Wally Weitz: For Great Investors Certainty Is Not Required

Johnny HopkinsWally WeitzLeave a Comment

In his latest article titled – Certain Uncertainty, Wally Weitz explains why great investors don’t require certainty in markets. Here’s an excerpt from the article:

What we have learned, over 50+ and 25+ years of investing, is that through the full range of imaginable (and some unimaginable) business conditions, entrepreneurs and business managers seem to find ways to cope with change and adversity.

When things go wrong – at their companies or in the economy – they adapt and find solutions. This is not to say that humanity doesn’t face some very serious challenges, but from the narrow point of view of investors, we believe that good long-term investment returns are, and will continue to be, available to patient, sensible investors.

If the economy slips into a recession, earnings will probably dip, but our businesses are likely to find ways to increase their future earning power and thus their business values. Most of our companies are acquisitive, and opportunities to buy great assets or whole businesses arise in periods of adversity.

Our shareholders are familiar with the opportunistic investments that Berkshire Hathaway made during past financial crises. Danaher’s 2020 purchase of the biopharma business of GE Healthcare was brilliant. Liberty Media rescued Sirius XM from impending bankruptcy in 2009 with a $530 million loan (which was repaid with interest) and received a virtually free option on 40% of Sirius XM. That stake is now worth over $10 billion.

If stock prices are depressed, companies with strong balance sheets and cash flows will be able to step up their stock repurchase programs. Great businesses generate lots of “free cash flow.” Their first choice of uses for that cash is usually reinvestment in the business. But if a company can buy back its own stock at the right price, the value per share goes up for the remaining shareholders.

Companies with strong competitive positions and creative managements make their own breaks. They build, expand, and acquire regardless of what the stock market is doing. They roll with the punches thrown by the Fed, Congress, regulators, competitors . . . and recessions.

We own a collection of what we believe are very good businesses. For the most part, their prices have come down considerably over the past six months to levels we see as fairly attractive. We think these stocks, from these prices, could generate very good returns over the next 3-5 years. In bear markets, though, when investors get scared and brokers issue margin calls, stocks can get surprisingly cheap.

We don’t know how this bear market will unfold, but the good news is that, for truly high-quality companies, business value is the gravitational force that eventually pulls depressed stock prices upward to reflect their growth in earning power. The next few quarters may test our patience, but we feel very good about our companies and their futures.

You can read the entire article here:

Wally Weitz – Certain Uncertainty

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