Jakarta, CNBC Indonesia – Investing in stocks can be an attractive option for investors to increase their wealth.
Just make a note, The wealth of veteran investor Warren Buffett is largely provided by his investment firm, namely Berkshire Hathaway (BRK), where Buffett’s investment is dominated by capital market investments.
The man with the nickname Suhu of Omaha who is known for his’value investment‘took over BRK for the first time in 1964. At that time BRK was an endangered textile company.
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The reason Warren Buffett buys shares in dying companies is because early in his investment career, the investor adopted a strategy invest in stocks of cigar butts.
Put simply, this strategy focuses on stocks whose prices are already very low even below their liquidation value, so as the market is irrational, there is a chance that the stock price will skyrocket even if the its business performance remains poor.
But who would have thought that investing in a dying company led Warren Buffett to become one of the richest people in the world.
A small example, when Warren Buffett took over the textile company, the price was still $ 12.37 per share.
For the record, in 1967, when CEIC first recorded the exchange rate of the rupee against the dollar, for 1 US dollar it was valued at 149 rupees. This means that the price of a BRK share is equivalent to 1,856 rupees.
If at that time an Indonesian citizen had a capital of Rp 1.5 million and converted it into US dollars which is equivalent to US $ 10,000, then he could buy 808 shares of BRK.
With this relatively small amount of capital, the investment value of USD 10,000 will be approximately USD 337 million. This value was obtained because the shares of BRK A, which have existed since 1964, are now valued at US $ 416,907 / share.
This means that over a period of 58 years, the return on capital gains for BRK A shares reached 3,370,207% or produced a compound return of 19.7% per year.
This is why the investment value of Rp 1.5 million that was previously placed in BRK A shares is now worth US $ 337 million or equivalent to Rp. 5.05 trillion, referring to the current US dollar exchange rate of Rp. 14.980 / US $.
In addition to the significant increase in the price of BRK A shares, the exchange rate of the rupee has also drastically weakened, resulting in multiplier effect when investing in foreign stocks. Since the 1960s, the rupee exchange rate has depreciated by nearly 10,000%.
This is what causes an investment of Rp 1.5 million to turn into Rp 5.05 trillion or generate a total return of 336,581,245%.
However, keep in mind that IDR 1 in 1967 was clearly different from IDR 1 today. The value of Rp 1 in 1967 was certainly much more valuable than Rp 1 today due to a factor in the form of inflation.
According to World Bank data, where annual inflation from 1967 to 2022 averaged 11.59% per year, then 1.5 million IDR in 1967 was equivalent to 626 million IDR in 2022.
RESEARCH TEAM OF CNBC INDONESIA
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