I have been meaning to write a post about the influence of Warren Buffett on my quest to become a Dividend Tycoon since the annual Berkshire Hathaway meeting on the 30th April. It would be a dream to travel to Omaha and see Buffett in person, and to experience the meeting. However, it was a treat to watch the first ever webcast of this event from the comfort of my study. My first exposure to Buffett came when I picked up ‘Buffett: The Making of an American Capitalist‘ by Roger Lowenstein about 10 years ago. I was fascinated by his approach to investing, and I identified with much of his outlook in life. In many ways he is the ultimate Dividend Tycoon, but more on that later.
I started to see my own portfolio as my own form of Berkshire Hathaway, albeit on a miniscule scale, where I could invest for the long term, in businesses that would be around for decades, and be the capital allocator of any dividends received or new capital added. It taught me to think about stocks as businesses, not pieces of paper to be traded. I started to look at which businesses had an enduring business model, good brands and loyalty.
I have certainly made many mistakes along the way. Probably the biggest mistake I have made is impatience, see my post here: http://www.dividendtycoon.com/blog/2016/03/10/why-i-regret-being-impatient
I have not included all of them, but the following are some of the principles that I have learnt from Buffett, and which steered me in the direction of becoming a Dividend Tycoon:
Avoid excessive trading
Despite my impatience referred too, my two biggest positions have been held since 2010, and I hope to keep them for many years to come. I see these as my ‘Coca-Colas’, good cash generative businesses that can keep generating cash for the long term. I have sold stocks I should not have, but take comfort that Buffett bought 5% of the Walt Disney company in 1966 for $4 million and sold it for $6 million. Had he kept it this 5% would be worth at least $8 billion at present..
Invest for the long term
A statement made by Buffett on long term investing has always stuck with me. He said that if you owned an apartment block, McDonald’s franchise and auto dealership in your town, why would you sell them? You would be more likely to hold onto them because the price is not quoted everyday like it is for stocks. I have tried to imitate this in my own way, see my article on How I bought a Burger King “Franchise” here: http://www.dividendtycoon.com/blog/2016/04/11/how-i-bought-a-burger-king-franchise/ I have held onto this stock, despite a lot of volatility and a falling stock price of late.
Buffett attributes much of his success to the fact that he reads a tremendous amount. He reads annual reports, newspapers, business journals, biographies and pretty much anything to do with businesses. To be a successful Dividend Tycoon I believe one needs to gain an edge over other investors and reading is one area where you may do so. You may find information about stocks which have not yet been discovered by the mainstream institutions, and an early investment in these stocks may pave the way to life changing profits or stocks that become dividend machines. Think about reading about the rise of Wal-Mart in the 1980’s, could that have been useful?
The life blood of a Dividend Tycoon is capital to invest. Without capital to invest, all the best intentions in the world will come to nothing. Being frugal will help build the initial capital to invest. Buffett himself drove an old car for longer than he had too in order to accumulate capital. Do this long enough and eventually the dividends will pay for lifes luxuries. I have tried to be frugal where possible in order to save capital, and am starting to see some benefit in terms of passive income and dividends.
This post only touches on some of the lessons I have learnt from Warren Buffett. His teachings on specific stocks are for another day, his 1988 purchase of a large chunk of Coca-Cola is still a legendary purchase in my eyes and the one I remain most fascinated about. Berkshire receives over 500 million dollars per year in dividends on this one investment, so yes he is a Dividend Tycoon! (He really loves receiving those large checks from Coca-Cola every quarter)
I will in future come back to Warren Buffett and Berkshire Hathaway, but this post is just to pay tribute to him for some of the inspiration he has provided on my own journey towards becoming a Dividend Tycoon.
Further Reading: The Snowball (Highly recommended)