If you’ve been reading the financial news recently you can’t get away from Buffetpalooza, the annual shareholders event Warren Buffett holds on his home turf in Omaha. Thousands of hopeful value investors are attracted to the event. People from New York and Los Angeles who the rest of the year regard Nebraska as -“fly over country” find themselves immersing themselves in Midwestern charm for a few days. The attraction is an in-person viewing of the Pope of Investing the “Oracle of Omaha” give his views on the economy and the investing world.
This year the press focused on Buffett’s “epic rant” against Wall Street and hedge funds where he went on about the high fees and low returns of these organizations pleading for regular investors to go for simpler products.
To me this was Warren just saying what he said a thousand times before - unless you really know what you’re doing stay away from exotic financial products…. It takes a lot of effort to beat the market so you might as well buy the whole market. Warren espouses the S&P 500 - the 500 largest American companies as he is a big fan of American industry. You could also look at something like the MSCI World which will buy you a tiny slice of 1500 of the largest companies worldwide.
Most news and commentators focus on the negative things Buffett says - the easy headlines. But few people stop to ask why Warren Buffett can take the same information available to the rest of us. He invests in mostly public companies that publish the same reports to all of us.
In the 2008 financial crisis when the banks became untouchable, Buffett waded into a deal to purchase a part of Goldman Sachs when it was down and out. Something inside him gave him the confidence to stomach the uncertainty and make a huge profit as the shares of Goldman and the economy returned to normal.
“You just have to sit back and let American industry do its job for you,” Buffett said in his most recent rant. Let time and market forces do the work for you.
You can label it Buffett’s attitude, his mindset, his philosophy and I will try to crystallize it for you in the next few sentences.
I’m going to call it the Abundance Mindset - a belief and acting as if the economy is going to keep growing over long periods of time… that the human condition is getting better and better.
The King of England 300 years ago could summon courtiers, horses and legions of soldiers but a simple toothache could cause him a world of pain and a possible serious infection and death. Nowadays a lowly office worker who is barely on the economic food chain drives home in a car that can go at 90 mph easily and if he gets a toothache, a quick visit to the dentist with pain meds and infections control will mean a day’s recovery time, barely a blip in the life of most ordinary people in the developed world.
The abundance mindset basically believes that over time the economy --- the sum total of goods and services will keep growing. To have an abundant mindset you have to believe in two things:
1.We will figure it out - as a human species we adapt and evolve - mainly through technology, improved efficiency and our own ability to collaborate and communicate in groups over history we are able to increase trade and goods and services which results in a growing assets for everyone.
2.The economy is growing…. With human population expanding and more and more people becoming wealthier and needing more and more expensive shoes and cell phones, the economy will keep growing.
If you believe that technology and human ingenuity will keep us growing and the economy is growing with a world population that will demand more and more goods and services, then you have an abundant mindset. The rest is just creative destruction. Businesses that seem robust in the past like General Motors and IBM are struggling now. Google and Apple who seem so solid now may be struggling 20 years from now. But if you bet on the economy as a whole and as an expanding entity you will grow your assets.
You have to believe that despite Syria, ISIS, climate change and Trump the world will overcome many uncertainties just has it has the world wars, failed communist states, bubonic plague and famines.
Ways to cultivate an abundant mindset:
The abundance mindset is critical for investors. It’s too scary to invest money or leave your area of expertise and learn about other areas of investing if you have a poverty mindset. Your brain will just automatically send you into anxiety.
I think the best way to cultivate an abundant mindset is not to sing or go on a yoga retreat but instead to follow the lead of some of the most powerful investors in history. Buffett's partner Charlie Munger read history books exclusively. Ray Dalio one of the most powerful and relatively unknown investors of today ($100 bn fund Bridgewater) suggests history books.
History teaches us that the world gets better and better. We can never predict how or from where, but ideas and people have eventually prevailed over decades and as a human race we are healthier and wealthier than any time in history.
If you spend about half an hour a day tracking stocks and reading the financial news, why not use half that time -- 15 minutes a day reading a history book to help your mind think more long term.
Your portfolio and future self will thank you for it.