Would You Have Fired Warren Buffett?

"No matter how great the talent or efforts, some things take time. You can't produce a baby in one month by getting nine women pregnant."  — Warren Buffett

One of the most interesting trends in the stock market in recent years has been the strong outperformance of “growth” stocks versus “value” stocks.

Growth stocks have been outperforming value stocks for much of the last decade, and the discrepancy has accelerated over the last 18 months. To provide some historical perspective, at the start of October the difference between growth and value had reached the third highest level since 1990.¹

Some of you may remember the two previous times that the difference was this large. The first time was the peak of the “tech bubble” in 2000 and the second time was the market peak before the Great Recession in 2007.

Now, we’re not calling for a market meltdown. However, we do think it’s important to understand what is happening because it is a relatively rare occurrence, and it has had an impact for investors.

Why is this important? As you may know, we use “evidence-based” investment strategies. These strategies use “factors” to seek higher performance levels over time. Eugene Fama famously won a Nobel Prize in 2013 for his work in identifying some of these factors. One of the most well-known was the “value” factor.

Decision-Making and Diversification

"No matter how great the talent or efforts, some things take time. You can't produce a baby in one month by getting nine women pregnant."  — Warren Buffett

Welcome to my blog and thank you for checking it out! My vision is to periodically share ideas that our investment committee has been discussing. No set schedule—I’ll wait until there’s something timely.

I wanted to set the stage with thinking about how we approach stock market events and in a larger sense, our lives. It starts with focusing on what we can control (our decisions and temperament) and what we can’t control (most everything else).

Follow the Serenity Prayer, “Grant me the serenity to accept the things I cannot change, the courage to change the things I can, and the wisdom to know the difference.”

Knowing the difference between what you can and can’t control is important in how you measure results. When you boil down why an event turned out the way it did, it is typically not productive to waste time and energy focusing on things outside of your control. We can’t control whether the market went up or down, if interest rates rose or fell, or which way our home’s value went. In investing, what we can control and manage is the quality of our decisions. How do we make decisions? Is our decision making process objective or based on our emotions? Are there behavioral biases that may be skewing our view? Is there historical evidence that supports our decisions?