Now, we have some bad news, but if you've never experienced this, believe me.
In the financial crisis of 2007, when Lehman Brothers filed for bankruptcy, when banks went under one after another, when the government had to intervene, when banks ran and died, you don't hear anything positive about any company. There's nothing positive to report. Yet, anyone who bought back then made a fortune, and it's extremely difficult to get through it.
Incidentally, that's also my job as a coach, to support you during this time and say, "Okay, right now." And I've experienced this twice now. The first time, I would have done the same; I would have gotten out, just like everyone else. The second time, I was a bit more relaxed because I knew that things could change.
Now I'm convinced that I've always done this in recent years when things get a bit more complicated. I need optimism, but I've also become optimistic because I now see my shares as something different. I no longer see them as mere pieces of paper that drive up their price, but as investments in companies.
However, that's a topic for another episode, and that's why I'm done for today. But please remember, the key takeaway here is: don't focus on searching for the next high-flyer, focus on how you get through tough times. That's the crucial thing as a shareholder: how you navigate the bad times. And that doesn't mean blindly buying shares that have fallen by 90 percent, or blindly clinging to the idea that some shady, fraudulent, or failing companies just want to be invested in them.
It means that you have to hold onto or buy world-class companies, even in bad times, even if the general outlook isn't positive at the time. So, to give you something positive to take away, I hope you enjoyed this episode. I look forward to seeing and hearing from you again, and that's why I'm saying goodbye for today. So, what does it matter? See you next time!
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