Buffett's 50-Year-Old Words Still Ring True

While many investors think uncertainty has risen to unprecedented levels, changing the way they should invest, they need only look at some of Warren Buffett’s earliest letters to investors to see that they may be wrong, writes MarketWatch’s Jonathan Burton.

“I think you can be quite sure that over the next ten years there are going to be a few years when the general market is plus 20% or 25%, a few when it is minus on the same order, and a majority when it is in between. I haven’t any notion as to the sequence in which these will occur, nor do I think it is of any great importance for the long-term investor,” Buffett wrote in a 1962 letter to investors, Burton notes, adding, “Half a century on, Buffett’s advice to ignore market gyrations still resonates. Yet many investors have trouble looking ahead 10 days, let alone 10 years. Of course, investors nowadays have justifiable fears about their money and who’s minding it. The safe return of capital is paramount, while the idea of losing your shirt in a bid for a meaningful return is paralyzing.”

But, Burton says, are things really so different now? “Risk aversion is hard-wired in human nature,” he writes. “A greedy market feeds on fear. Otherwise Buffett wouldn’t have needed to remind investors to keep a lengthy time horizon.” The year Buffett wrote that letter, he notes, investors had to deal with a raging Cold War with the USSR, the Cuban Missile Crisis, and a mid-year “flash crash” that knocked nearly 6% of the Dow Jones Industrial Average in one day.

Burton says Buffett’s message hasn’t changed over the past 50 years. “Then, as now, he stressed preserving capital in down markets, not chasing the market in runaway years, and focusing on long-term challenges and results,” Burton says. “But what many investors fail to grasp is that the long-term according to Buffett has never been about passive buy-and-hold; it’s buy-on-the-cheap, hold and monitor.”

Burton also discusses Buffett’s 1963 letter to investors, in which he laid out seven “Ground Rules” he wanted his partners to understand, which still ring true today. Among them:

  • “While I much prefer a five-year test, I feel three years is an absolute minimum for judging performance. It is a certainty that we will have years when the partnership performance is poorer, perhaps substantially so, than the Dow. If any three-year or longer period produces poor results, we all should start looking around for other places to put our money.”
  •  “I am not in the business of predicting general stock market or business fluctuations. If you think I can do this, or think it is essential to an investment program, you should not be in the partnership.”