That is a pretty brazen remark isn’t it. Heck, some folks may be turned off enough that they never visit SharePlanner again. But at least hear me out. I have nothing against Warren Buffet, and I think that he is added more than we could ever imagine to the world of finance. People follow his stock suggestions as if he had some kind of omniscience about him. If he buys a stock, that stock will in the short term see huge buying interest. He’s got billions, and I’ve got something far less, however, I will say this, that his method of investing is not helpful in today’s market, for the average trader/investor.
Now I do not believe that you can’t not make money from the style of investing that he engages in, but you also have to remember that he has incredible control over the stocks that he buys. Control over support levels, control over management and control over many other things that we’ll never have as members of the Trading Proletariat. When you can pump millions upon millions if not billions, in a stock, you are able to provide that stock with enough support power, that any attempts by the bears to drive it lower is futile. Let’s also consider the fact that when he invests in a company he practically becomes the majority owner of that company – just look at Coca-Cola, American Express, and Gillette – all companies that Buffet has pumped so much money into through Berkshire Hathaway, his insurance company, and his own personal wealth, that he has practically owned or at some point has been majority owner of these large-caps.
As very tiny investors in comparison, we don’t have the luxury to wait 20-30 years nor buy major chunks of large cap stocks, and have a large influence over their operations. Instead, we have to buy a company with the belief that we are getting in before the big money discovers its true worth and thereby dramatically increases the value of the stock itself. But how early do you have to be, and how long should you have to wait, and furthermore, how wrong do you have to be initially before being right – that is, what if the stock goes against you 50% should you hold on to the stock because you believe it is a “long-term” investment or that you are in it “for the long-run”?
Value Investing by holding stocks 5, 10, 20 or more years like Buffet, does not always yield the results that Buffet’s strategy has yielded over time. In fact, the latest downturn in the economy has shown investors, that a stock like Citigroup (C) is worth no more than what it was worth in the 80’s! This is a stock that was considered a value stock for much of its existence. Had you held on to this “for the long-term” you lost out on 20-plus years of trading opportunities with that capital. For Buffet, he can just move his billions on to the next long-term investment, but for you, who knows what kind of hit that had on your retirement, or your 401(k), or your ability to pay your child’s college tuition.
This write-up was a little bit sporadic, I know. I was thinking about how trading, with the advent of the internet and low comissions fees make long-term investing second-fiddle to trading in the short term – this being my humble opinion of course!