Happy Saturday friends,
This week, I read the book Buffett: The Making of an American Capitalist by Roger Lowenstein. If you're interested in Buffett's life story, this is an immensely readable version (and much shorter than The Snowball) that I really enjoyed.
The quote I've chosen for today's newsletter is about Buffett's thoughts on uncertainty and forecasting, which we could all benefit from.
Here we go [emphasis is mine]:
Then, in the spring of 1966, the market went into a steep swoon. (New money is jittery money.) Increasingly, investors were focusing on the shorter term.
Some of Buffett's partners called to 'warn' him that the market might go lower still. Such calls, Buffett shot back, raised two questions:
'(1) if they knew in February that the Dow was going to 865 in May, why didn't they let me in on it then; and (2) if they didn't know what was going to happen during the ensuing three months back in February, how do they know in May?'
Inevitably, the advice of such partners was to sell until the future was 'clear.' For some reason, market commentators suffer a peculiar blind spot. They routinely assume that once the 'uncertainty' of the immediate moment is lifted they will have a plain view of the future unto Judgment Day. The fact that they did not foresee the present uncertainty does not deter them from thinking that no new clouds will trouble the future.
'Let me again suggest [that] the future has never been clear to me (give us a call when the next few months are obvious to you--or, for that matter, the next few hours)'
Buffet avoided trying to forecast the stock market, and most assuredly avoided buying or selling stocks based on people's opinions of it. Rather, he tried to analyze the long-term business prospects of individual companies. This owed to his bias for logical reasoning. One could 'predict' the market trend, as one could predict which way a bird would fly when it left the tree. But that was guesswork--not analysis. If he ever sold stocks 'just because some astrologer thinks the quotations might go lower,' he warned, they would all be in trouble.
I would posit that most of what passes as market commentary these days is some type of prediction of the future--whether it be for individual companies or the stock market in general.
But here, way back in 1966, the greatest investor on the planet is saying that forecasts are of no value whatsoever because the future is uncertain. And in the 60 years since he made these comments, he has not changed his tune one bit, regardless of the availability of information that has commenced in the time since.
The future is uncertain. It's a hard truth, but that is exactly why it is "unforecastable."
And it's why long-term planning is so critical.
Our financial plans are not a map of certain terrain as most people seem to believe.
On the contrary, a good financial plan is a guide to help us navigate, endure, and even thrive through an uncertain future.
That's all for this week.
But Before You Go: This week on the podcast, I concluded my short series based on Buffett's 2011 shareholder letter. We discussed Warren Buffett's thoughts on investing in equities and why they are "by far the safest" of all asset classes. I hope you enjoy(ed) it!
Until next time, invest rationally.
-Ashby