Buffett & Deadbeats

Warren Buffett and the late Charlie Munger are arguably two of the best investors of all time. Berkshire Hathaway, the company they "founded", produces no real goods or services, it is more of a conglomerate, owning (to name a few) Benjamin Moore & Co., Duracell, Fruit of the Loom, GEICO, Helzberg Diamonds, Kraft Heinz, NetJets, Oriental Trading Company, and See’s Candies. Their philosophy when acquiring has always been to look for quality companies which fit their ethos.

When they acquire businesses, they do not meddle in the day to day operations. The CEO’s of the various holding companies are compensated solely on the performance of the company for which they are responsible. Therefore, each company is responsible to pull their own weight. These CEO’s are given three simple directives; First, run their business as though they are the sole owner, Second, run it as if it is the only asset they hold, and finally run it as though they could never sell or merge for 50 years. It completely changes the framework through which any decision is made.

I dare you to do a Google (or Bing for you Microsoft people) search for Warren Buffett quotes. Here are a few:

Rule No. 1: Never lose money. Rule No. 2: Never forget rule No. 1

It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price

Someone is sitting in the shade today because someone planted a tree a long time ago

Risk comes from not knowing what you’re doing

Price is what you pay. Value is what you get.

Only when the tide goes out do you discover who’s been swimming naked

Be fearful when others are greedy and greedy when others are fearful

It is likely that you’ve heard me reference that last one if you’ve sat in on one of our seminars or client meetings. I am not saying that we should be contrarians to market sentiments, but skeptical and diligent when something seems too good to be true. Think back to any bubble; dot com of the late ‘90’s and early 2000’s, Housing in 2006, bitcoin in 2020, Tulips in 1637. When intrinsic value builds to levels which go substantially beyond reasonable levels, it’s probably time to sell. I call this the dead-beat friend test; if your dead-beat friend tells you they are thinking about investing in this thing because so-and-so made a ton of money… it’s probably too good to be true and thus overvalued.

So why am I writing to you about Warren Buffett and dead-beat friends? I think there are a lot of good lessons we can pick up from both that are pertinent to our current market conditions. The last 4 years have been weird. They have been tough. For some, they have been miserable. 2022 was a terrible year for the traditional balanced portfolio. Headlines like “Is the 60/40 Portfolio DEAD?” splashed the financial news. The stock market was beat up and bonds slaughtered due to swiftly increasing interest rates. Last year provided some respite from bad markets as interest rate moves settled and the stock market rebounded.

So where do we go from here? I can honestly say I don’t know what is going to happen with the markets. I do not claim to be a market shaman, reading the tea leaves to prognosticate what is coming. In fact, I would be very leery of anyone who makes that claim. What I do know is we’ve seen the Magnificent 7 take off last year (side bar: if you haven’t seen both the 1960 and 2016 version of the Magnificent 7, I don’t think we can be friends anymore). In their meteoric rise, many of the Value positions remained relatively stagnant. If, and that’s a big if, the economy starts to slow, we could see interest rates come down, creating a tailwind for fixed income investments and dividend paying stocks. We’re exploring the long-term options for portfolios and how we can optimize them to take advantage of the market while it’s going up, but offer some level of protection on the downside.

What I also know is we work with each of you to help make financial decisions which are in your long-term best interest. When we sit down, we create or review your goals based financial plan. We explore the likelihood of success in achieving those goals and if we’re off the mark or have veered off course, we correct. This is one of the most important things we do: once a plan is in place, we hold you accountable to that plan. This isn’t to say goals don’t change. That’s why I love the way we plan; life isn’t static, and your plan should reflect those changes.

Just like going to the doctor for an annual checkup, we should be meeting to make sure you’re remaining financially healthy. Don’t ignore or postpone your meetings with us, this is your money. 

DISCLOSURES

Any opinions are those of Collier & Hackler Financial and not necessarily those of Raymond James Financial Services, Inc., or of Raymond James.  The information contained in this presentation does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.  Investing involves risk and you may incur a profit or loss regardless of strategy selected.

Magnificent 7 Total Return Index is an equal-dollar weighted equity benchmark consisting of a fixed basket of (7) seven widely traded companies classified in the United States and representing the Communications, Consumer Discretionary and Technology sectors as defined by Bloomberg Industry Classification System.