Warren through his investment journey has shown that investing is not just arithmetic, but taking sensible long-term decisions. One of the pivotal takeaways from Buffett’s teachings is the recognition of the role of temperament in investment success. While it’s easy to succumb to the allure of chasing short-term gains, Buffett’s emphasis on the long game reminds us of the significance of staying the course.
The notion that investing should not be gauged solely by yearly performance rings particularly true, especially during market extremes. Such assessments can lead to perilous outcomes, underscoring the importance of a measured, tempered approach. Especially, when managing other people’s money, like in a mutual fund industry, it is important to be conscious of risks. In equity investing, extreme risk need not be taken since the benefit of compounding itself aids investors in the long run.
Buffett demonstrated the benefits of closed-end investment as a style and how closed-ended funds were the best investment vehicle for the long term.
Another major point of influence was the special situation investing adopted by Buffett from time to time. His special situation investing in American Express, preference shares of Bank of America, Goldman Sachs and GE, were all profitable ventures which showed how this investing strategy can be optimally put to use.
Buffett’s proclivity for holding cash in his portfolio during market dislocations is another important learning. He was one of the few investors who always had cash to deploy during market dislocations. This practice, coupled with a thoughtful approach to asset allocation, forms the bedrock of a sound strategy for generating risk-adjusted returns. This approach helped us to invest heavily during the March 2020 correction, proving the wisdom of having cash on hand to seize opportunities as and when they appear.
The Oracle of Omaha’s insistence on prudence when dealing with leveraged entities is another important lesson we have ingrained in our investment process. Recognising the potential pitfalls associated with leverage, we adopted a meticulous approach when evaluating companies for credit offerings. This attention to detail paid dividends, resulting in favourable outcomes for investors seeking exposure to credit-related investments.Warren Buffett’s timeless wisdom resonates through his emphasis on long-term thinking, value recognition, and prudent investing based on valuation. Over the years, the adherence to these principles aided in achieving long-term growth through a measured approach to valuation-driven investing, thereby yielding good risk-adjusted returns.
In conclusion, the sagacious wisdom of patience, sensible investing and the importance of cash and asset allocation are threads that intricately weave together our investment journey. His teachings continue to have an enduring impact on the world of investment, guiding and inspiring both the new and the experienced in their financial journeys.
(The author is Chief Investment Officer, ICICI Prudential Mutual Fund)