Warren Buffett released the annual Berkshire Hathaway shareholder letter and the 92 year old “Oracle of Omaha” has a number of notable comments about markets and investing.
For over 58 years most of the decisions that he and his partner — 99-year-old Charlie Munger — have made were “no better than so-so,” and in fact, some bad bets were “rescued by very large doses of luck.”
Why should we pay attention to a couple of nonagenarians, who, over the decades, have been accused of being out of touch with the hot asset du jour (Charlie Munger has referred to crypto “rat poison” and “crappo”)?
Let’s start with the impressive track record that they have racked up: from 1965 – 2022, Berkshire has grown at an annualized rate of 19.8 percent, versus 9.9% for the S&P 500’s total return.
Buffett says that their overall success can be attributed to “about a dozen truly good decisions – that would be about one every five years…The lesson for investors: The weeds wither away in significance as the flowers bloom. Over time, it takes just a few winners to work wonders.”
Given that few of us have the deep pockets, infinite time horizon, skill, or the patience of Buffett and Munger, there is hope.
In his 2016 annual shareholder letter, Buffett noted that when asked for investment advice, his “regular recommendation has been a low-cost S&P 500 index fund.” That was not a new message for Buffett. Three years prior, he provided similar advice to the trustees of his estate: “Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund…I believe the trust’s long-term results from this policy will be superior to those attained by most investors…who employ high-fee managers.”
Nobel Prize winning economist Richard H. Thaler drilled home this point last year, as markets were rolling over and people were wondering what they should do to combat the big market drops.
“Any sudden moves by individual investors are certainly no more likely to be right than wrong…If anything, they’re more likely to be wrong than right because our instinct is to sell when markets go down and to buy when they go up — and buying high and selling low is just not a good strategy…stick to your plan and don’t think you’re a genius and you can beat the market. Because you probably can’t.”
Still, many cling to the idea that “someone” knows when to jump in and out of markets. According to old school money managers Brown Brothers Harriman, “market timing is a fundamentally flawed approach.” It’s just really hard to determine which asset classes will perform well in the short run and over the longer term as market cycles are inherently unpredictable and “history has shown that forecasters are not adept at predicting these events.”
Maybe retail investors are catching on to the fact that it is nearly impossible to time the market. A new report by Fidelity Investments found that although retirement savers got shellacked last year (down by over 20% from 2021), they “did not make significant changes to their asset allocation in 2022, and more than a third increased their contribution rate over the last year.”
Additionally, despite battling surging inflation last year, total 401(k) savings for the fourth quarter (including both employer and employee contributions), held steady at 13.7%. And the percentage of participants with a loan outstanding on their 401(k) was at 16.7% for Q4 2022, matching the lowest percentage on record and down from 21% five years ago.
My guess is that Buffett, Munger and Thaler would be happy with these results.
Jill Schlesinger, CFP, is a CBS News business analyst. A former options trader and CIO of an investment advisory firm, she welcomes comments and questions at askjill@jillonmoney.com. Check her website at www.jillonmoney.com.
