The last calendar year was one which confounded many of the sceptics who predicted market Armageddon during the meltdown in late 2018.
Whilst not making light of the human, social and environmental costs of certain issues; many of these have very little bearing on long-term investment performance. Most recently, the ‘lightening rod’ is the coronavirus. Last week it was impeachment, the week before it was the trade deal and so it goes. Amending an investment program based on near-term ‘expert’ opinions on market direction is simply market timing – a strategy that has not worked historically.
The reality is that nobody knows what the market is going to do and we recommend being very cautious of anyone providing such a forecast.
Over the years we’ve counselled our astute readers to focus on the businesses they own and not focus on the market and economic forecasts (generally negative) of the usual suspects.
During the holidays we came across this wonderful summary from the Berkshire Hathaway 1995 AGM in which Warren Buffet exhorts his shareholders to increase their (non-financial) knowledge if they are to become better investors:
“I don’t think any great amount of mathematical aptitude is — not aptitude, but mathematical knowledge is a — advanced math is of no use in the investment process.
And understanding a mathematical relationship, sort of an ability to quantify — a numeracy, as they call it, I think that’s generally helpful in investments because something that tells you when things make sense or don’t make sense, or sort of how an item in one area relates to something someplace else. But that doesn’t really require any great mathematical ability. It really requires sort of a mathematical awareness and a numeracy. And I think it is a help to be able to see that.
I mean, I think Charlie and I probably, when we read about one business, we’re always thinking of it against a screen of dozens of businesses — it’s just sort of automatic, and — But that’s just like a scout in baseball thinking about one baseball player against an alternative. I mean, you only have a given number on the squad and thinking, you know, “One guy may be a little faster, one guy can hit a little better,” all of that sort of thing. And it’s always in your mind, you are prioritizing and selecting in some manner.
My own feeling about the best way to apply that is just to read everything in sight. You know, I mean, if you’re reading a few hundred annual reports a year and you’ve read Graham, and Fisher, and a few things, you’ll soon see whether it kind of falls into place or not.”
This approach complements Charlie Munger’s opinion that to become a better investor, one must build multiple mental models across various disciplines – colloquially known as the ‘lolapalooza effect’.