Everytime when I am not feeling too great about a situation, when I bump into something unexpected in financial markets, or when I am deeply frustrated, there are a few things that I'll likely be doing:
- Go out for a walk or take a shower; or
- Look for new materials to read about Warren Buffett, James Simons, George Soros, Jim Rogers, and Li Ka Shing.
Here's a link that contains a list of quotes by Warren Buffett:
You will see that some of the quotes are somewhat similar to my Golden Rules as stated on top of this blog and in Golden Rules #4-10. As a great fan of Buffett and a market participant who personally manages a fund that has enjoyed moderate success, there are things that are told by these legendary icons that I am always very sceptical about. You see, what's really important about a person is not often what he/she says, but what he/she actually does.
Jim Rogers will always say this on TV: "I am the worst market timer in the world". This is the man who produced a stunning 4200% of return in his 10 years of managing the Quantum Fund with George Soros in the 70s. He's also the man who predicted the bull run in commodities back in the late 90s and licensed a commodity index named after himself. The bull run in commodities took off within just 2 years, if I am not mistaken -- most of the figures I have about anything when I am writing are off the top of my head. Rogers is also the guy who publicly took a long position in a Taiwanese ETF *before* the new election result of the island state was announced and *before* the Taiwanese markets went up up up! Tell me, is he really, as what he likes to say, the worst market timer in the world? EVIDENTLY NOT!
And Buffett himself is famous for this quote: "My favourite holding period is forever". This is the man who managed a private fund with great success from 1957 to 1969. Due to the secrecy of private investment companies, it's impossible for me to know to what degree Buffett engaged in portfolio turnover and market timing. However, what we know is he pulled off one of the most dramatic market timing moves of all time:
- He exited the exciting bull market of the 60s when the herds were piling into it in 1969. Buffett walked away and liquidated his investment company, telling his investors they would probably be better off in tax-exempt bonds for awhile. The 1969-70 bear market began within just months and the Dow plunged 36%.
- In 1973-74 the Dow plunged 45% and Buffett *timely* returned to the market. In a famous 1974 interview he said, "This is the time to start investing again". And he did, using his control of publicly traded Berkshire Hathaway as the holding company for his investments.
- During the long one-sided 1990s bull market, which favoured buy and hold investing, Buffett traded in and out of huge holdings in Salomon Bros., US Air Group, McDonald's, bonds, silver, the US dollar, currencies, etc. This is clearly in CONTRARY to another famous quote of his: "If you don’t feel comfortable owning something for 10 years, then don’t own it for 10 minutes".
- When Buffett said publicly that market risk was getting too high in 1999, he raised Berkshire Hathaway's cash levels to a huge $50 billion. It was a bit early, but excellent timing, since the serious 2000-2002 bear market was soon underway.
- In 2005, SEC filings showed he had taken positions ($20 billion) in huge bets against the US dollar, which had been plunging, while buying foreign currencies.
- Also in 2005, after participating in the new bull market that began in 2002, Buffett again moved $40 billion into cash, shying away from the US stock market and US bonds.
Is market timing really plays no part in Buffett's way of investing/trading? EVIDENTLY, IT DOES! This is perhaps one of the best quote from Buffett himself in that regard:
"At the start of the party the punch is flowing and everything's going well, but you know at midnight it's all going to turn into pumpkins and mice. People think they'll be able to get out just before midnight, but everyone else thinks that too. What the wise man does at the beginning [of a rising market] the fool does at the end. Once a price history [rising market] develops enough for other people to see it and get envious, greed takes over markets. We simply attempt to be fearful when others are greedy, and greedy when others are fearful."
One of the very secrets in the huge successes of the legendary is their unique approach for looking for the bags of money that have been left somewhere and knowing how to time it within the time horizon they operate. Timing doesn't mean Technical Analysis. But is an essential part that must never be ignored.