The name “Warren Buffett” is not often associated with the words, “panic sale”[i]. The famed investor and so-called “Oracle of Omaha” is often known for the exact opposite of panic. Mr. Buffett’s strategy has tended to be one of patience and playing the long game. Which made it all the more surprising when he unloaded some of his portfolio’s biggest losers during the second quarter of last year.
For context, the second quarter of 2020 was when the market hit a low point due to concerns surrounding COVID-19. Buffett’s firm, Berkshire Hathaway, held a substantial amount in energy stocks and airlines both of which were hit particularly hard. In a rare moment of reactionary trading, Berkshire Hathaway sold two of its larger holdings in those sectors hoping to stop the bleeding. Unfortunately, for Buffett and Co., both of those companies have rebounded tremendously to become top market performers in 2021. As of this writing, this has meant millions in losses for the legendary investor.
So what can the average investor learn from an incredibly rich, world renowned investor losing millions in a moment of emotion driven decision making? Quite a lot actually. We tend to think of expert traders like Warren Buffet as having all the answers. They often seem detached from their emotions in so much that they do not make hasty decisions that separate them from their money. However, an example like the story above informs us otherwise. It may seem obvious to say but the experts in the field of investing are still human. No matter their status or record of accomplishment, they still experience the same range of human emotions as the rest of us.
Which means that if the “big dogs” can be affected by market panic, then certainly the rest of us can. This further highlights the need to put safe guards in place to protect your investments from yourself. Things like having a financial plan and an advisor can help you to do that. In addition, it is important to note that Buffett did not give up and retire when he made a mistake. If that were the case, he would have been out of the business decades ago. Instead, he got back to work doing what he does best.
All too often, when I meet with new clients they malign to me their past financial transgressions. They didn’t start investing soon enough, sold their funds in a panic, didn’t consistently invest for their future, etc. However, just like anything in life, the best path forward is certainly not by looking back. We can’t be so ashamed by our past failures that we neglect to live in the present. Successful investors like Buffett know this and have come to expect failures as a normal part of life. It is, in part, why they are so successful and others are not.
As financial advisors, the clients that are most well prepared to pursue their financial goals are not always the ones with the most money. They are the clients who understand that short-term setbacks are not independent of the larger plan. Meaning, the long-term plan is more important than what happens this week, this month, or even this year! Does this mean that we don’t make adjustments along the way? Of course not. However, those adjustments are always in line with the client’s plan to reach their financial goals. I will end with this: the combination of panic and regret will kill your portfolio. Nothing else presents a more imminent threat to the goals you have for your future. The remedy? Careful planning and financial disciple.
This week’s song is one that I recently rediscovered by country music legend, Alan Jackson. Enjoy!
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
All investing involves risk including loss of principal. No strategy assures success or protects against loss.