Were you an investor in the late 1990’s? If you weren’t, let me tell you, it was really wild. As internet and dot.com stocks were being rolled out almost daily, the frenzy for any-and-everything-tech knew no bounds. Reflecting that irrational exuberance, the Nasdaq Index (home to all things tech) rose by 85.6% in 1999 – after rising by 39.63% in 1998! Like I said, it was crazy. Does that sound like people back then lost their collective minds? Well many did. But not all…

There were a group of investors who just refused to drink the Kool-Aid. For them, their experience, process and discipline kept them from getting caught up in the madness. But it was tough in that frenzied environment. It also came with a price. In many cases, clients bolted from them because they “just didn’t get it”. Standing firm in your convictions is not an easy thing to do in the face of being ridiculed and losing clients. But maintaining discipline is one of the defining hallmarks of great investors

Of all the criticism doled out to the “old-economy” managers, there was one hit job that really took the cake. The year-end cover story for Barron’s ran a piece on Warren Buffett that just ripped him for posting embarrassingly poor investment results for 1999. And yes, on a comparative basis – and for a period of time – Buffett looked terrible. Check out this 1999 chart of Berkshire versus the S&P 500 Index to see for yourself.

And that’s when Barron’s ran cover story titled “What’s Wrong, Warren?”.

BY ANDREW BARY 12/27/1999

After more than 30 years of unrivaled investment success, Warren Buffett may be losing his magic touch. Shares in Buffett’s Berkshire Hathaway are set to experience their first annual decline since 1990 and their second-worst year of performance, relative to the Standard & Poor’s 500 Index, since Buffett took control of what had been a struggling New England textile maker in 1965. At around $54,000 a share, Berkshire’s Class A stock is off 23% in 1999, against an 18% return for the S&P 500 (including dividends).

And on it went, detailing how old school investors just didn’t get the “new economy”.

But the story doesn’t end there. Even in an irrationally exuberant market, sanity eventually can be expected to return (often to the complete surprise and chagrin of the players). And return it did! After peaking in March of 2000, the tech-heavy Nasdaq index went on to decline by more than 70% while the S&P 500 index fell by nearly half over the next two years.

And how did Warren do? Well, see for yourself. From 2000 through the end of 2003, while the tech implosion was destroying dreams and investment portfolios, Buffett’s Berkshire Hathaway rose by 50%.

There are so many lessons to be gleaned from this real-life example, it’s hard to know where to start. This story is not meant to heap praise on Buffett in particular. There were a number of old-school investment managers who went through the same trials who also were eventually vindicated.

Did they have a magic crystal ball to guide them successfully through the insanity of the bubble and the carnage of the subsequent implosion? Of course not. What they did have – indeed, what all successful investors must have – was three things:

  • 1) A definable philosophy,
  • 2) A rational strategy to implement that philosophy, and importantly,
  • 3) The resolute discipline to implement their investment approach through thick and thin.

Having conviction in – and patience with – one’s investment strategy is a common theme amongst all long-term successful investors. Whether you are talking about Warren Buffett, John Templeton, George Soros, Bill Gros or Peter Lynch, what they all share in common – in spite of having dramatically different investment approaches – is the patience, discipline and the ability to stick with their plans through thick and thin for very long periods of time. That is what sets them apart. That is what made them truly great investors.

Here at BCM we resolutely believe in, and absolutely have an articulated philosophy, strategy and discipline. It’s on placards posted in our offices. Stop by and check it out. Rest assured, we also are resolute as we look forward to navigating through what promises to be interesting times in the months and years ahead. We’ve been through “interesting times” before and survived nicely. We think we might be able to do so again when the proverbial bell rings.

By Bo Billeaud