Thursday, May 30, 2019

Long-term thinkers

May 31, 2019

What Buffett’s short-termism critics don’t tell you 

There are still critics today claiming Buffett's old-school style won't last in today's “new era” of investing and that Mr. Buffett has lost his edge.

In today's climate of short-termism, the demand for immediate results makes it hard to preach Buffett's long-term style of investing. Lagging the S&P 500 Index in recent years just gives those pundits something to talk about but their arguments don’t hold any truth when evaluating Berkshire’s performance over the longer periods. If you had purchased $100 worth of Buffett’s stock in 1987 it would be worth more than $8,000 today. The same investment in an ETF tracking the S&P 500 Index would have earned you $1,700. Almost 80% less in 32 years..

Many compare Buffett's performance against bull market cycles and willingly leave out how Buffett performed during bear markets. The graph below shows that Buffett outperformed the S&P 500 Index in all of the last three bear-bull market cycles.  Berkshire lost only 41% in the 2007–2009 financial crisis, while the index fell 51%. In the 2000–2002 dot-com debacle, when the S&P 500 Index collapsed 45%, Buffett pulled off a gain of 28%. Without loading up on tech stocks, his portfolio outperformed.

Jeff Bezos - Big ideas

What we’re really focused on is thinking long-term, putting the customer at the center of our universe and inventing. Those are the three big ideas to think long-term because a lot of invention doesn’t work. If you’re going to invent, it means you’re going to experiment, you have to think long-term.

We don’t take a position on whether our way is the right way, we just claim it’s our way. Bezos quotes one of Warren Buffett's sayings, “You can hold a ballet and that can be successful and you can hold a rock concert and that can be successful. Just don’t hold a ballet and advertise it as a rock concert. You need to be clear with all of your stakeholders, are you holding a ballet or are you holding a rock concert and then people get to self-select in.” 

You can’t skip steps, you have to put one foot in front of the other, things take time, there are no shortcuts but you want to do those steps with passion and ferocity.