Investing: It’s either impossibly tricky or simple as pie, depending upon your frame of mind, but what about details like inflation?
I was at my station as a backyard-pool lifeguard for my twin 10-year-old granddaughters’ birthday bash last month, and the other grandfather, who I consider a good friend, asked, “Lorin, what do you think of inflation?” “It’s good for tires,” I replied with a soothing calmness. He looked at me for a bit and then decided there was some urgent need for his presence elsewhere.
So I marked it down as a successful discussion of current events.
I recently (but not during lifeguard duties) listened to Warren Buffett and Charlie Munger’s 2022 annual shareholders’ meeting replay, so you don’t have to. I won’t link it here because my editor told me that someone in the Compliance department has to listen/read/review it when I do that – all of it. In this case, it is six hours long. I find six hours of Mr. Buffett pontificating on various subjects fascinating but will concede that most people are not so enamored with talking heads, not on any topic. Aren’t you glad I’m here for you? (Note: That’s a rhetorical question. You needn’t send in responses apt to wound my delicate feelings.)
Mr. Buffett is an acknowledged guru of stock market investing, and deservedly so, but as I have pointed out before, one of the secrets of his success is to start investing at age 14 and carry on steadily to age 91 with no sign of slowing down. So it doesn’t hurt to have an adept and intelligent business partner operating in synch with you for 60-plus years, either.
Mr. Buffett makes stock investing simple: “All there is, is value.”
He contends that anyone should invest in something today because they believe it will have a greater value tomorrow. “True dat” is my sophisticated analysis, but in times of market downturns like we saw in 2008 and now 2022, this begs the question, “When is tomorrow?”
Before I try to answer that, I’ll give you another favorite ‘Buffettism’: “I bought a business today,” not “I bought a stock today.” One of my pet peeves, yea, even a litmus test on whether or not people should be invested in the stock market, is when people react to a sharp market downturn with the statement, “At this rate, we won’t have anything left!”
I’ve heard some version of that about half-a-dozen times in the last 20 years. It drives me nuts and sends my mind to McDonald’s (the company, not the restaurant).
I wonder (and often ask the despairing party) if they think McDonald’s will never sell any more hamburgers. Is that what is meant by “we’ll have nothing left?” Do they believe a double-digit decline in McDonald’s stock indicates the complete demise of the business and the adoption of healthy eating plans across America? I understand the pain of seeing account balances decline, but I don’t get the despair of the “sky is falling, the end is here.”
Here’s one more quote from Warren Buffett’s 2022 stockholders’ meeting, “Reaching for yield is really stupid. If yield is one percent, then learn to live on one percent,” which brings me back ’round to trying to answer “When is tomorrow?”
For Mr. Buffett, tomorrow (theoretically) never comes.
His preferred holding period for the companies he buys is “forever.” It’s a little easier to live on 1% and take the long view when one’s net worth exceeds $100 billion, I assume. You and I likely don’t have that luxury. Our holding period is much more apt to be “until I am no longer working and need the money to pay some bills.”
Whether your bills are monthly living expenses, surprises like an a/c or automobile that dies an untimely death, or the $200 of diesel fuel it takes to fill the motor home tank, “tomorrow” is the day we need the money, which might very well mean today. But, as I harp on with nauseating regularity, a sizeable stash of cash can make sudden expenses coupled in a time with market decreases can make these issues an inconvenience, not a disaster. We never want to trap ourselves in a time when our carefully crafted 3% withdrawal rate becomes a ten percent withdrawal rate, with 30 years of living left on the horizon.
If that answer is too unclear, from the peak of the US stock market in late 2007 through the downturn throughout 2008, it took about four years to recover a portfolio invested in the S&P500. That’s one example, reading the internet can give you more history. History, of course, cannot be used to predict future events. So one should not expect now, or ever, to be able to cast these predictions in stone with any accuracy.
What is my definition of “tomorrow” as we use it here?
When asked when I plan to retire, I tell people that while I don’t have a date in mind, my best answer is sometimes long after my holding period for equities becomes “forever.” Either that or when I get more calls than I can tolerate in a single day with long-term investors telling me their accounts are headed to zero. It’s the journey, after all, not the destination.
PS: I struggled with the title of this month’s blog. I first wrote “Loquacious Lothario,” thinking that the words played well together, and it was amusing given my rotund, balding geezer status in life. Still, someone somewhere would undoubtedly find such a moniker offensive, so out it went, and I moved on to “Loquacious Lizard.” Still, I found that to be a bit too self-deprecating, and it brought to mind the stereotypical used car salesman with the polyester suit and Vitalis comb-over, so simple vanity overruled that one. My favorite for a bit was “Loquacious Llama,” but I feared my faithful readers would, when faced with the decision regarding the difference between a llama and a lama, would conclude I was a dope rather than amusing. Life, for most of us, isn’t merely a journey. It’s a struggle.