“You will be the same person in five years as you are today except for the people you meet and the books you read.” – Charlie Tremendous Jones
These days it is as easy as ever to access smart people. I figure if I seek them out maybe (or is it hopefully) they’ll rub off on me a little bit. This year I invested the time to listen to the 5+ hour 2020 Berkshire Hathaway Shareholder Meeting from May 2, 2020.
Getting to listen to someone as smart as Warren Buffett for 5 hours is a gift. I listen to a ton of podcasts (mainly investing related). I seek out people smarter than me and try to listen to them…regularly. This is not a hard process because most anyone is smarter than me! Regardless, in the process, I listen to plenty of smart people. No disrespect, but none are as smart (or have the breadth of experience) as Buffett. Not by a long shot. An 89-year-old Warren Buffett…who has his decades of experience…who has strung together many decades of excellent capital allocation results…who is an undisputed genius…who talks for 5+ hours…for free?!? I consider it a gift to be able to hear his thoughts on where we are in this pandemic (and the associated economic impacts of shutting down the global economy for some time).
During the meeting, he spent a good deal of time with his ‘Never Bet Against America’ talk. He worked from a delightfully boring black and white slide deck but also seemed to be mainly working from his photographic memory. During this, he discussed all the crazy weird/bad things that have happened in our relatively short American history. He talked about how none of it stopped enormous (even unimaginable) growth/prosperity from occurring. It was interesting and a good reminder to think long term. I got the feeling that he was alluding to “I bet you are going to want to freak out in the near term over COVID”. I got the impression from the tone of his talk that he fully expects things could/will get pretty bad in the near term. For a variety of reasons, he has not been plowing money into the markets during this initial downdraft caused by the COVID pandemic. Contrarily he even lightened several positions considerably (including closing out his airline positions completely). Listening to him talk and seeing his actions I believe he believes we will experience more pain in the near term than we have already experienced (due to the shutdown). Regardless, you can tell he doesn’t want to be caught being too aggressive and is erring on the side of caution. He is keeping his war chest safe and sound (and most importantly liquid). It looks like most investors disagree with him on this since markets are currently about 13% from their all-time highs. The markets have roared back as if the pandemic was/is no big deal at all. I guess time will tell.
I found his praise of Fed Chair Powell and the Fed surprising. The Fed did throw the book at the liquidity issues that were in existence as the crisis was rearing its head. If you are a proponent of the Fed and believe that their actions are necessary (and keep the system from being damaged further) then their actions should get a good grade. I’m not sure what I think. We have no clue what impact their actions will have longer-term. I suspect that the problems that keep popping up are there for a reason and we are papering over the problem with printed money (rather than fixing the underlying problem(s)). I think that eventually compounds on itself and will not be a good thing. But this is way above my paygrade. The reason I own some of the things I own in my portfolio is to hedge away some of the things that I believe might happen due to the ‘book being thrown at problems’ repeatedly.
During the question/answer session, he discussed several times how owning an index fund is the best option for the vast majority of investors. He always says ‘probably’ but you know he doesn’t think that (I think he means ‘definitely’). He discussed this in detail when a question about how Berkshire had underperformed the S&P 500 over some different periods recently. Everyone believes they are the one that can beat the market. I think this is like how when asked most people will say they are an above-average driver. Most people are too optimistic about their abilities. I’ve fallen prey to this at different times in my investing life. I always relearn the lesson that 85%-90%+ of investment managers lose to their index over long periods. My ability to beat it (or pick someone who can) is probably nonexistent. Although I don’t want to admit it; this applies to me…and most likely you! I’ve reworked my investing strategy in the past year to utilize more indexing and less individual stock picking. I like the mix I have right now. It allows me to tinker with things enough to fool myself into thinking I’m ‘actively managing’ my portfolio ‘to beat the index’. It also allows my foolish thinking to never cause me to have to live under a bridge one day when I fail miserably in my efforts! The strategy also takes much less time! This has been the best part of it for me.
Hearing someone as smart as Warren Buffett discuss his thoughts on the ongoing impact of a pandemic on various investments in the near term is a great reminder that most of us don’t know much at all about what will happen. He admits several times he has no clue how all this plays out or how it will ultimately impact his company or the global economy. By the way, if Warren doesn’t know a lot of other people don’t know! He admits several times that all the very smart people he talks with don’t know either. We are all along for the ride in most cases. This applies to our investments and our health too (since the virus is going to dictate its terms on us not the other way around). I venture to say this same rule applies not just about COVID. So many things impact investing, macro, companies. It would be foolish for most people to believe they have the ability and knowledge to understand it all and the impact it has. I love reading financial news headlines that easily tie a ribbon on why the market did what it did that day. “Dow, Nasdaq mixed amid retail earnings, oil”. Who says? How do they know? Hint: They don’t!
I spend a good deal of time thinking about macro and specific stocks mostly because I enjoy the thought process. I track my portfolio’s positions and performance and publish it all to my blog. Nerd level 100 type stuff! I’ve had periods where I killed the market and other times where the market killed me. I’ve picked some big winners and been drug down by some horrible losers. Again, I believe we are all along for the ride in most cases. The amount of work I put into my analysis had little bearing on the outcome in most cases. Things just went my way sometimes and went not my way in other cases. I have resigned that my ability to outperform the markets based on my thinking/time commitment will almost certainly not occur. Nowadays my investing energy is part capital preservation/growth and part personal growth (and even hobby). As long as I can track my benchmarks (without getting too far behind over time) I will have achieved my personal goals in both areas. I think listening to very smart people (like Warren) and interpreting it into my own portfolio/life should leave me better off than not participating in that activity. So that is what I will continue to do!