Transcript of Video Snippet
The next question that I have from the live room is from Thomas. And he said, I’m wondering what difference in investing philosophy you have, or I guess apply during inflated asset evaluations combined with inflation versus periods of deflation and low-interest periods.
Well, the answer to that is pretty simple. We think that the market is the best estimate of the right price. We don’t try to time markets. There is great evidence—the people who try to time markets because they think it’s overvalued, fail with great persistence. I’ll give you a great recent example. In 2013, a guru, I’ll use Jeremy Grantham, a very smart guy who runs and was the founder of GMO investments which manages tens of billions, had a great track record. He said the market is 60% to 70% overvalued because valuations PEs were higher historical averages, and he was predicting a crash.
I wrote a paper on explaining why I thought he was wrong—but that’s not important. Anyone who wants to find it on the advisor perspective’s website or ask Adam, we’ll get you a copy of that paper. But the important thing is, 2013 turned out to be one of the best years ever for the market. And he kept repeating it every year 15 and 16 … right through. And he just came out again and called for it last year. And again, this year, and of course last year were great years. The decade was a great decade. And the fact of the matter is that as Peter Lynch may be the greatest fund manager of all time, he was a hundred percent invested all of the time.
And the reason was he said more money has been lost anticipating bear markets than ever lost in them. And to me, the great anomaly in all of finance is that if you ask people who they think the greatest investor of all time is, they will almost unanimously say Warren Buffett. And yet not only do they ignore Buffett’s advice, but they also do the opposite. Buffett has repeatedly told people, “My favorite timeframe is forever.” He said, “Never try to time the market, but if you can’t resist, buy when everyone else is in panic and sell when everyone is greedy.” And we know investors tend to do exactly the opposite.
There’s no evidence that smart people can out-guess the market. And one great example is there was once a study called tactical asset allocation funds. Those are mutual funds run by experts who move money between asset classes, depending upon what they think based on if the economic environment will be inflationary, deflationary, or whatever. And the study found that not one single one of those added value.
And then Vanguard (really smart), they don’t have the burden of high expenses. They ran a tactical asset allocation fund for a long time. And I think it was in 2011, they shut it down, merged it into another vehicle because it had failed. So, the evidence suggests the best thing to do is what we’ve repeatedly said during this timeframe, is have a well-thought-out plan that incorporates the certainty that we’re going to live through different economic regimes, and we just can’t predict nor can anyone else when they will occur. So, we want to have, if you will, an all-weather portfolio that you can live with through all periods.
You want to take one piece of advice: take Warren Buffett’s advice. I recently heard him say he hadn’t read an economic forecast or listened to one in at least 25 years.
Larry’s warning about more money has been lost in the anticipation of the bear market than the bear market, reminds me of the wise words of Emanuel Lasker. Emmanuel Lasker was the world chess champion for 24 years, which is the longest period any individual was the world chess champion. And he used to say that the threat was more dangerous than the execution. So that’s perfectly consistent. And I’ve never heard it put that way, Larry, but I really like that.