Over the years, Warren Buffett’s popularity as one of the best investors of all time has skyrocketed. As Buffett and his company Berkshire Hathaway have continued to earn consistent gains over the year, his total returns have compounded to unbelievable levels.
As of the end of 2022, Berkshire Hathaway has earned a total return of more than 3,780,000%, or a compound annual growth rate of 19.8% for 57 years, showing just how incredible of an investor he is.
And while Buffett is certainly a highly intelligent individual, much of his success can actually be chalked up to his mindset and ability to limit decisions made based on emotions — something that’s much easier said than done.
If you’re looking to improve your investment performance, here are three reasons why Buffett is one of the best investors of all time as well as an example of a high-quality TSX stock you can add to your portfolio today.
Warren Buffett’s patience and discipline are paramount to his success
Many people believe that to be a successful investor, it requires a tonne of knowledge and intelligence. And while those are certainly helpful, some important qualities that investors need are patience and discipline. That’s how Warren Buffett has been so successful.
Investing for the long haul is ideal, because it lowers the risk of volatility in the short run. It’s very difficult to predict how individual stocks may trade in the short term or what the entire stock market will do, for that matter.
Instead, it’s much easier to identify high-quality companies that can outperform for years and decades to come, which is why long-term investing is so important.
Patience is key. Often, when you find a stock you like, you’ll need to wait to buy it at a price that you believe is attractive. Furthermore, stocks can trade undervalued for years before recovering. It’s crucial to exercise patience and discipline when waiting for those stocks to recover in value.
The best stocks to buy are those with significant competitive advantages
In addition to having patience and discipline, another factor that has made Warren Buffett such an incredible investor is that he looks for stocks that have significant competitive advantages. And one of the best TSX stocks you can buy with major competitive advantages is Dollarama (TSX:DOL).
Competitive advantages are situations or factors that give companies an edge over their competitors. In Dollarama’s case, it’s the largest discount retailer in Canada, with over 1,400 stores across Canada.
Therefore, not only does it have a strong and well-known brand among consumers, but it also can scale its costs extremely well, which helps contribute to its impressive margins.
Warren Buffett looks for high-quality stocks with competitive advantages, because, over the long run, they should constantly outperform their competitors and grow their earnings, leading to major gains for investors.
It’s essential to buy stocks you can hold for years
Another reason why Warren Buffett has had so much success is that he looks for stocks that he can buy and hold for decades. In fact, one of his most famous quotes says, “our favourite holding period is forever.”
When you find an incredible stock, you’ll want to own that business as long as it still has those competitive advantages that caused you to buy the stock in the first place.
For example, from the time Dollarama went public in late 2009 up until 2015, it earned a total return of more than 525%. Investors could have sold the stock in 2015 and locked in those incredible gains.
But Dollarama was still operating well and continued to have tonnes of growth potential as well as its competitive advantages. Companies like Dollarama are few and far between, making it very difficult to find more, so you want to hold these as long as they are performing well.
And since 2015, Dollarama has gained another 295%. In total, from its initial public offering in 2009, Dollarama has earned investors a return of 2,378% — much higher than the 525% it had earned investors back in 2015.
Therefore, if you want to be successful like Warren Buffett, it’s crucial to look for high-quality companies that you can buy and hold for decades to come.
