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The Motley Fool
Warren Buffett Attributes His Investing Success to These 2 Things
By Jennifer Saibil,
As if the economy weren't already volatile enough, it spun into turmoil on Friday after the closure of Silicon Valley Bank. The Federal Deposit Insurance Corp. (FDIC) has since shut down Signature Bank, and Americans are cautiously anticipating what else might be in store this week.
For true Warren Buffett followers, none of this is overly alarming. Buffett has spoken many times over the past few decades about how the markets rise and fall, and how investors who want to create wealth need to ignore the noise, find companies to invest in that can stay resilient in tough times, and hold for the long term.
It's not always easy to block out the news and look away from dropping portfolio values. But Buffett attributes his success to doing just that, while doing these two things as well.
1. Buy dividend stocks
While he doesn't say "buy dividend stocks," when he talks about his secret sauce for investing success, Buffett talks about Coca-Cola (NYSE: KO) and American Express (NYSE: AXP) -- his two longest-held positions, and also two of his largest, both of which are dividend stocks.
Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) bought Coca-Cola stock over several years, finishing in 1994 with a total of $1.3 billion. Berkshire's dividend from Coke stock came to a total of $74 million, and that increased to $704 million as of 2022.
Berkshire completed its purchases of American Express stock in 1995, incidentally also for $1.3 billion. The dividend came to $41 million in 1995, and grew to $302 million as of 2022.
Notice that these increases are just in the dividends, leaving aside the price gains.
Buffett says that he and Berkshire Hathaway Vice Chairman Charles Munger "expect that those checks are highly likely to grow."
However, he qualifies this with the other part of what he says has led to his investing success.
2. Hold for the long term
Buffett notes that "These dividend gains, though pleasing, are far from spectacular. But they bring with them important gains in stock prices."
I find it rather incredible that Buffett is more than OK with "less than spectacular" dividends. It's all a part of how he views investing in general, with a focus on businesses rather than stocks. That key focus leads to long-term success. It's particularly relevant to the markets right now, where there are a lot of raw emotions and investors might feel like panic selling. Holding, even with what might be mediocre results, is more effective than making decisions based on market conditions.
Reinforcing this further, Buffett says that "Our satisfactory results have been the product of about a dozen truly good decisions -- that would be about one every five years -- and a sometimes-forgotten advantage that favors long-term investors such as Berkshire."
I also think it's fascinating that Buffett mentions these two stocks, and only one of them has beaten the market over this time period, dividends included.
Buffett ends on a rather poetic note: "The weeds wither away in significance as the flowers bloom." The lesson for investors is "over time, it takes just a few winners to work wonders."
American Express is an advertising partner of The Ascent, a Motley Fool company. Jennifer Saibil has positions in American Express. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool recommends the following options: long January 2024 $47.50 calls on Coca-Cola. The Motley Fool has a disclosure policy .