A few weeks ago we talked about timing our moves into the market to coincide with the moves of wise men. And so we said that we will try to not buy into the highs of the stock market and instead jump in when it is low. This is what wise investors would do and what they have always done to reap profits for themselves and their clients. Or is it?
Smartest of Them All
The results of a poll conducted last week were released and there really was no surprise in the outcome. When polled as to who is the wisest investor today, one out of four professional investors, traders, and wealth managers answered Warren Buffet. These are his peers and colleagues applauding him. Now if they think that he is the wisest then I should definitely try to follow his moves. It only makes sense.
But instead of jumping out of the peak of the market, Buffet decided to buy into it. His company Berkshire Hathaway bought Burlington, a railroad company. Not only was it the biggest acquisition of the Berkshire Hathaway’s history but it also depleted the company’s cash reserves to only (!) 20 billion dollars. For someone who likes to have plenty of cash lying around, this was very uncharacteristic. Instead of waiting for the markets to nosedive from the peak it had reached, Warren Buffet, the smartest investor according to the professionals, decided to abandon the safety of tens of billions worth of cash and bet on the recovery. He called it an “all in” wager on the economy as a whole and in real sense it is because the health of the railroad industry is closely linked to the health of the economy. No production growth means no need for trains.
Chasing Winners and Dumping Losers
Warren Buffet is betting on the economy but he is playing a very different game than most traders. Whereas most traders buy and sell in a span of a few days or even a few hours, Mr. Buffet is only interested in holding onto things for a very long time. Even if the economy turns and railroads are not the hottest commodities then, I feel he will barely blink. He only cares about the long term picture. And it is very hard to argue with his methods. This is what his company has done in its long and successful history:
He does not attempt to time the market in the sense of buying low and selling high. He just buys stuff when he thinks it is a bargain. Sometimes the bargains are found when the market is in the dumps. And sometimes bargains are found in the peaks. All I know is that the wisest investor today made the biggest move of his career and I said a few weeks ago that I would follow the wise men whenever they jumped on board. So I bought one share of BRK-B and am not going to worry about that money and having to time dips or peaks with it.
Now I just have to save more money to afford BRK-A. Soon, I hope.