As Warren Buffett turns 90, the story of one of America’s most influential and wealthy business leaders is a study in the logic and discipline of understanding future value.
Patience, caution, and consistency. In volatile times such as these, it may be difficult for executives to keep those attributes in mind when making decisions. But there are immense advantages to doing so. For proof, just look at the steady genius of now-nonagenarian Warren Buffett. The legendary investor and Berkshire Hathaway founder and CEO has earned millions of dollars for investors over several decades (exhibit). But very few of Buffett’s investment decisions have been reactionary; instead, his choices and communications have been—and remain—grounded in logic and value.
Buffett learned his craft from “the father of value investing,” Columbia University professor and British economist Benjamin Graham. Perhaps as a result, Buffett typically doesn’t invest in opportunities in which he can’t reasonably estimate future value—there are no social-media companies, for instance, or cryptocurrency ventures in his portfolio. Instead, he banks on businesses that have steady cash flows and will generate high returns and low risk. And he lets those businesses stick to their knitting. Ever since Buffett bought See’s Candy Shops in 1972, for instance, the company has generated an ROI of more than 160 percent per year —and not because of significant changes to operations, target customer base, or product mix. The company didn’t stop doing what it did well just so it could grow faster. Instead, it sends excess cash flows back to the parent company for reinvestment—which points to a lesson for many listed companies: it’s OK to grow in line with your product markets if you aren’t confident that you can redeploy the cash flows you’re generating any better than your investor can.
As Peter Kunhardt, director of the HBO documentary Becoming Warren Buffett, said in a 2017 interview, Buffett understands that “you don’t have to trade things all the time; you can sit on things, too. You don’t have to make many decisions in life to make a lot of money.” And Buffett’s theory (roughly paraphrased) that the quality of a company’s senior leadership can signal whether the business would be a good investment or not has been proved time and time again. “See how [managers] treat themselves versus how they treat the shareholders .…The poor managers also turn out to be the ones that really don’t think that much about the shareholders. The two often go hand in hand,” Buffett explains.
Every few years or so, critics will poke holes in Buffett’s approach to investing. It’s outdated, they say, not proactive enough in a world in which digital business and economic uncertainty reign. For instance, during the 2008 credit crisis, pundits suggested that his portfolio moves were mistimed, he held on to some assets for far too long, and he released others too early, not getting enough in return. And it’s true that Buffett has made some mistakes; his decision making is not infallible. His approach to technology investments works for him, but that doesn’t mean other investors shouldn’t seize opportunities to back digital tools, platforms, and start-ups—particularly now that the COVID-19 pandemic has accelerated global companies’ digital transformations.
Still, many of Buffett’s theories continue to win the day. A good number of the so-called inadvisable deals he pursued in the wake of the 2008 downturn ended paying off in the longer term. And press reports suggest that Berkshire Hathaway’s profits are rebounding in the midst of the current economic downturn prompted by the global pandemic.
At age 90, Buffett is still waging campaigns—for instance, speaking out against eliminating the estate tax and against the release of quarterly earnings guidance. Of the latter, he has said that it promotes an unhealthy focus on short-term profits at the expense of long-term performance.
“Clear communication of a company’s strategic goals—along with metrics that can be evaluated over time—will always be critical to shareholders. But this information … should be provided on a timeline deemed appropriate for the needs of each specific company and its investors, whether annual or otherwise,” he and Jamie Dimon wrote in the Wall Street Journal.
Yes, volatile times call for quick responses and fast action. But as Warren Buffett has shown, there are also significant advantages to keeping the long term in mind, as well. Specifically, there is value in consistency, caution, and patience and in simply trusting the math—in good times and bad.
Fauci’s warning stands in obvious contrast to the assertions of his boss, President Trump. As he has so often over the course of the pandemic, Trump waves away questions about whether states are ready to resume normal economic activity, insisting that many places are ready to gear back up. His White House released a set of recommendations for doing so, recommendations to which Fauci will refer. But even as those recommendations were introduced, Trump undercut them. He quickly embraced anti-social-distancing protests in states with blue governors — states where things were not yet ready to return to normal.
The recommendations espoused by Fauci (and, ostensibly, Trump) set an initial baseline of data that states should meet before taking even introductory steps toward reopening their economies. They’re centered on three categories benchmarks: coronavirus symptoms, actual cases and hospital capacity. The initial presentation from the White House explained how those benchmarks could be met:
For the first two, we have publicly available data that allows us to evaluate how states are doing. In the case of demonstrated symptoms, the data are somewhat old, with the most recent metrics reflecting the week of May 2. What’s more, data on the number of people showing up to emergency rooms with symptoms reflecting possible covid-19 cases (the disease caused by the coronavirus) are compiled only by region. Nonetheless, we can get a sense for how many people in each place are showing symptoms as well as up-to-date information on the number of cases and positive tests in each state.
By now, many states appear to meet the benchmarks on these two conditions. (Again, given the limits on the symptomatic data, it’s tricky to say how each fares in the moment.) A number of states that have already begun to reopen, though, don’t. In Texas, for example, the number of new cases is up and the percent of positive tests is flat. In Georgia, the number of new cases is flat and the rate of positive tests has been variable. Both states are nonetheless reopening.
Georgia’s been in the process of reopening for about three weeks, despite missing the basic benchmarks even when that process began. Gov. Brian Kemp (R) made a blanket determination that things could get back to normal, ignoring the sort of regionalized shifts that Trump himself has advocated.
New York, the state hit hardest by the virus, has implemented a deliberate, region-by-region plan for reopening. Gov. Andrew M. Cuomo (D) has outlined seven different criteria in each region of the state before it can resume some normal economic activity (though not all). (Among those? A program sufficient to trace the contacts of individuals with newly confirmed infections.) As of Monday, only three regions met the seven conditions. New York City hit four of the seven.
This is presumably how states are encouraged to reopen to avoid Fauci’s most dire predictions. It’s no guarantee that outbreaks won’t emerge, but New York’s plan is predicated on safety over normalcy while Georgia’s appears to be the opposite.
That’s the important context for Fauci’s testimony. His warnings about moving slowly are not new — though, in the past, they’ve mostly been tempered by the looming physical presence of a president who’s not very interested in diluting his optimistic economic assumptions. Fauci’s language about the ramifications is strong, but the message is consistent.
It also comes a bit too late for states such as Georgia — at least at the official level. One effect of the effort to get the state back to normal is that many Georgians aren’t ready to do so. Economic data shows that, despite businesses being open, they’re often not seeing many customers. The state’s residents are skeptical about getting back to normal. A new Post-Ipsos poll suggests that they are also skeptical of their governor.
Those participating in protests against social distancing are a small minority. Most Americans understand the thrust of Fauci’s concerns and are willing to support continued social distancing measures. While governors are occasionally skipping over the guidelines offered by Fauci and his team, the consumers who can return the economy to normal are still wary — and may be the best audience for Fauci’s warnings.