Warren Buffett: The Best Investing Moves Get YAWNS, Not Applause

Johnny HopkinsWarren BuffettLeave a Comment

In his 2008 Berkshire Hathaway Annual Letter, Warren Buffett emphasizes that seeking approval should not be the aim of investing. This mentality can be detrimental for several reasons:

  • It clouds judgment: When seeking validation, investors might become less attuned to new information or critical analysis, potentially missing valuable opportunities or perpetuating flawed decisions
  • It discourages independent thinking: The desire for approval can lead to following the crowd or popular trends, which could be risky and mean  opportunities are missed in less-frequented sectors
  • It hinders adaptability: The most profitable moves often go unnoticed or even questioned initially. An investor focused on approval might miss these potentially lucrative avenues

Therefore, Buffett advises investors to prioritize independent thinking and critical analysis over seeking external validation. By focusing on sound research, objective evaluation, and long-term goals, they can navigate the market more effectively and potentially achieve greater success.

In short, it’s better to make smart, unpopular investment decisions than chase applause and miss profitable opportunities.

Here’s an excerpt from the letter:

The investment world has gone from underpricing risk to overpricing it. This change has not been minor; the pendulum has covered an extraordinary arc.

A few years ago, it would have seemed unthinkable that yields like today’s could have been obtained on good-grade municipal or corporate bonds even while risk-free governments offered near-zero returns on short-term bonds and no better than a pittance on long-terms.

When the financial history of this decade is written, it will surely speak of the Internet bubble of the late 1990s and the housing bubble of the early 2000s. But the U.S. Treasury bond bubble of late 2008 may be regarded as almost equally extraordinary.

Clinging to cash equivalents or long-term government bonds at present yields is almost certainly a terrible policy if continued for long. Holders of these instruments, of course, have felt increasingly comfortable — in fact, almost smug — in following this policy as financial turmoil has mounted.

They regard their judgment confirmed when they hear commentators proclaim “cash is king,” even though that wonderful cash is earning close to nothing and will surely find its purchasing power eroded over time.

Approval, though, is not the goal of investing. In fact, approval is often counter-productive because it sedates the brain and makes it less receptive to new facts or a re-examination of conclusions formed earlier. Beware the investment activity that produces applause; the great moves are usually greeted by yawns.

You can read the entire letter here:

2008 Berkshire Hathaway Annual Letter

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