Canny View: Great investment minds aren't always great everywhere

Brilliance in one area does not equals brilliance elsewhere. Photo / Supplied

COMMENT:

I often hear stories about how people mistake their knowledge, expertise or success in one area for giving them some insight into investing or investment markets.

While someone can be brilliant and knowledgeable in their field, it's not exactly translatable. No one should ever make the mistake of believing their brilliance in one area will equal brilliance elsewhere.

Having said that, I don't want to suggest anyone should blindly swallow what we or anyone else who works in the financial world says. If you're confused or don't understand something, always ask for details or clarification.

But it swings both ways. Great investment minds can also be questionable outside their field.

Warren Buffett. Needs no introduction. Word's greatest or best-known investor etc. While it's long been shown Buffett has a great financial and investment mind. He is known to be a little lacking in other areas.

There is a famous story about Buffett's first wife being ill. Nauseous and on the verge of vomiting, Susan sent Warren off to grab some type of catchment to keep beside the bed.

After rattling around in the kitchen cupboard for a few minutes Warren returned with a colander. After it was explained the holes may present a problem, Warren went back to the cupboard and this time returned with a baking tray to put beneath the colander.

So great minds aren't always great everywhere. Leading to Buffett's behaviour during the recent market rout, a period of historic turmoil fuelled by Covid-19. Being so well known and having a career so storied, every man and his dog second guesses any move Buffett makes. For the most part, Buffett's Berkshire Hathaway sat on the sidelines with a $100 billion plus pile of cash. What did it mean? Had Buffett lost it?

Then in May 2020 he announced they had offloaded holdings in US airlines. Since then, the stock price of those airlines has gone up. Had Buffett lost it again? No. more likely it was in line with his philosophy: "If you are not willing to own a stock for 10 years, do not even think about owning it for 10 minutes." So, he no longer had a positive long-term outlook for airline stocks.

Nick Stewart.

Airlines are not cheap businesses to run. They will be in a struggle for years. They can take on as much government help, assistance or defer loans as long as possible, but without passenger levels increasing they will go bankrupt. To avoid this, they will need to raise more capital. Existing shareholders are either diluted, or they'll be sticking their hand in their pocket to provide more capital to maintain the same exposure.

At face value it seems neither of these options were palatable for Buffett. And so, it was time to exit.

Closer to home, the flag carrier airline of New Zealand Air NZ cancelled an 11c a share interim dividends worth $123 million in March, reduced its network capacity by 95 per cent in May, laid off 4100 staff and is preparing for a scenario in which it is still 30 per cent smaller in two years' time than pre-Covid levels.

In contrast, while the media and various investment commentators have been giving Warren Buffett hell for being cautious, they have been promoting and hyping first-time investors and sports stars who have been day trading and punting on speculative stocks.

In the US, there have been a multitude of stories of how well new and amateur investors have done in the past few months.

Retail investors are giving Wall Street pros a run for their money during the market comeback, with the amateur's top picks outperforming those of hedge funds, according to Goldman Sachs.

In Australia, the ABC is normalising the idea of unemployed people trading with their retirement savings.

David Ika is currently unemployed. He withdrew all his super when the Government allowed it and invested it himself. "I don't know if anyone really knows what the market's going to do, so I'm not going to pay an adviser to use my money" he explains. So far, the strategy appears to be working for him – he says his investments are up by more than two thirds.

Retired sport stars aren't missing the party either. Most Australians and football fans will know Chris Judd for his exploits on the field, ending his career as an all-time legend. Judd now spends his time obsessing over micro-cap shares, revealing he has a portfolio of 35 stocks, the majority of which have a market capitalisation of $50m or less.

What you won't catch in the media are those stories floating about on investment forums and social media about people trying to trade stocks and who lost more than 50 per cent. They're looking for tips to recover losses. From a financial literacy perspective, this is terribly depressing. It's created a mindset among many people to get rich quickly.

Jeff Bezos, founder, chairman, CEO, and president of Amazon is the richest man in the world. Once in a meeting with Warren Buffett, he asked America's most prolific investor, your investment thesis is so simple. You're the second richest guy in the world, and it's so simple. Why doesn't everyone just copy you?"

Buffett replied: "Because nobody wants to get rich slow."

This answer by Warren Buffett has a lot of learning and lessons for those who want to grow their wealth, become prosperous and live a good life.

• Nick Stewart is an authorised financial adviser and CEO at Stewart Group, a Hawke's Bay-based CEFEX certified financial planning and advisory firm. Stewart Group provides personal fiduciary services, wealth management, risk insurance and KiwiSaver solutions.

• The article is prepared in association with Mancell Financial Group, Australia. The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. You should seek financial advice specific to your circumstances from an Authorised Financial Adviser before making any financial decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961 or visit our website, www.stewartgroup.co.nz