For entrepreneurs, saving for retirement is probably the last thing on our minds. If you’re anything like me, the business, the house, the kids, the business, the employees, the husband/wife, the business (oh, did I mention the business?) all come first. Where on earth am I going to find the time and the money to put into action a sound investment strategy for my retirement?
And what about all the oil spills, fiscal economic stimulus diets, conflicting forecasts, trouble in the ‘old world’ economies?
Is there any good news for me?
Well the truth is there’s plenty. There are many stocks and markets in general out there that have plunged and compared to their long-term intrinsic value are extremely undervalued.
There are a plethora of opportunities out there, just look at what the market is doing right now.
The market (or Mr Market) has the weight of numbers behind it – well $ symbols anyway. The weight of cash that will need to go back into the market at some stage is mind boggling – and you are the one who can have the first move advantage.
‘Mr Market’ prefers to be optimistic, is forward thinking and almost always factors in things that will happen a good 18-24 months ahead of time.
In his earlier years Warren E Buffett always sought out companies with competitive sustainable advantages. He didn’t have access to the information superhighway, tweeting CEOs or 24 hour finance channels. He did the leg-work most of us (including the so-called professionals) pay little attention to, meeting face-to-face with CEOs, trips to Moody’s to read old analyst reports and looking up on the latest SEC filings (our ASIC).
By his early 20s Buffett was a millionaire but as he went further he changed and adapted to finding good decent companies that were dirt-cheap to finding great companies at a good price. Companies that were ‘beaten down’ for some obscure reason even though the fundamentals and sales didn’t represent that in reality.
This led him to buy GE and the Washington Post when everyone else thought they were goners, it led to businesses like Coca-Cola in the early 80s when he could see that everyone was still drinking it. Even though everyone thinks print media is dead due to the internet, Buffett is still hundreds and hundreds of millions above on his investment in The Washington Post. The price you paid does matter.
There are a ton of great energy stocks that have been lumped in with the BP debacle that have been marked down to bargain basement prices that would fit right into Buffett’s small cap radar right now.
Legendary investor Peter Lynch always recommended that investors use their common knowledge and buy stocks that they already knew. In his book One Up On Wall Street, Lynch describes his wife’s admiration for L’eggs pantyhose, made at the time by Hanes. His wife liked it so much that it forced Lynch to look into the company, invest in the stock, and ultimately, he made six times his original investment.
In actuality, these sorts of opportunities are all around you. Over the last five years, a time in which the ASX S&P 200 went nowhere, you could have made a swag of cash, simply by investing in companies that you already knew. Take a look at what would have happened had you invested $1,000 in each of the following companies:
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And not a bank in sight!
You cannot expect to be the next Buffett so don’t try to be. The likes of Buffett, Munger and Lynch had an arbitrage on information, they focussed on information most people didn’t go out of their way for, the stuff that everyone ignored and they ignored the things that the professionals thought mattered.
These days we have the exact opposite problem which still presents us mere folk with similarly the same opportunity. Today it’s about perusing the information readily available, we have to disseminate the good from the bad. Buffett talk about following ‘investment heroes’, but it is more about following the very few ‘right’ heroes out there that have the ability to act with independence to achieve better than average results.
It was their independence of mind to act decisively when Mr Market was awash with panic that made these men and many others such as the likes of the Bogles, the Soros’ the Neff’s, the Schloss’ and the Ruane’s the super investors.
Even at the very height of the panic when everyone wouldn’t touch the banks with a very large pole Buffett was adding more Wells Fargo to his existing holding. Wells Fargo is now nudging the 225% mark from its March 2009 lows.
The point is that anyone can make a sound investment – all it takes is an independent mind, some extra cash, and the motivation to get started.
As Buffett says: “if you wait for the robins spring will be over” – translate, you’ll have already missed the bargains.
Nick Christian is a Financial Adviser and planner and authorised representative of Millennium3 Financial Services.
The views and opinions expressed within this letter are those of the author and do not necessarily reflect those of Millennium3 Financial Services Pty Ltd.
The above is general in nature and should not be acted upon without seeking the advice of a professional licensed financial planner.
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