“Be fearful when others are greedy and greedy when others are fearful” -Warren Buffett
Warren Buffett is my investment hero. I have studied his career, read scores of books on his investing process, and attended 18 of his annual shareholder meetings. But, I have to disagree with the above quote: You should be fearful before others are fearful and prepare for their fear.
We have seen some extraordinary things in the market since the pandemic started, from meme stocks to cryptocurrencies to exorbitant valuation for profitless companies developing emerging technologies. The allure of quick, easy money can be too much to resist. And why should getting rich be quick, easy, and fun? Doesn’t it seem more reasonable that it should be slow, difficult, and boring?
It is easy to get excited about emerging technologies, as they often seem magical and promise better, easier lives. But not all that glitters is gold. Do you remember the excitement around the dotcoms? Knowing the name of something is not the same as knowing something. You have to do your homework before investing. Don’t get caught up by Wall Street’s latest glittering investment that promises quick, easy money. Wall Street is in the business of selling you things and making money off you, not providing you financial security.
Imagine you saw the first car ever made rumble by and you foresaw how it would change the world. You correctly predicted how people would move from cramped, city apartments to homes in the leafy suburbs, how families would be brought closer together, and goods could be delivered more cheaply. You saw the auto industry’s tremendous growth as virtually every American family would have a car. Seems like a great investment, doesn’t it? There have been more than 1,600 auto manufacturers in the US (source: Wikipedia). Pretty low odds of successfully investing in the right auto manufacturer, huh? And yet electric vehicle manufacturers like Lucid and Rivian, with no product, let alone profits, are valued in the tens of billions.
Want a more recent example of the difficulty of picking the winner in an emerging field? Google was the 27th search engine developed.
There is a difference between opportunities missed and money lost. The last three months or so have not been kind to speculative securities like unproven companies and cryptocurrency. Speculation is neither illegal, immoral, nor (for most people) profitable over the long run. The media sensationalizes a handful of investors who have successfully speculated, but ignores the millions who lose their hard-earned savings and end up financially devastated. Losing money is more consequential to your life. You can miss a million opportunities in a lifetime and still become rich. Don’t confuse speculating with investing.
We favor investing in companies with proven products that meet buyers’ needs and produce actual profits. That might seem old fashioned, but it is proven to work. For our clients, money is for dignity in retirement. Wall Street may lose sight of that, but Jay and I never do.