Even Warren Buffett had a bad 2008
It wasn’t only you. Master investor Warren Buffett had a bad 2008 too. However, he has the wherewithal to remain a buyer of shares, and says the economic disarray gives him a tailwind.
Warren’s annual letter
In his eagerly awaited annual letter to investors, Warren Buffett revealed that the value of his company, Berkshire Hathaway, fell by 9.6%, the worst performance in Buffett’s 44 years at the helm.
However, everything is relative. Berkshire’s 9.6% fall compares favorably with the 37% fall in the index.
The shambles
It’s a shambles, alright. When the 78-year old Buffett says there was “A freefall in business activity…accelerating at a pace that I have never before witnessed” you know things are bad and unprecedented. And things aren’t going to get better anytime soon. Buffett says “…the economy will be a shambles throughout 2009 – and for that matter, probably well beyond…”
The optimist
Buffett remains an optimist. He says the U.S. has faced many challenges in the past - the Great Depression with unemployment as high as 25%, two great wars and virulent inflation that led to a 21% interest rate in 1980.
Unemployment is around 7% and will rise to 10%, base interest rates are effectively zero and a massive government stimulus package is on the way. Buffett says, “America’s best days lie ahead.”
Buffett makes mistakes too
Buffett admits his failures and lists them in his letter. He also admits to not anticipating the dramatic fall in oil and energy prices that occurred in the last half of the year. He says, “…the terrible timing of my purchases has cost Berkshire several billion dollars.”
The darkest days are usually the best days to be buying shares and Buffett says in this year’s letter, “When investing, pessimism is your friend, euphoria the enemy.”
What lies ahead?
Investing in shares is a long-term business, except if you are a gambler, a wild speculator or day-trader. America’s best days may lie ahead, but we don’t know how far away that is; they may come in 2010, 2015 or 2020. It’s impossible to predict.
Investing Is Not Perfect
Warren Buffett is a great investor and super successful money maker. But he is human after all. He trusts his instincts and his judgments, and sometimes he gets it wrong. Investing is not a perfect science. A success rate of around 60% accuracy in your pick of shares should be enough to put you among the top 10% of all investors.
The fear factor
Buffett is an informal adviser to President Obama. He explained that the consequences of the U.S. housing bubble are now “reverberating through every corner of our economy.” Late last year, said Buffett, “the credit crisis, coupled with tumbling home and stock prices, had produced a paralyzing fear that engulfed the country. Fear led to business contraction, and that in turn led to even greater fear.”
No write-off
Buffett is the best investor of all time. At the age of 78, there will be some ready to write his investing epitaph, citing his mistakes and gloating over his record in 2008, but don’t write him off. I personally, funds allowing, will be a strict follower of his investing policies. I would even advance cash to one of his investments.
Buffet has great advice for investors, that’s for sure. One of the things that is form the Buffet canon is that when you invest in something, it’s a long term investment – it isn’t a bet that you make for a few weeks and then see if the stock goes up and then sell.