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Quote of the Day
“It has struck me that all the misfortunes of men spring from the single cause that they are unable to stay quietly in one room”-Blaise Pascal in his book, Pensees
A quote that seems like it was intended for modern day stock market investors, but it was said in the late 1600s.
Keep Pascal’s observation in mind when looking at the event in our “This Day in History” series below. Has any investor been better at being satisfied with doing nothing?
August 26th – This Day in Stock Market History
August 26th, 1983 – Berkshire Hathaway A class shares close above $1,000 for first time.
After Buffett’s first purchases of Berkshire Hathaway stock around $7.60 a share in 1962, the rise to $1,000 was quite a journey – And it also made Buffett one of the wealthiest people in the world. At this time, Buffett had a net worth of approximately $520 million according to the 1983 Forbes 400 list.
Of course, Buffett’s quote: “Time is the friend of a wonderful business…” would prove true. The first $1,000 was just the beginning:
August 26th, 2014 – The S&P 500 index closes above 2,000 for the first time.
The U.S. stock market was on a tear at the time. From its 2009 lows, the S&P was up 200% over the previous 5 years. Here were the annual returns for the S&P 500 from 2009 to 2014:
2009 – +25.94%
2010 – +14.82%
2011 – +2.10%
2012 – +15.89%
2013 – +32.15%
2014 – +13.52%
Best August 26th in Dow Jones Industrial Average History
2015 - Up 3.95%, 619.07 points.
(This was two days after the Dow's 1,089 point intra-day plunge)
Worst August 26th in Dow Jones Industrial Average History
1909 - Down 2.24%, 1.619 points.
Read of the Day
Buffett's investment returns are unbelievable. We all dream of owning shares in a company and watching that share price rise. (Berkshire's share price rose from $1,000 in 1983 to over $200,000 in 2014. But who has the patience to hold a stock for 30+ years? How can you be confident that the company will continue to produce?
I was pleasantly surprised by the book The New Buffettology , which explains Buffett's investment style very well. Including real-life examples from Buffett's day the book goes into detail how Buffett calculates a company's intrinsic value. The section on Buffett's idea of a company earnings as an "Equity-Bond" is great, and worth the price of the book alone.
(We cover some details of Buffett's idea of an "Equity-Bond" in an old post here)
The section concludes with this point:
"Warren knows a secret: Excellent businesses that benefit from a durable competitive advantage and can consistently earn high rates of return on retained earnings (shareholder's equity) are often bargain buys at what seem to be high price-to-earnings ratios."
<-- Go To Previous Day: August 25th, 1995: Berkshire Hathaway buys GEICO for $70 per share, $2.3 billion