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Buffett’s perplexity with the market’s behaviour

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Tomorrow I’m going to Caledonian Trust’s AGM in Edinburgh – I’ll report back next week.

Haynes have just reported improved half year results and Arden Partners have reported annual results, so there is plenty for me to write about next week – do I want to buy more I wonder?

In the meantime, here is some more of the Buffett story:

While Warren Buffett was busily adding subsidiaries to Berkshire Hathaway in 1969 he was increasingly anxious about the attitude of others buying shares .

This attitude was exemplified by a statement made by an investment manager at one of the leading mutual funds when launching a new advisory service:

“The complexities of national and international economics make money management a full-time job. A good money manager cannot maintain a study of securities on a week-by-week or even a day-by-day basis. Securities must be studied in a minute-by-minute program.” (Quoted in Buffett’s letter to partners January 22nd, 1969)

To which Buffett’s response, in typical jokey-with-hard-intellectual-edge fashion, was:

“Wow! This sort of stuff makes me feel guilty when I go out for a Pepsi. When practiced by large and increasing numbers of highly motivated people with huge amounts of money on a limited quantity of suitable securities, the result becomes highly unpredictable. In some ways it is fascinating to watch and in other ways it is appalling.”

You see, Buffett had learned from Graham, and had himself preached repeatedly, the following:
1.Investment is about understanding the business, for which you need to conduct thorough analysis
2.Short-term, or even medium-term, movements of shares on a stock market are usually unrelated and irrelevant to what is happening at the coalface of your business. In the long-run the market will recognise intrinsic value, but for many months (or years) in between you can be sure that the market will do some very odd things.

This message is as relevant today following a 20% fall in the average share price, as it was in 1969. Back then Buffett was aghast at the level of over-excitement about shares. Now we have to cope with increasing pessimism.

To steady yourself, to gain some perspective, think about those two Buffett principles.

Investing is definitely not a minute-by-minute programme – the underlying business economics of a firm do not change that quickly; the quality of management of a company does change that quickly; nor does the financial stability. Focus on these things.

And focus on a company’s…………….To read the rest of this article, and more like it, subscribe to my premium newsletter Deep Value Shares – click here http://newsletters.advfn.com/deepvalueshares/subscribe-1

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