Quoth Warren Buffett
At least to a limited extent, Warren Buffet and I had the same teacher: Benjamin Graham. The other Warren studied under him in grad school at Columbia and I’ve read his most famous book multiple times. The Intelligent Investor was first published in 1949 and Graham became known as the father of value investing. His thesis was that you should only buy a company’s stock when you could do so at a price lower than it’s stated ”book value”. That would provide a “margin of safety” in case of a market correction.
Warren Buffett regularly quotes Ben Graham’s allegory about Mr. Market, a fellow who turns up every day at the stockholder's door offering to buy or sell shares of stock. Because the stock and bond markets have become so complex, both Warren Buffet and I have moved our approaches beyond the very narrow one suggested by Ben Graham but we are always searching for reasonable prices for the companies we invest in.
One of my favorite Warren Buffet quotes is the admonition that, as an investor, it is “wise to be fearful when others are greedy and greedy only when others are fearful.” That, of course, brings us to the reason for today’s note: the significant market correction we’re experiencing courtesy of “Mr. Market” and his fears about the Corona virus.
The most recent “Bull Market” lasted almost eleven years. The very high valuations that resulted made it difficult for investors to find something to buy at a reasonable price. So, for the past couple of years, we have been moving our clients into cash (or cash-like investments), preferring to be fearful. The current “Bear Market” is the twelfth since 1945 and it is providing an opportunity to spend some of that cash, allowing us to become at least a bit greedy.
When things go on sale in other marketplaces like food, clothing, shelter, even gas, people recognize a bargain and tend to buy more. In the investing marketplace, just the opposite happens. People become fearful and sell at low prices, allowing us an opportunity to make some strategic purchases for our clients.
I have said before that I am just as afraid as the next person during times like these but it is my obligation to put those fears aside and make good investments for my clients. I certainly can’t guarantee that Jalene, Andy and I have found the market’s bottom and are buying at the very lowest possible prices. However, we do believe that we have identified some very high-quality companies which Mr. Market is offering at attractive prices. We are taking him up on that proposal while maintaining a cash reserve in case our clients need money. If they don’t, and greater opportunities present themselves in the future, we will invest again.
The expression "This too shall pass." is thought to have originated as an ancient Persian adage about the temporary nature of our lives. It’s our belief that this Bear Market too shall pass. The global economy and our lives will continue much as before once the virus has been contained. For those of you who are clients, we appreciate the trust you have placed in us. For those who are friends, we suggest you try to avoid panic and focus on those things you can control – not the constant blare of news coming your way.
I haven’t seen any interviews with Warren Buffett. My guess is that he’s too busy buying stock, or even entire companies, to join the talking heads. Perhaps there’s a lesson there for all of us.