Warren Buffett got into the investing game early. He bought his first shares of Cities Service for $38 each, at 11 years of age. Since then, the investing legend from Omaha, Nebraska has amassed a fortune near $75 billion and has become one of the richest men in the world.
But if Warren Buffett wasn’t the head of Berkshire Hathaway and instead worked as a financial advisor for investors, he’d probably have a tough time holding a job these days…
That’s because the man known as one of the greatest investors of all-time often underperforms the market, one such time was the lead up to the first “Dot-com bubble” in the late 90’s. But the high long-term returns achieved by Berkshire Hathaway over many years, required lots of patience, through extended periods of underperformance.
The point, of course, isn’t that investors should shun Buffett. Over time, his results more than justify his patience.
Buffett himself has long preached about the importance of long-range thinking. He doesn’t dwell on his company’s short-term performance and he recently flagged the idea of ending the corporate practice of providing quarterly guidance to market. But that might not matter to some of today’s investors.
The same short-termism is now being seen in retail clients. People look at the last 10 years and say “I thought I would have done better”, but they forget that they’re either balanced risk investors or growth & income based investors, that have bee investing within their risk profile. Lot’s of them are now saying “I don’t need to worry about my risk profile anymore.” This could be happening at the exactly wrong time.
The decade long Bull market is getting older, volatility is increasing and the dynamics that started this stockmarket recovery are changing. After a long period of approaching the market cautiously, the desire for investors to escape the confines of risk-aversion is classic late-cycle behavior.
We speak to our peers quite regularly. Whenever we see each other, we all feel the investing public has forgotten about the concept of risk. Investors were overly focused on risk from 2008 to 2015. Now their attitude toward risk has gone completely the other way. This is very representative of end-of-bull-market performance.
But the question remains, in the current climate of short-termism and the demand for immediate results, would Buffett have lasted in the business if he hadn’t already established his reputation in investing? Our conclusion, to the investors own detriment is yes – they would have fired Warren Buffett.
However, we will keep reminding our investors every day, month & year – not to make this fundamental investing error.
Intrinsic Private Wealth specialise in providing financial advice to Australian investors. With over 20 years of experience in the finance & investment industry.
General Advice Disclaimer: Information is of a general nature only and has been provided without taking account of your objectives, financial situation or needs. Because of this, you should consider whether the information is appropriate in light of your particular objectives, financial situation and needs. Intrinsic Private Wealth has financial advisers that are authorised to provide personal financial advice. Call 02 9615 4500 for more information on our available services.