Warren Buffett famously said that it's much easier to tell what will happen, rather than when it will happen. That not only sounds right, most of us who have been investing have experienced this first hand. From this simple observation, it follows that investing strategies based on figuring out what will happen will have a higher success rate than those based on when it will happen.
A few days ago, the great investor and thinker held a two-and-a-half Q&A session for college students. Rather unlike the much more famous shareholder's meet of his holding company Berkshire Hathaway, he got a set of questions that were less hard-headed. At the same time, they were more challenging because they dealt with areas--mostly technology-related--that have been a weak spot for Berkshire. And yet, the old man's answers injected some basic sanity into the general hyperbole that surrounds talk about future tech developments.
Take autonomous vehicles, for example. Just a few weeks ago, Berkshire acquired a controlling stake in the oddly-name company Pilot Flying J. Pilot Flying J is the largest operator of highway truck stops in the US and Canada, which is apparently a large and very distinct business in those countries. Truck stops are highway stops that sell fuel, food, driver-rest and have massive truck-scale parking. In Berkshire's (Buffett's) way of thinking, it's a steady and strong business that could grow forever. Except that the college students had a different take. Their idea of the future was that autonomous self-driving vehicles--specially trucks--are imminent. When the trucks are robots that drive themselves, why would truck stops be needed? In an age when Elon Musk is the messiah who both foretells and creates the future, it's a fair question.
Buffett's answer was not some revelatory insight, but laid down a simple belief that it's not happening anytime soon. He said that autonomous vehicles would probably see less than 10% penetration by 2030. Is he right? At this point, it's obviously impossible to tell. And yet, we are in a time when being able to answer such questions is becoming necessary for being a large-scale, long-range investor. The four most valuable companies in the world are Apple, Alphabet (Google's parent), Microsoft and Amazon, and the fifth is Berkshire. The top four (along with Facebook, currently at 8), are remarkable not just for the value, but the speed at which the value (investors' gains) was created.
And yet, despite having been on the lookout for such opportunities, Berkshire missed all of them, as did a lot of older generation investors. Buffett spoke about missing the opportunity to invest in Google around the time it IPO'd in 2004. He said that he realised that it was an amazing business but somehow didn't invest in it. What does this tell us? The knee-jerk reaction would be that it was a mistake. And yet, if one follows the simple principle of never investing in what one doesn't understand fully, it was the right decision. It's not as if Berkshire failed. It's up there as one of the most successful investment companies ever, with the only tech-four being more valuable than it.
To the college students, Buffett said that if you lose money at the horse races, it doesn't mean you have to make that much money back only at the horse races. You can make money elsewhere. It's still money.
These lessons don't apply only to Buffett-scale investors, they are actually even more useful to individual investors. First, do not invest in anything that you don't understand. Second, as long as you make money at something and meet your financial goals, it does not matter that you missed some particular opportunity. Everyone misses many opportunities and misses don't come bigger than Warren Buffett spotting and still missing Google. It doesn't matter, only meeting one's goals matters.