Markets gone up 10 fold since I stopped working at Magellan
So, you make more money on the upside. The markets be a lot higher ten years from now,
twenty years now, thirty years now. Trying to predict the market is really a waste.
I don’t know it’s gonna do. It can go down. When I ran Magellan 13 years declined
Sir Peter, your investing philosophy is often summed up as "buy what you know" and there’s some truth to
that and it’s also often way oversimplified. Can you explain what you did mean by that and what
you didn’t mean. Well it bothers me that people are very dangerous when they invest.
This word play the market. That’s a dangerous term. But If you do some work , do some research, know what you own,
look at the balance sheet , if you can eight and eight and get fairly close to
16 you find this company has lots of debt, no cash – they’re in trouble. You shouldn't own it.
So, a little bit of research. People are careful when they buy a refrigerator, careful when they take a vacation
and they they'll put five, ten thousand dollars some stock they hear on the bus
or at a party, that’s dangerous. So when you say buy what you know you also thought that the regular
investor might be able to get an inside advantage by sticking to an industry he’s familiar with
or seeing something that she realizes as a great product. Imagine if you were in a mall the last
50 years, you would have seen Gap when it was hot, you were seeing Limited when it was hot. You would have seen when it
not hot. You would have seen when certain people weren’t excited about Gap anymore or then
you do some research say well gee, there’s a lot of Limited stores, but they are only 20 you know and
they can go to 400. So, you see a company, I did really well with Dunkin Donuts a local company. I
did well with Stop and Shop. But people could see that there’s a reason people are showing up or gets to the
sunglass hut and no one’s there anymore. So, I mean that’s research, that’s fundamentals – you don’t
leave the mall and buy that thing. You have to do some more work. That’s an important point.
So today there’s so much information everywhere information overload. Does that make it harder for
active investors? The indexers say, “everyone’s got access to the same information at the same
time you can’t beat the market.” Well the way you beat the index is you avoid the stocks to
go down, you avoid the steel companies and the oil companies and Sears and Penny and when
companies deteriorate. I mean companies are dynamic. Behind every stock there is a
company. These are not lottery tickets. So, you’re trying to find the companies within the S&P 500
that are doing better, they’re going from crappy to semi crappy to good. That might take a couple
years or they going to grow for a long time. You are trying to avoid the companies that are
going south. That is how you beat the market, or you find some companies outside the S&P 500 that are
great companies. Carmax, that wasn’t in the S&P 500 and it went up 200-fold. So, there are a lot of companies that enter and
a lot of them have great performances before they go in. Now a lot of people when they’re lucky enough
or smart enough to get a company that’s going up they then they take their profits and you
made the case in a book that you should actually hang in there with the really great stocks and you
even got a call from Warren Buffett as a result. In 1989 I’m at home, the phone rings and those
weren’t my friends but one of my daughters, six-year-old Annie picked up and said,
“there’s a Mr. Buffett on line”. That’s got be a joke. I picked it up and this
is Warren Buffett from Omaha, Nebraska. You know, I read your book
[inaudible] he said it all about seven seconds and I said that’s great. I’d love to do it.
what you know, What’s the line? He said I love this it’s been waiting to do this. When you sell
your great companies and add to the losers it’s like watering the weeds and cutting the flowers.
He said I want to put it in. He said if you ever come to Nebraska you don’t call me, you’ll be
[inaudible] all over Nebraska. So, did you call him? Oh yeah. Several times we play bridge together. We’ve had
several meetings. Great guy. Another point you’ve made and this is I think particularly relevant ten
years into a bull market is that I think you said more money has been lost anticipating a
downturn than actually in the downturn. Can you explain? Well obviously the markets gone up
tenfold since I stopped working at Magellan. So, you make more money on the upside. The markets be a
lot higher ten years from now, twenty years now, thirty years now. Trying to predict the market
is really a waste. I don’t know it’s gonna do. It can go down. When I ran Magellan 13 years declined
10% or more nine times the market. I had a perfect record. I went down more than 10% every
time. Whenever the market went down, I went down more. But over the long term the upside is more than the
downside. So, you are gonna say to yourself. Do I need the money in the next month,
do I need the money in next year when kids going to college, they have a wedding coming up, then you’re a bad investor.
If you keep putting money, in have 5 10 15 20 25 years you should do well.