There I was, all starry-eyed, reading about Warren Buffet’s life several years back while trying to learn more about value investing. Like everything I thoroughly enjoy, I was totally engrossed in Roger Lowenstein’s book “Buffet, The making of an American capitalist”. The story is gripping, you get the inside scoop of one of the greatest investors of our times, and you feel you get close to the Sun.
It must have been obvious that I was daydreaming because “Lady K”, who usually joins me at the morning coffee and reading sessions in our resident’s lounge, asked me how I get on with my friend Warren. We were getting on really well, we were the best friends ever, always looking at business opportunities and investing smartly. We were living the dream of investing.
Because we were best friends I found out via the Dataroma website that Warren bought more shares in Bank of America (BAC) in the latest quarter. If he did that, then he must know something good and I should also buy it. No analysis is required. We’re best friends and he wouldn’t mislead me, right?
The stock went sideways for a while, and I lost interest. I read the latest 10-K and 10-Q forms without much understanding but thought it was still a good idea. Soon after, I sold it because it felt misplaced in my portfolio. It was Warren’s stock, and I cared for it in my portfolio garden.
A couple of months passed and I ended up reading a second Warren Buffett biography, “The Snowball: Warren Buffett and the Business of Life” written by Alice Schroeder. It also covered his life after the end of the nineties up to close to the Great Financial Crisis boom and bust. By this time the daydreams transformed into a more careful look at what I was reading and who I was following. I was waking up to the understanding that having idols of any kind can lead me astray.
The stock market is the best teacher concerning your emotions, personality, and passions. You can say you are a long-term value investor, but if you jump out and run for the hills when the stock drops 20%, then you have some soul-searching to do. One of the lessons it will teach you early on is that blindly following someone else’s stock ideas, be it your idol, a friend, someone on the internet, or anyone else, will turn out badly.
What I didn’t know at the time I bought BAC was that Warren already had the stock for some while and he knew the business. He had entered at a certain price, had a certain portfolio position, had a target and was doing what was best for his portfolio, not mine. BAC was good for him because it was his pick, it was his work, his knowledge and his thought system. This is why he could weather the storm and I could not.
In the stock market, you buy a share because it is your pick. After all, you put in the work to understand what is happening. This will give you confidence and a way to act when events happen out of the blue. It’s fine if you ride someone else’s coattails if you also understand what you are doing. Otherwise, the stock market will give you a rude awakening soon. It always does and always will.
A good number of moons have passed since and I still have a high regard for Warren Buffet and many other great investors, but I follow them only to collect stock ideas which I then research the best I can. Even when a close friend recommends a share with bated breath, think of nVidia or similar, I am taking the time to look at the fundamentals and technicals to see if they make sense for me. I am selfish. It has to make sense to me. If I have doubts, then I prefer to skip that share.
No, I’m not friends with Warren anymore, but I still respect what he does and the advice he’s giving. I will never be like him or get to his level of wealth or wisdom and that is fine. Everyone has their own life and path and I need to keep my eyes and ears open to the stock market to understand what works and what doesn’t.
With someone like Warren Buffet, considered a sacred investing animal, it is easy to misread and misunderstand what he says or writes. One of the ideas I was clinging to mindlessly was that you hold a stock to the end of times, but he mentioned this about his wholly owned businesses like Sees Candy or GEICO, not about tons of other stocks he’s held and sold sometimes after just a couple of months. It is considerably better to look at what people do rather than what they say because you may misinterpret what they mean.
Now I’m not that worried about not having stocks to choose from. The market has thousands of stocks lined up for me in bear or bull markets.
I also don’t worry about not buying if someone recommends a stock to me. I learned that investing is personal and that I carry the joy and burden, not someone else.
Sorry, Warren, I have to let you go. We’re not friends anymore.
This article has been first published in SIGnet Newsletter – December 2024 | Issue 60.