1. The Importance of Patience One of the keys to building wealth is patience. Stuart got into Berkshire Hathaway early and held on. He attended Berkshire’s annual meetings in person, continued to like what he heard and maintained and added to his investment over decades.

If you think about your own experience or that of others who you may know, you’ll realize that this is quite uncommon.

How many hold on to their investments long enough to enjoy this kind of life changing impact to their net worth?

Most people are in too much of a hurry or get scared into selling too early at the first sign of bad news or investor pessimism.

This is short sighted because most businesses are by their nature volatile and there will always be some ups and downs along the way. An intelligent investor knows this and even plans to take advantage of it.

This applies not only to Berkshire but to most investments. How many people owned Apple, or Amazon or Nvidia or some other great company that went on to produce amazing returns, only to make a 20 to 30% return themselves and then sell out for their “tidy” profit, thereby missing out on hundreds or thousand percent returns that they could have enjoyed if only they had the patience?

For this reason, one of the silliest but often repeated “pearls” of investment “wisdom” is that “no one goes broke taking a profit.” They forget to mention its corollary which is that “no one gets very rich either.”

Of course, it is not enough to just have a long-term horizon. There are many examples of people owning companies and riding them down to zero as well.

This brings us to the critical importance of having a good understanding of the quality and prospects and worth of what you own because without this understanding, it is very difficult to have the confidence to stick with the “right” investments, even if you had the smarts or the luck to make that investment in the first place.

2. Know What You Own Stewart’s knowledge of and attention to his investment enabled him to realize that he was invested in a profitable, high-powered growth company that was run by an exceptional individual and capital allocator in Warren E. Buffett.

Note that Stuart was not some Wall Street whiz or investment genius. He was a regular small-business owner in the Midwest with a business facing challenging headwinds.

Smartly, however, rather than reinvesting all his spare funds into the one challenged business that he already owned, he was smart enough to seek out greener pastures (in this case in the form of Berkshire Hathaway).

He didn’t even know about Berkshire back then, but since he was interested in improving his results and growing his wealth outside of his business, he started reading books and other sources to educate himself and find another opportunity that made sense.

His idea came from a book. However, it could just as easily have been from personal experience, or a magazine article or even a program on television (or perhaps advice from a capable investment manager like Ridgewood Investments) that would have led him to this life changing opportunity.

Crucially, his understanding of Berkshire Hathaway as a “compounding machine” that was run in a manner to reinvest all its excess cash flow and was likely to continue to generate high rates of return on that incremental investment capital was a key insight that allowed Stuart to ignore the temporary ups and downs of Berkshire stock ever since he started buying it.

Indeed, during Stuart’s holding period, there were many times when Berkshire stock dropped in value. There were also many times when certain other companies or industries were doing much better than Berkshire and when the press was writing articles saying things like “Has Buffett Lost His Touch?”

Because Stuart had done his homework and knew better based on his own independent thinking and analysis, he could ignore these temporary factors that made others sell.

3. Focus on Quality, Minimize Trading, and Harness Concentration As Stewart’s example vividly illustrates, identifying and buying quality firms and holding them for a long time is another key to amassing wealth.

This is just the opposite of day trading and other get-rich-quick approaches that constantly try to buy and sell and time the market.

Stewart was able to assess and understand the business and management quality embedded in Warren Buffett’s management of Berkshire. Given the quality of the company and the management team he was investing with, as well as Bufffett’s status as an owner-operator who had a large ownership and stake in Berkshire’s ongoing success, Stuart was comfortable buying, holding on, and allowing the position to represent a large portion of his portfolio.

Most conventional financial advisors (unlike Ridgewood Investments) beat the drum of maximum diversification and generally recommend that their clients sell out of any and all positions that are at all concentrated, even if the position represents a very high quality company like Berkshire.

At Ridgewood Investments, we know that intelligent concentration can be useful in compounding and building wealth whereas diversification is also a great tool that must be used correctly and wisely such as for preservation and wider economic exposure.

4. Understand and Harness the Power of Investment Compounding Stewart ’s story demonstrates in a fabulous way that the power of compounding one’s investment returns can produce life changing results and gets really interesting over time.

His one investment in Berkshire became, quite literally, a compounding machine. As mentioned, BRK.A produced an annual rate of return of approximately 19% per year for its shareholders like Stewart who invested early. These gains were continuously reinvested, so that, as the years went by, Stuart’s total return increased with an upward accelerating trajectory. It continues to do so.