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I’ll continue the series on Buffett’s progress……We’re up to 1968….
Buffett started 1968 with Partnership net assets of $68,108,088, having made a 35.9% return in 1967.
But he was in a far from exuberant mood. The more the market was driven by speculative fever and accounting tricks the more worried he became.
These fevers, often pushed along by cynical con-artists, occur from time to time in financial markets. They will come again in our investment careers. So we need to learn the lessons from past speculative excesses built on self-delusion, hype, and deliberate manipulation and misrepresentation of data.
Buffett’s attitude
It’s important to understand Buffett’s thinking – it was not satisfying for him to make money by watching his shares rise on the market.
Satisfaction came from demonstration that his analytical reasoning was sound. This was manifest through the performance of his chosen companies, and the consequent rise in their share prices.
Logic analysis first……followed by business success……..followed by share price rises.
That is what makes sense; the correct order of the universe.
To witness a chosen investment rise 100% in a matter of weeks because promoters were pushing it for short-term goals was cause for concern, not for celebration.
Shares have to rise for the right reason. Gains made in irrationality can be quickly removed in an equally unreasonable manner.
The games people play
He was thus fretful that the games being played would result in serious long term damage to the socially important market mechanism of equity investment.
Cynical manipulation will lead to failure; failure will lead to fear and loathing of the idea of investment (in its truest sense) in companies, reducing the flow of funds for vital American businesses.
In his July 1968 letter to partners he said:
“currently there are practices snowballing in the security markets and business world which, while devoid of short term predictive value, bother me as to possible long term consequences. Spectacular amounts of money are being made by those participating (whether as originators, top employees, professional ad……….To read the rest of this article, and more like it, subscribe to my premium newsletter Deep Value Shares – click here http://newsletters.advfn.com/deepvalueshares/subscribe-1
