Happy Birthday, Warren
If we see each other in late December, you might want to wish me a happy birthday but today’s message is meant for ‘the other Warren’ in the investment world, Warren Buffett. He turned 90 a couple of weeks ago. Rather than get him a gift, I thought I’d take a few minutes to reflect on some of the gifts he’s given the rest of us over the years.
As Chairman of conglomerate Berkshire Hathaway, he writes a yearly letter to shareholders. He offered one of his most valuable bits of advice way back in 1986: “Occasional outbreaks of those two super-contagious diseases, fear and greed, will forever occur in the investment community. The timing of these epidemics will be unpredictable. And the market aberrations produced by them will be equally unpredictable, both as to duration and degree. Therefore, we never try to anticipate the arrival or departure of either disease. Our goal is more modest: We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful." I have referred to that bit of wisdom more than once. In a 2015 article entitled Every Picture Tells a Story, I used it to remind people not to overreact to their fears about market corrections.
I make it a point to read Buffett’s letters as they are published. I’ve been quoting this thought of his from the spring of 1997 for more than twenty years: "A short quiz: If you plan to eat hamburgers throughout your life and are not a cattle producer, should you wish for higher or lower prices for beef? Likewise, if you are going to buy a car from time to time but are not an auto manufacturer, should you prefer higher or lower car prices? These questions, of course, answer themselves". I harken back to Buffett’s analogies whenever I feel the temptation to make hurried portfolio adjustments driven by emotion. In Just Wait ‘til Your Father Gets Home, I used it to explain why our clients remained fully invested during the 2008 correction associated with the bursting of the housing market bubble.
I’ve referred to him more often than any other authority on investing. In Quoth Warren Buffett earlier this year, I tried to channel him to reassure my clients that the COVID-induced market correction would pass. That seems to have happened as markets regained their previous high levels in the past couple of weeks. Toward the end of the article, I wondered what “buys” he might be considering during the pull-back. That question was answered this past week when he took significant positions in five different Japanese conglomerates. These ‘trading companies’ have very complex holdings with investments in all sorts of industries all over the world. They are ideal for Buffett whose strategy begins with “I read and think”. His willingness to dig deep into a company’s financial statements allows him to make investments others simply can’t understand, thus put a value on.
We often hear about wealthy people who choose to do good works with their money and it’s quite common for them to endow a foundation named after themselves. I’m sure Warren Buffett considered that but, instead, he chose to donate the largest portion of his wealth ($37 billion – yes, with a b – so far) primarily to the Bill and Melinda Gates Foundation. Obviously, he believes in the organization’s mission but he’s also famously frugal so my guess is that he didn’t see the need to duplicate a foundation structure that was already operating successfully.
Speaking of giving financial gifts, Buffett has committed to giving away most of his wealth and encouraged other extremely wealthy individuals to do the same. Does that leave his children out in the cold? Well, back in 1986, he told Fortune magazine that he’d leave them ‘enough so they feel they could do anything, but not so much that they could do nothing’. I’ve never quoted that phrase in one of my articles, but it does have a way of coming up when we discuss estate planning with our clients.
Wall Street Journal reporter Jason Zweig recently wrote an article about Buffett’s birthday. In it he speaks about Buffett’s early grasp of the effect of time on investing. A ten-dollar haircut back in the day might have become much more valuable if he’d invested the money instead and allowed it to compound. Jason goes on to make the point that nearly 90% of Buffett’s wealth was accrued after he turned 65. Not all of our clients will be healthy at 90 but many of them envision an almost infinite life for their assets as they pass them down through the generations. Thus, we try to emulate the ‘Oracle of Omaha’ as we help make plans for clients’ investments and their lives.
Happy Birthday, Warren (and thanks for all the good advice over the years).