“Old Money” Investing
by Dr. Steve Sjuggerud
June 26, 2006
“All day you wait for the pitch you like; then when the fielders are asleep,
you step up and hit it.” |
| |
-Legendary investor Warren Buffett, in Forbes, 1974. |
At the end of 1974, most stocks had lost half their values in two years.
After such a horrendous time, nobody wanted to touch stocks. Nobody, except Warren Buffett…
His timing was perfect. As a money manager, Buffett told his investors “there’s nothing left to buy” in the late 1960s. He gave his investors their money back.
But in late 1974, Buffett saw incredible bargains and got back in business. Armed with plenty of cash, he went on a buying binge. His purchases included Dean Witter, National Presto Industries, Detroit International Bridge, Sperry & Hutchison, U.S. Truck Lines, J. Walter Thompson, Ford Motor, and Grand Union.
As Maggie Mahar explains in her book Bull, Buffett was simply behaving like Old Money. He stood aside in the giddy late 1960s, and got back in business big time at the market bottom in 1974… “While most investors are motivated by a desire to make money, Buffett focused first on not losing money,” Mahar notes.
“The very rich don’t fret so much about making money,” Mahar says. “Their greatest fear is losing it. This explains why, when the bidding escalates – whether in a stock market, a “hot” real estate market, or at a Sotheby’s auction – Old Money tends to step aside, letting New Money carry the day.”
In DailyWealth, it’s our desire to invest like the Old Money… stepping aside when investors get giddy. And when investors give up on an investment theme, we want to consider stepping in and being heavy buyers.
It’s not always easy to do. Particularly now…
Right now, most “traditional” investments are too popular with the public, and a bit overpriced. I’m talking about things like stocks and real estate.
We want to buy when things are unpopular with the public… even hated. For example, in 1981 BusinessWeek wrote, “even if the economic climate could be made right again for investing in stocks, it would take a massive promotional campaign to bring people back into the market.”
That’s what it feels like at the bottom. (And in hindsight, that was the bottom of the market.) We’re nowhere near there yet.
The right course of action, we believe, is to avoid being too heavily invested right now in “traditional” investments. Of course, that leaves us with cash burning a hole in our pockets, looking for somewhere to be put into action.
Our goal at DailyWealth is always to try to point you in the direction of the best investments available at the moment.
However, the boldest action of all right now might be to act like the Old Money, like Buffett did in the early 1970s… and protect what you have, first and foremost. Do things like pay down your debts.
That way, like Buffett in 1974, when the time comes to buy, you’ll be flush with cash…
Good investing,
Steve
Editor's note: Steve Sjuggerud is a regular contributor to DailyWealth, a free investment newsletter focused on the world's best contrarian opportunities. We write with a simple belief in mind: You don't have to take big risks to make big money with your investments.
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