Long Term Perspective
Board: Berkshire Hathaway
There is a quote that goes something like this, “You don’t make money by timing the market. You make money by time in the market.” I don’t know who gets credit for it, but it’s one that sticks in my memory. If I own good companies and hold on to them things should work out ok.
Warren is constantly teaching us about “how to think about market prices” in interviews that he does. He is often asked about his short term views on the economy or market prices and that gives him the chance to teach us. Some of his comments are along the following lines.
He talks about America and the rest of the world in 1790 and how we ended up with the largest economy in spite of our smaller population at the beginning. He uses this example and others to illustrate that over the long haul our system has been effective at unleashing human potential.
He likes to point out that in the 20th century the Dow went from 66 to 11,497, in spite of all of the problems we faced during that time.
He points out that the future is always uncertain and we can always list lots of problems facing us, and yet over the long term the economy and the markets keep chugging along.
He pounds in the idea that “I don’t have the faintest idea what prices are going to do in a day, a week, a month, or a year.”
These teachings help me work on patience and maintaining a long term perspective. I’ve been following the markets and the economy more closely for the last 5 years or so. This period seems like a good illustration of the idea of making money by time in the market with good companies. There are lots of worries and uncertainties and yet over time the markets have chugged along. Of course, I have no idea what they’ll do going forward, next week, next month, or next year. And accepting this is kind of liberating. I read the market reports most days, and as I do I practice ignoring them. I’ve learned I don’t have to pay attention to them. That’s a big relief because paying attention to them and wondering about whether to time the market would be a major stress—too many difficult decisions to try to make, trying to do something that I can’t do well.
Many years ago when I had money in mutual funds I made all of the usual mistakes such as chasing performance and trying to lock in gains. Warren, Ben Graham, and Charlie helped me move past such behavior. But I have had to really pound in their teachings in order to make progress. I have just a little bit of the right temperament. My progress is mostly from a lot of time reading the right stuff and listening to the right people.