In looking for ideas for this week’s blog, I found some notes I made for an article in 2008. I never finished the article, but what I read in the notes brought back a lesson that was true 16 years ago, is still true today, and probably will be many years from now. Here it is.
In 2008, these stories dominated the financial news:
• Real estate prices had plummeted.
• People were losing their homes in record numbers.
• The stock market had crashed.
• Banks were being taken over by the federal government.
• Unemployment was skyrocketing.
• Recession —maybe even a depression — was looming.
When I hear so many things that all seem to point in the same direction, I begin to wonder, "What do the really, really smart people have to say about this?” So I sought out the advice of the smartest person in the financial world that I knew of: Warren Buffet.
How smart is Warren Buffet? In 2008, Forbes magazine said Buffet was the richest man in the world, with a net worth at the time of about $62 billion. What's significant about his fabulous wealth is that he earned it all by investing. He didn't inherit it. He didn't invent anything. He doesn't even manage the companies he owns. He just invests.
In the middle of this 2008 financial mess, Buffet wrote a newspaper article in which he said that, with his personal money, he had recently started switching out of government bonds and buying stocks in American companies. This was at a time when America’s biggest companies were going down in flames. General Motors, once considered too big to fail, filed for bankruptcy. So why would Buffet be buying American stocks in 2008?
He said he follows a simple rule: "Be fearful when others are greedy, and be greedy when others are fearful." Everyone was fearful in 2008. Warren Buffet was “greedy.” Clearly, he was hearing the beat of a different drummer.
How did that strategy work out? Well, today Warren Buffet, now age 93, is worth a bit more than $132 billion — more than double the 2008 figure. He’s not the richest person in the world anymore. He’s #8, and all but one of the first seven mega-billionaires are men who built high-tech American companies from scratch. Of course, Buffet owns stock in every one of them.
If there's a lesson we can learn from this really, really smart man, it's this: Don't follow the crowd. Question conventional "wisdom." When everyone is rushing to one side of the boat and you follow them, all you’ll do is help to capsize it sooner.
Think for yourself. When you hear the news, or read anything online, don't let it become your opinion. Form your own opinions, even if they’re different from nearly everyone else’s. March to the beat of a different drummer. Of course, you'll be out of step — just like Warren Buffet.
