No Thank You, Mr. Buffet

By Steve Singiser

There is universal acceptance that Warren Buffet is one of a very small group of professional investors whose advice is worth paying attention to. And
he is one of the ‘good guys’ who can be trusted for his genuineness. Would you want him to manage your investments, if he was available to do so?

I don’t think so, but let me explain.

As I am sure you are aware, Warren Buffett is a multi-billionaire. His net worth is calculated to be over $80 billion. His massive wealth has been created by his disciplined, conservative approach to investing. Typically, he makes large commitments in a limited number of companies. By commonly accepted standards, his in- vestments are under-diversified. This works for him in no small part because his investment resources are so large. Mr. Buffett can live with a relatively high level of volatility; current income is not a priority.

Your investment resources, and mine, are more modest than his. For us, wide market swings (i.e. volatility) are not well-tolerated, and most of us require a certain level of spendable income. Having lim- ited resources sets us apart from Mr. Buffet, and our objectives are vastly different.

Safety, diversity, quality, and consistency are words that comfort us, particularly when market values are declining. During these periods, your Trust Compa- ny of Vermont manager is available to discuss with you what we can do to protect your investments and reduce your anxiety. We share your pain.

Calling you our client or customer does not adequately define our relationship. It is
important we get to know you on a more personal level. How else can we determine your present tolerance for risk or need for current income? How else can we evaluate future events that change your priorities? An obvious list would include retirement or loss of employment, a new job opportunity, or an unanticipated inheritance. Sometimes we can advise you as to preferred sources of funds for large expenditures such as a home purchase, college tuition, or unexpected medical bills. It would be unrealistic to expect Mr. Buffett to fill this roll. Getting to know you is not just part of our job. It is the best part. Let’s stay in touch!

As a complement to this article I want it clearly understood that I am a very big booster of Warren Buffet. He has consistently contributed to my world of investment management. Much of this is through his clever and witty comments at the time of the Berkshire Hathaway Annual Meetings.

I clipped the following shareholder letter in 1987. It is a Warren Buffet gem, but it requires repeated readings to grasp the subtle messages. I have read it many times during the past nearly thirty years. It is excerpted below and entitled “Taking Advantage of ‘Mr. Market’”.

We quote here from the 1987 Berkshire Hathaway Annual Report, where Chairman Warren Buffet talks about his Columbia University mentor, Professor Benjamin Graham:

Taking Advantage of Mr. Market

Ben Graham, my friend and teacher, long ago described the mental attitude toward market fluctuations that I believe to be the most conductive to investment success. He said that you should imagine market quotations as coming from a remarkably accommodating fellow named Mr. Market, who is your partner in private business. Without fail Mr. Market appears daily and names a price at which he will either buy your interest or sell you his.

Even though the business that the two of you own may have economic characteristics that are stable, Mr. Market’s quotations will be anything but. For, sad to say, the poor fellow has incurable emotional problems.

At times, he feels euphoric and can see only the favorable factors affecting the business. When in that mood, he names a very high buy-sell price because he fears that you will snap up his interest and rob him of his imminent gains.

At other times, he is depressed and can see nothing but trouble ahead for both the business and the world. On these occasions, he will name a very low price, since he is terrified that you will unload your interest on him.

Mr. Market has another endearing characteristic: he doesn’t mind being ignored. If his quotation is uninteresting to you, he will be back to you with a new one tomorrow. Transactions are strictly at your option. Under these conditions, the more manic-depressive his behavior, the better for you.

But, like Cinderella at the ball, you must heed one warning or everything will turn into pumpkins and mice: Mr. Market is there to serve you, not to guide you. It is his pocketbook, not his wisdom, that you will find useful. If he shows up some day in a particularly foolish mood, you are free to ignore him or take advantage of him, but it will be disastrous if you fall under his inf luence.

Indeed, if you aren’t certain that you understand and can value your business far better than Mr. Market, you don’t belong in the game. As they say in poker, “If you’ve been in the game 30 minutes and you don’t know who the patsy is, you’re the patsy.” – Warren Buffet

Kenny Rogers had the right idea, when he sang, “You got to know when to hold ’em, know when to fold ‘em.” If only it was that easy.- Steve Singiser