If you have a longer-term perspective, maybe you haven't missed as much as you think.
Those are words to live by and they come from none other than Warren Buffett, the Oracle of Omaha and the greatest investor of our lifetime.
Between Buffett's annual Berkshire Hathaway (BRK.B) letter from this weekend and Becky Quick's amazing interview this morning, I learned more about investing than I have in ages. No bit of prose can possibly summarize the myriad amazing points he made about investing.
That said, I feel compelled to talk about it if only from the point of view that you must read and watch this man. He's too great, too smart and knows too much not to do so.
First, I want to start with the bombshell he unloaded right at the very beginning of his interview this morning, the revelation that his company has bought 133 million Apple (AAPL) shares, putting it neck-and-neck with Coca-Cola (KO) as his largest position.
Why did he do it? It all started with taking 11 kids to his Dairy Queen -- he owns it -- and seeing them all take out their Apple phones and recognizing that this company may have produced the stickiest consumer product of all time, one that, when they are done with one model, they will buy the next. He then did the work on the balance sheet, the capital allocation and, of course, the earnings and decided -- before the rune, mind you -- that it was an excellent buy.
What's amazing about this is that he did what we all can do, which is start with the scuttlebutt, as he called it, and then do the homework and realize that this is a great stock. He viewed it quite differently from the analysts on the conference call each quarter, analysts who cover a lot of high-growth companies like Alphabet (GOOGL) and Facebook (FB) and find it wanting with perhaps its best days behind it. (Apple, Alphabet and Facebook are part of TheStreet's Action Alerts PLUS portfolio.)
Buffett couldn't disagree more, but remember this is a man who loves brands and compared Apple to the American Express (AXP) brand when that was out of favor many, many years ago. How refreshing was this analysis! It rang so true and I was thrilled that he recognized that the company wasn't an expensive tech company but a cheap consumer-product company.
Becky and Buffett spent a lot of time talking about another issue, the high fees of money managers and how they are almost certain to underperform the S&P 500 index over time. It's possible if they didn't have high fees they could outperform, but Buffett's talking about $100 billion in fees that hedge funds and other managers have taken from their clients that wouldn't be taken with a low-cost index fund. For the record, he's using the S&P 500 from Vanguard, if you want to know which has his blessing, the one that was pushed so hard by John Bogle, the legendary Vanguard manager.
It isn't just the fees that hurt the clients. It's the structure of the industry, he says. If a manager is successful, then he takes in too much money and therefore because of those larger numbers can't outperform anymore. He takes more in because it is in the manager's personal interest, which, of course, is antithetical to the client's interest. Buffett doesn't deny that there are superstars, but he pretty much makes it clear you can count them on one hand, pretty much the way you can count the number of true legends on the basketball court.
I have always championed index funds because I am a lover of diversification. I also believe that with your mad money you can try to find the next super stock and I applaud that, too. I have always felt that individuals can control their own stock destiny and that both should be part of their portfolio, but the index fund should be primary.
Why do index funds do so well? I think it's precisely for the reason that Buffett says you buy the stocks of conservatively run companies. Index funds aren't static. There are two ways out of them, takeover bids on the upside and diminishing size on the downside, something that equates to an ejection based on poor management or balance-sheet deterioration. So you aren't buying a dumb fund.
So, when you have choices for your 401(k) or your IRA, heed Buffett and go with a low-cost index fund, preferably the S&P 500.
But when do you do it? Here again, Buffett is humble and precise. On air, he said you never know when there might be a panic and that's the best time as "widespread fear is your friend as an investor because it serves up bargain prices," versus personal fear, "which is your enemy," because it is unwarranted.
Perhaps more important for many of you is that he points out if you had a long-term perspective, the best time to start might be now because we are not in a bubble. How does he know that? He's comparing stocks to bonds and believes bonds represent little value versus stocks long term because rates are so low. He didn't get into some big rigmarole about President Trump. He talked about owning great U.S. businesses over the long term and how you will have managerial ingenuity and American economic dynamism on your side. "American business," to quote his report, "and consequently a basket of American stocks is virtually certain to be worth far more in the years ahead." I couldn't agree more and he warns that "ever-present naysayers may prosper by marketing their gloomy forecasts. But heaven help them if they act on the nonsense they peddle."
Boy, does he ever not mince words.
The only tangential message to today's political investing environment was a jab he took at those who think buybacks are un-American, no doubt a reference to what companies will do with repatriated money, if they ever get their hands on it.
He loves dividends, one of the reasons why he likes his long-term holdings. And they could be boosted but he also likes the idea of buying back stock, provided the companies' managers put parameters on the buybacks,
He's baffled about how CEOs don't limit where they will buy back stock. "It is puzzling, therefore, that corporate repurchase announcements almost never refer to a price above which repurchases will be eschewed," even while they would certainly not purchase whole companies at any price. I love this gem: "What is smart at one price is stupid at another," which is a great dictum for everyone to live by.
Now I could go on and on about this man's wisdom, everything from his suggestion that people read Shoe Dog, the best business book of 2016, written by Nike (NKE) founder Phil Knight, to the idea that mistakes will be made even by him, and they will happen far more often than he would like.
But perhaps my favorite line of all is the last one: that this 86-year-old icon feels great and he intends to give Methuselah, who lived 969 years, a run for his money. I say, bravo, may he live to 1,000.