Investing with Buffett’s Long-Term Optimism

By John Reese (@guruinvestor) — 

38697310 - positive outlook and recovery concept as a person or businessman riding a red hot air balloon lifting the dangerous dark stormy skies to reveal a bright warm blue sky as a mindset symbol of managing economic or emotional perception.

Warren Buffett openly argues that anyone who doubts the growth potential of the U.S. economy is horribly misinformed, and his annual letters to Berkshire Hathaway shareholders drive the point home. This year he wrote, “Yes, the build-up of wealth will be interrupted for short periods from time to time. It will not, however, be stopped. I’ll repeat what I’ve both said in the past and expect to say in future years: Babies born in America today are the luckiest crop in history.” At last month’s centennial celebration for Forbes, Buffett said, “Whenever I hear people talk pessimistically about this country, I think they’re out of their mind.”

The billionaire CEO of Berkshire Hathaway has put his money where his mouth is over many decades, and continues to do so. This month, Berkshire announced a deal in which it will purchase nearly 40% of Pilot Travel Centers LLC, a family-owned (and the largest) operator of truck stops across the U.S.

According to a Wall Street Journal article reporting the announcement, “The deal runs counter to the long-term growth in electric vehicles and self-driving cars and trucks expected by some analysts.” But Buffett doesn’t see it that way. He is quoted as saying, “There will be more goods moving to more people as the years go by in the United States—that I would bet a lot of money on.” Judging from Berkshire’s other transportation holdings—railroad BNSF, NetJets, and its stakes in airline companies Delta, Southwest and United—Buffett doesn’t make the comment lightly.

This is a consistent message from the billionaire investing legend and, while the thought process behind it is layered, his down-to-earth delivery offers a strong takeaway to investors: It can be helpful to take a step back and look at the bigger picture, particularly when so many factors are at play at any given moment.

In this year’s letter to Berkshire Hathaway shareholders, Buffett wrote:

“American business—and consequently a basket of stocks—is virtually certain to be worth far more in the years ahead. Innovation, productivity gains, entrepreneurial spirit and an abundance of capital will see to that. Ever-present naysayers may prosper by marketing their gloomy forecasts. But heaven help them if they act on the nonsense they peddle.”

It makes sense that, as a long-term investor, Buffett can take more of a big picture approach. Since he concentrates on a company’s fundamentals and the strength of its underlying operations rather than on its day-to-day stock price movements, Buffett can make informed decisions about its long-term viability and potential to grow, then stand by those decisions through market ups and downs. In an article he wrote for Forbes in September, Buffett explains the strategy: “Because we’re not going to sell the business, we don’t need something with earnings that go up the next month or the next quarter; we need something that will earn more money 10 and 20 and 30 years from now.”

The approach is simple without being simplistic, but that doesn’t make it easy to follow. In fact, it may seem a lot easier to formulate an investment plan based on the assumption that you will remain steady if short-term losses occur than to stick to it–particularly as we continue to experience a seemingly steadfast bull market. This is a recurring theme in many of my articles and the cornerstone of our investing strategy here at Validea–follow proven strategies, stay disciplined, and beware of emotions:

Follow proven strategies: My guru investment strategies are inspired by some of the market’s most successful investors (including Warren Buffett, Joel Greenblatt and Benjamin Graham) and are built on key fundamental and financial characteristics that they used to identify companies that look to be attractive investments. Buffett, for example, looks for high return-on-equity, healthy free cash flow, and consistent earnings-per-share. Greenblatt targets companies with strong earnings yield and return-on-capital, while Graham focused on price-earnings and price-book ratios as well as a company’s liquidity and leverage.

Stay disciplined: No strategy will beat the market every month or even every year. If that’s your goal, you might end up just jumping from strategy to strategy chasing returns or the hottest stocks–a recipe for buying high and selling low. If you think long-term (over a time horizon of at least five years), you’ll be better equipped to endure short-term underperformance and reap the rewards of a good strategy.

Beware of emotion: It’s easy to get swept up in an exciting story surrounding a stock (and buy it) or get consumed by a negative story (and sell it). But doing so without first taking a look at the numbers can lead to ill-fated actions. Good investors don’t let hype or hunches influence their decisions.

This year’s letter to Berkshire shareholders includes another pearl, delivered in Buffett’s inimitable style: “Early Americans, we should emphasize, were neither smarter nor more hard working than those people who toiled century after century before them. But those venturesome pioneers crafted a system that unleashed human potential, and their successors built upon it.” While the comment underscores his unbridled enthusiasm regarding our country’s economic potential, it also serves as a metaphor for investing: getting back to fundamentals can be both inspiring and profitable.

Photo: Copyright: lightwise / 123RF Stock Photo




John Reese is founder and CEO of and Validea Capital Management, LLC. Validea is a quantitative investment research firm and Validea Capital, a separate company from, which maintains this blog, is a asset management firm offering private account management, ETFs and a robo advisor, Validea Legends and Validea Legends Income. John is a graduate of MIT and Harvard Business school, holder of two US patents and author of the book, “The Guru Investor: How to Beat the Market Using History’s Best Investment Strategies”. Follow John on Twitter @guruinvestor