Warren Buffett gets it in the neck every now and again. Why?
Because he is quite simply one of the best investors of our time. So, whenever he underperforms the market, there are plenty of people out there who love to take a pop at him. But he is used to it.
During the dot-com years, Buffett was accused of losing his touch. Around the time of the Millennium, growth stocks were taking the market by storm. Traders could hardly put a foot wrong with almost every IPO guaranteed to fizz on day one.
It was almost as good as a licence to print money. But Buffett was happy to sit out the stock market mania. His investing philosophy is simple: It is easier to stay out of trouble now than to get out of trouble later.
But with every day that tech stocks went up, Warren Buffett’s investment vehicle went down. It was a torrid time for some of the Sage of Omaha’s ardent followers.
But when Nasdaq cratered, Buffett’s outperformance accelerated.
It must seem like déjà vu for Warren Buffett, today. He is underperforming the market, again. And his critics are screaming for him to put some of his US$137 billion cash pile, which is growing by the day, to work.
But again, Buffett is happy to wait. Around the year 2000, he said: “Our capital is under-utilised now. It’s a painful condition to be in, but not as painful as doing something stupid.”
Time will tell if Buffett is right.
I think he will be proved right. After all, he said: “You don’t have to swing at everything – you can wait for your pitch. The trouble when you’re a money manager is that your fans keep yelling for you to swing your bat”.
But Buffett is unlikely to be goaded into buying something just for the sake of buying something.
One of the greatest insights into Buffett’s investing philosophy was when he said: “Happiness comes from small improvements, not by getting somewhere once and for all. Being able to add one room to your house is what makes you happy, not living in a palace.”
This pandemic is not about to go away tomorrow. So, we should build our portfolios slowly – one brick at a time. Make sure it has a solid foundation of income-generating shares that will continue to reward us with cash through both the good and bad times….
…. there is nothing more pleasant than the sound of cash hitting our bank accounts when times are tough, if we get the blueprint right.
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Disclosure: David Kuo does not own any of the shares mentioned.