FINANCIAL TIP FROM DAVID:
What Does The Oracle Think?
We tend to pen in this monthly piece a synopsis of what the general consensus is with regard to the direction of the market. We wrote prior to the fourth quarter illustrating how it is historically the best quarter for the market, by far. We then experienced one of the worst fourth quarters in history. As painful as that was, the market has rebounded within a few percentage points of its September 2018 highs. Given that he just distributed his annual letter to shareholders, we want to focus this month’s market perspective on the thoughts of Warren Buffett.
Warren is known as one of the most successful investors ever, thus we want to pass on some of his thoughts on investing. In the letter he speaks of his first investment over seventy-seven years ago in 1942. We were obviously at war and one of the biggest concerns to investors at the time was the fast rising national debt levels. His premise for discussing that topic was that there were many at the time that were bearish on markets, as they felt the debt levels would lead to slower growth and underperforming markets. Warren even admits that he used to share that concern, but freely states now that US debt levels essentially don’t matter. He then states that since he made his first investment in 1942, the National Debt has risen 40,000%. Further, that if many investors in 1942 knew that future statistic, they would have run from the markets. Yet at the same time, he claims that if he had invested his original investment into an S&P500 index it would have grown 530,000%. He states that in his investing life he has managed money thru multiple wars, the resignation of a President, 21% prime interest rates, a housing collapse and financial panic. All of these issues were scary and are now all history. Warren refers to this sustained growth story as the American Tailwind.
He also believes this tailwind will continue to exist well beyond the next seventy-seven years. In addition, he believes many other countries around the world will experience long term financial growth and success. This growth and success will lead to even more prosperity for American companies, and thus markets, as well as potentially making the world a safer place.
Warren Buffett has historically been and remains to be bullish on equity markets. The performance of these markets over his investing life buoy his mindset. However, there is always an however, long term average annual rates of return mean very little to some investors. Case in point, I was speaking with a very knowledgeable client recently and we were discussing long term market averages versus sequence of returns. The gist of that conversation was that market averages are all well and good, but the timing of one’s retirement, time when we start to pull from our investments, and near term returns can have a massive impact on long term financial success. This conversation in no way contradicts the opinion Warren Buffett has on stocks, more so the need for proper asset allocation so we can mitigate the difficult times in the market while keeping our eyes on the long term financial needs of us all.