Like a good roller coaster filled with twists and turns, 2021 comes to an end. It’s always interesting to look back on the year to see if there are any lessons to be learned or cautionary tales for the year ahead. The oracle of Omaha, Warren Buffett, is willing to share his wisdom from decades of investing through infamous quotes. Here are a handful that seem appropriate for 2021.
1) “The most important quality for an investor is temperament, not intellect.”
Patience will be more advantageous than smarts. It seems counter intuitive, but the best investors are not necessarily the smartest people.
2) “Someone’s sitting in the shade today because someone planted a tree a long time ago.”
Investing is a long-term endeavor, a discipline which can be forgotten in a go-go market. This is the investor version of what your mother said, patience if a virtue.
3) “When forced to choose, I will not trade even a night’s sleep for the chance of extra profits.”
This saying has two interpretations. The first is not to take more risk than your personal temperament can take. Risk temperament is fluid as people tend to be willing to take on risk after a market run up, when the risk of a decline actually increases. The second interpretation is to maintain an emergency fund in a safe and stable vehicle.
4) “Only when the tide goes out do you discover who’s been swimming naked.”
Risks reveal themselves only after the risk has been born. Investing in uncertain markets is more difficult than investing an unbridled rising market.
5) “Predicting rain doesn’t count, building the ark does.”
Forecasts and opinions are not as important as being prepared. A well-diversified portfolio with exposure to different asset classes will better meet investor objectives than guessing the next risk or fad.
6) “Remember that the stock market is manic depressive.”
The near-term movements are often driven by excitement and alarm. The financial media is the primary driver of emotional swings as people tend to stay abreast of current events. Be mindful of the things influencing your mindset as well as stay reasoned and rational.
7) “Beware the investment activity that produces applause; the great moves are usually greeted by yawns.”
Don’t focus on the short-term fad as it can lead you astray in the long-term. A good example of this is the interest in Special Purpose Acquisition companies (SPACs). SPACs as measured by the three main SPAC ETFs (symbols SPXZ, SPAK and SPCX) all saw big up movements through mid-February and major declines for the remainder of the year.
Today’s environment where we get instantaneous information seems to have scorned experience. But it is the combination of knowledge and experience which equals wisdom.
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