After Hurricane Andrew in 1992, Warren Buffett said “It’s only after the tide goes out that you learn who’s been swimming naked.”
The Genius of Not Knowing
He was referring to the insurance industry that he knows very well, getting tested after a storm. Buffett’s quotes are applied daily now, to every weather condition in the investment world. The magic is how simple his words are to understand.
But what if investors are trying to apply Buffett’s wisdom more than he does? And, what happens if too many contrarians agree?
The most recent hundred-year storm has investors scrambling again, to see what an 89-year old was going to do about it.
No other search committee combines and unites amateur and professional investors around the exact same question online and offline – “What do you think Buffett is going to do?” Berkshire’s huge amount of cash is referred to often, adding to the speculation as 2020’s events unfold. A more specific Google search for “Berkshire cash” yields 28.2 million results.
An un-crowded look at the data reveals something entirely different about all that cash piling up – not much has changed.
A lot of people say they want to be more like Buffett, but then go crazy trying to figure out why he does not use his cash like they would. So, which is it?
Every day of 2020’s fastest Stock Market crash in history, the anxiety of countless investors coiled for Buffett to spring into action. Instead, he announced he sold some shares of airlines, admitting he made a mistake.
“You’d be amazed by the amount of businesses I don’t feel I know well.” -Warren Buffett
Many investors wonder if Buffett has lost his touch. What some of them did next, was unlike anything I have ever seen in my career.
A previously tiny ETF, holding airline stocks, received inflows of new assets from investors betting Buffett sold his shares at the very worst time, for 70 days in a row! At the same time, very few people were flying in those airlines.
When asked to explain market bubbles long ago, Buffett answered: “When people see neighbors ‘dumber than they are’ getting rich.”
I do not have a dog in this hunt. I was told she’s too big to board any plane. Those stocks do not make it through our quantitative selection process. It is possible both sides of this trade will end up being wrong. I do not know.
My humble suggestion is that “What is Buffett going to DO?” crowded question misses his greatest lesson. The simple answer is whatever the heck he wants to, with plenty of cash to fund that peace of mind. But for the rest of us, maybe it is what he does NOT do we should pay more attention to.
When I told my kids about Warren Buffett this month at dinner, I asked them to guess how much one of the richest men in the world paid for the house he lives in now. I offered only one hint - that Buffett says his current house is the single best investment he ever made, only after a wedding ring.
He bought his house for $31,500, in 1958. When asked why he never moved, he explained, “I’m warm in the winter, cool in the summer, and it’s convenient for me. I couldn’t imagine having a better house.”
Buffett spends the majority of his days reading. “That’s how knowledge works, it builds up, like compound interest,” he says.
He is more likely to comment on a poem than the news (another un-crowded trade). Here are a few lines from one of his favorites, by Kipling:
If you can keep your head when all about you are losing theirs,
and blaming it on you
If you can trust yourself when all men doubt you,
wait and not be tired by waiting
If you can meet with Triumph and Disaster
and treat those two imposters just the same
It is never too late to become what any of us might have been. 99% of Buffett’s net worth came after age 50, and more than 90% after age 60.
It is also never too early, I told my little investors over dessert that night. He saved up so much he owns an ice cream store! I finally had #4's attention.
“I made my first investment at age eleven. I was wasting my life up until then.” -Warren Buffett
Ever since he started investing, Buffett has done some remarkable things, and not done a lot more. We should all be so lucky to lose our touch, as often as Buffett. The funny thing is, now more than ever in a digital age of overwhelming information, the rarest skill is not touching more of it. Plenty of cash can pile up from not knowing.