2017 Q1 Review

Patience Pays
Spring is my favorite time of year here in Washington, DC. The weather begins to warm (bringing pleasant memories of spring and summer months long passed), plants and flowers return (especially the cherry blossoms), the grill is awakened from its winter hibernation, baseball begins, and Warren Buffet’s annual letter to Berkshire Hathaway shareholders arrives in the mail. Although this month’s commentary will not be a tribute to the “Oracle of Omaha,” and regardless of your affinity for Warren in general, his common-sense approach to investing provides learning opportunities for us all.

If you have read enough of his annual letters in the past, you know that Warren tends to repeat several important investing concepts (we all do tend to repeat things as we get older), from “keeping it simple,” to not following the herd, to his limited belief in forecasting (see our Q4 2016 commentary for our views on that topic), and perhaps most importantly, to having appropriate long-term holding periods and a great deal of patience. Some of my favorite quotes from Warren:

“Successful investing takes time, discipline and patience. No matter how great the talent or effort, some things just take time.”

“Calling someone who trades actively in the market an investor is like calling someone who repeatedly engages in one-night stands a romantic.”

“What we learn from history is that people do not learn from history.”

In today’s environment of Twitter, CNBC and other round-the-clock news/entertainment sources, the pace and complexity of investing has grown substantially. When those around you are picking the latest and greatest investments, churning portfolios in trying to predict where markets, or interest rates, or corporate earnings are headed next, human nature makes it difficult to stay disciplined. Even many professional investors will make unnecessary portfolio changes to justify their fees, follow the crowd, prove their intelligence or just show that they are doing something with client money.

Looking back in time (at the Dow Jones Industrial Average, which was first calculated in 1896), of the twenty best market days of all time, sixteen were during the Great Depression, one was a few days after the market crash of 1987, and two were during the 2008 financial crisis. Missing these days significantly reduced long-term returns, and most investors who missed them were those who sold out (and just as importantly, stopped buying) after stocks crashed and everyone around them panicked. History has shown that those who try to avoid losses consistently end up missing even larger gains.

“Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a fly epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.”

“This economic creation will deliver increasing wealth to our progeny far into the future. Yes, the build-up of wealth will be interrupted for short periods from time to time. It will not, however, be stopped. I’ll repeat what I’ve both said in the past and expect to say in future years: Babies born in America today are the luckiest crop in history.”