There's a nice echo of 1999 on the world's equity markets this week.
First, tech stocks — think Twitter and Facebook in the US and Carsales.com (ASX: CRZ) and Xero (ASX: XRO) here in Australia — are bouncing around with investors getting the jitters about businesses they were only too certain about just a week ago. Ah volatility… the great friend of headline writers and panic merchants everywhere. Something has spooked one of the cattle, and the rest — completely unaware of what cause the rush — are happily stampeding.
Don't get me wrong, though… I'm not suggesting every tech company deserves these currently very lofty valuations. But what leaves me bemused at best is that investors who were happy to pay just under US$60 for Facebook shares last Friday were happily dumping the shares at US$56 just two days later. Then, on Wednesday night, our time, the shares had rallied to just shy of US$63 before falling to just over US$59 last night. Yes, for all of the headlines and volatility in recent days, Facebook shares are today trading for the same price as this time last week!
That hasn't stopped perma-bear Marc Faber hitting the headlines with predictions of doom: "I think it's very likely that we're seeing, in the next 12 months, an '87-type of crash," Dr Faber told CNBC. "And I suspect it will be even worse." Sounds serious right? I should mention that he's selling something called: "The Gloom, Boom and Doom Report". Hmm….
The second reminder of 1999 is that the 'Has Buffett lost it' headlines are returning. 'Buffett Has Lost It'… again…
Before we address those comments, let's just take a quick look at Buffett's record. Warren Buffett is nothing short of an investing genius. Buffett, who has compounded book value at his company, Berkshire Hathaway (NYSE: BRK-A, BRK-B), at an astonishing 19.7% per year for almost 50 years, is the greatest investor of our time, and likely of all time. That doesn't stop people forecasting his demise. I don't know whether it's some sort of tall poppy syndrome, or a form of self interest that has pundits hoping to make a name for themselves by hoping to 'predict' Buffett's decline and eventually being right.
What I DO know is that every doubter for five decades has been wrong. Maybe they'll be right this time… who knows? They say there's a first time for everything, and there's nothing that gets readers to click on a link like the mention of the Oracle of Omaha (and yes, in that sense I might be tossing rocks in a transparent, enclosed plant nursery!). I'll give those pundits something, though… they're brave. Warren Buffett has an astonishing track record. He's managed to absolutely trounce the benchmark index (he uses the US S&P 500 for obvious reasons) by a long, long way during his career.
Brave? Crazy?
Of course, there's brave and there's 'crazy brave'. Or maybe just crazy. If you're old enough — and have been investing long enough — you'll remember the tech boom of the late 1990s. Fifteen years ago, simply adding '.com' to your company's name was almost enough in itself for your share price to shoot skyward.
Have a plan to be an online business? Excellent… don't worry about profits, just look at those 'eyeballs'!. Yes, as crazy as it seems, the number of viewers of your website replaced almost every other financial metric for those few years, as the Nasdaq soared ever higher. Even the humble former government telco Telstra (ASX: TLS) wasn't immune. Its share price was hitched to the dot.com bandwagon, allowing the then-government to launch the second tranche of its privatisation at $7.40 in 1999! Those were crazy times, and Warren Buffett was on the nose.
'What's Wrong, Warren?'
On December 27, 1999, The Wall Street Journal carried a story titled 'What's Wrong Warren?', which neatly summed up investor sentiments of the time. It started boldly: "After more than 30 years of unrivaled investment success, Warren Buffett may be losing his magic touch." Oh dear… It went on: "To be blunt, Buffett, who turns 70 in 2000, is viewed by an increasing number of investors as too conservative, even passe. Buffett, Berkshire's chairman and chief executive, may be the world's greatest investor, but he hasn't anticipated or capitalized on the boom in technology stocks in the past few years." Whoops.
My favourite, and to be fair these aren't the Journal's words, was: "Indeed, Buffett has even started taking flak on Internet message boards. One contributor called Berkshire a "middlebrow insurance company studded with a bizarre melange of assets, including candy stores, hamburger stands, jewelry shops, a shoemaker and a third-rate encyclopedia company [the World Book]."" The shares were around US$54,000 a piece.
Today, even after the 5 or 6 'lost' years of the GFC, Berkshire shares are, ahem, US$183,400. You think that message board poster is feeling a little silly? No, probably not… if he or she was silly enough to so badly misjudge Berkshire, perhaps they've done their dough and have sworn off investing?
So pundits learned their lesson, right? Wrong. This headline was from 2008, on Reuters: Is Warren Buffett losing his touch? Then this, in 2010, at Nasdaq.com: Has Warren Buffett lost his mojo? Now, in 2014, we have a Slate.com article asking Should investors still have faith in Warren Buffett?, referencing a New York Times piece: The Oracle of Omaha, lately looking a bit ordinary.
They say those that fail to learn the lessons of history are doomed to repeat them. Or maybe the more appropriate is that even a broken clock is right twice a day. Buffett is fallible. He makes mistakes, including buying businesses (not many, mind you!) that end up being worth nothing. Maybe — eventually — one of these pundits will be right. But try telling that to the people who baulked at Berkshire in 1999 and have regretted it ever since!
So 'don't bother'? Yeah, right!
Of course, the other side of the debate are those who would have us simply give up on trying to mirror the Oracle's investment success.
Don't get me wrong — there are few people — if any — who'll ever match Buffett's half-century record of absolutely crushing the market. But those in the 'don't bother' camp seem to suggest that unless we can match Buffett's record, we shouldn't try. As if beating the market by even half of Buffett's outperformance wouldn't be a stellar result. "If you can't match him, there's no point in beating the market by a few percent" is the underlying message. Which is, as you'd know, complete rubbish.
Investing isn't a 'winner takes all' event. This isn't Survivor: Wall Street, where everyone else gets voted off the island. Getting a Buffett-like return is the equivalent of batting like Bradman. So should Tendulkar, Ponting, Pietersen, Clarke et al have never bothered playing test cricket, because they couldn't (with respect) hold a candle to The Don? Of course not — such thinking is ridiculous. Well, it would be, if some commentators weren't implying exactly that!
Some would suggest we don't have Buffett's timeframe. I have to tell you, while I hope the 83 year old Buffett goes on investing for a long time, I plan to outlive him! They say: 'We can't all have Buffett's temperament'. We can't be Warren Buffett, but we can sure do our best to develop the best investing temperament we can. Or: 'We don't have Buffett's billions, so we have to invest just to pay today's bills'. While that undoubtedly is true for some investors, if you're banking on selling shares to pay today's bills, you're being led horribly astray. Investing in shares should only be done with money you don't need for 5 years or more.
One well known commentator offered this opinion earlier this week: "There is no Warren Buffett Way for other investors, there is just picking stocks that go up in price and to do that you would be well advised to rely on yourself, just you, with your understanding, your time horizons, your risk profile and your expectations. Not Warren Buffett's. Forget Warren. You are not Warren."
If not Buffett, then who?
He's entitled to that view. Just as I'm entitled to ask: so if you're not going to try to emulate Warren Buffett — the greatest living investor, who shares his investing advice freely to anyone who wants to listen — just where are you going to get your investing compass from? From your broker, who makes money when you trade, not when you make money? From your financial advisor, who gets paid a chunk of your hard-earned, regardless of whether he or she makes money for you? From your cabbie? Your mate at a barbecue?
Warren Buffett isn't the only investor worth paying attention to, or learning from. But in the absence of a better alternative, the guy with the 50-year track record beats the pants off anyone else I can think of! I can't be Warren Buffett, but I can sure as heck try to be.
Standing on the shoulders of giants
Here's a secret you won't hear from many investing 'experts': There's very little that's new in investing. The tenets laid out by Ben Graham and implemented (and improved) by Buffett, Peter Lynch, Phillip Fisher and others are available for us all to see… and use. Some so-called experts will try to dazzle you with bovine manure. They'll tell you how complex this investing lark is, and why they, and only they, can be trusted with your money. In my view, that's poppycock. Complete rubbish.
Successful investing is within reach of us all. Yes, it's worth having help on your investing journey, but you're the best person to be in control of your financial future.
