A couple of days ago, I watched a short interview with the legendary investor Warren Buffett on an investment news channel. The interview was conducted shortly after the annual general meeting (AGM) of Buffett’s company Berkshire Hathaway. Buffett said many interesting things—as he always does—but the really educational part of the interview was the contrast between the world that Buffett inhabits and the world that his interviewer seemed to come from. It was like listening to members of two different species talk. If a fly (which lives for perhaps a few hours) and a tortoise (who can survive for a hundred years or more) had a conversation, it would probably sound like Buffett and that interviewer.
At one point, the interviewer asked Buffett to comment on how his companies would cope with the downturn. Buffett replied that things were certainly down at the moment but he expected them to be OK in three to five years. I could see that the mere mention of a time scale like three to five years had derailed the interviewer’s thought process. Coming as she did from a world where three to five hours or at most three to five days is the standard unit of time; the idea of an investor talking in years seemed to have thrown a spanner in her works.
Next, she pulled out the day’s newspaper and drew the old man’s attention to a news item that US unemployment was up to 700,000. She wanted to know what he thought of the news. Buffett said that he was sure that five years from now, the employment situation would be much better than it was today. Again, this epic timescale put an end to that line of questioning.
However, this Methuselah of investing had reserved his best shot for the last. When the interviewer asked him about whether the economy was getting any better, Buffett upped the ante sharply. He said that the Dow Jones index had started the twentieth century at 66 points and ended it at 11,000 points. During these hundred years, there had been two world wars, a great depression, an oil shock and countless recessions. But in the end they had all worked out so he wasn’t really worried about the future.
There is simply no meeting point between an investor who is comfortable with such long time periods and the modern investing ‘process’. As you can see from the stock markets, there is no one around who actually takes the long view. Curiously, the normal investment-industry types frequently express scepticism about what Buffett stands for.
Some time ago, I read a newspaper article which quoted some investment managers on Buffett. Many of them suggested that Buffett's approach to investing was unrealistic— real investors need to be more 'flexible'. They seemed to suggest that Buffett is a hermit living in a cave whose teachings are too impractical for the real world. Except that Buffett lives in the same real world and his real world investors have made returns of some 5,000 times.
Taking the arguments in the Indian context, our good old sensex came into being in 1985 with 1979 as the base year. Since its launch the sensex had reached a level of 21000 levels on 09/01/2008. The sensex has given a compounded annual return of roughly about 20% since inception. During this period we have witnessed catastrophes like wars, flood, famines, assassinations, et all. Can we say that the next two, three decades will be any different? The signs of growth are already visible. What requires is the conviction. The question we should be asking ourselves is do we have the same level of conviction as foreigners have about our economy?
Far from being impractical, Buffett’s success suggests—or even proves—that the only practical way of making money is to do a handful of straightforward things and keep doing them for decades.
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