Buffett’s incomprehension and frustration

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Warren was so irritated by the market’s odd behaviour in the late 1960s that he wanted to get across the point that the market can do some strange and irrational things. It cannot, therefore, be predicted over short periods, meaning months and even years.

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In his July 1966 letter to partners he repeated that he is “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.”

He never buys or sell shares on the basis of what other people think the stock market will do.

He emphasises again that he will only concentrate on what he thinks the company will do.

“The course of the stock market will determine, to a great degree, when we will be right, but the accuracy of our analysis of the company will largely determine whether we will be right. In other words, we tend to concentrate on what should happen, not when it should happen.”

A few months later, in his January 1967 letter he tries to convince his followers that the ten years of the Partnership were a very special period, giving unrepeatable returns averaging 29.8% per year.

He says, there is “absolutely no chance” of this being duplicated, or even remotely approximated, during the next decade.

Two ingredients were now missing:

1. He is no longer a “hungry twenty-five year old working with $105,100 initial partnership capital”. He is now a “better fed” 36 year-old who has the difficulty of investing a much larger amount of money, $54,065,345 – he has to buy in larger amounts to move the dial of performance, and this cuts down the number of possible companies because their free float is so small.

2. The market environment is no longer conducive to successful implementation of his investment philosophy. Compared with 1956 there…….

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