Warren Buffett was once a fan of charting! Who could have guessed that?
12-May-2022 •Dhirendra Kumar
I learned something new and surprising while watching the annual Berkshire shareholders' meet last week: Warren Buffett was deeply into technical analysis at one point. This will come as a surprise to anyone who knows anything about Buffett and also understands that technical analysis is nonsense. However, it does tell us that the ability to observe new things, to absorb new knowledge and then change one's mind is crucial to being a smart investor.
This year, the annual shareholders' meet was held physically after a two-year gap. Just like it was till 2019, the meet was over a weekend in early May, in the American city of Omaha where Berkshire is based. Unlike shareholder's meets of virtually every other company in the world, Berkshire's are always interesting, not just for those who are shareholders and are present, but to practically every investor in the world. The main reason is the Q&A session with the two men who run the company - Chairman Warren Buffett and his deputy Charlie Munger. This runs for many hours, despite the age of the two men who are now 91 and 98, respectively. The whole show is so interesting primarily because neither Buffett or Munger tend to stick to the point. Their answers are full of anecdote, general commentary, wit and wisdom and often go far beyond talking about Berkshire itself.
This year, Buffett narrated how he started investing in stocks at the age of 11 with tiny amounts of money that he had earned in odd jobs and how, over the next few years, he 'learned everything' that is supposed to help in stock investing. He learned how the stock exchanges worked and the history of finance and most of all, he got very interested in technical analysis. He spent 'hours and hours' reading about charts and heads and shoulders and what not. Then, when he was about 19 or 20 years old, he picked up a book and just one paragraph he read showed him that everything he was doing was wrong. He had been trying to pick stocks that would go up and the book showed him how that was the wrong approach. The book was, of course, Benjamin Graham's 'The Intelligent Investor' and the rest, as it is said, is history.
The most interesting thing here - the one most worth emulating - is not 'trying everything', but the willingness to realise that you are wrong and to change direction upon that realisation. Some tens of thousands of people (including yours truly) have read 'The Intelligent Investor'. Many have become better investors because of it and perhaps a few have become truly successful.
The realisation that it was a mistake to try to pick stocks that would go up was actually a very deep one. Later in the Q&A, Buffett said that he had never managed to time anything and never managed to figure out what was going to happen in the economy! These must sound like crazy things to say for any conventional financial advisor or investment manager. These things - picking stocks which are going to go up, timing your purchases properly and having good anticipation of where the economy is heading - are supposed to be almost everything that equity investing is about. Look at the last few days, specially May 4, the day that the RBI announced an unscheduled change in interest rates. The entire equity market ran around like headless chickens as soon as the RBI announced that the chairman was going to address the press. The markets gyrated wildly. Any amount of wisdom was to be had for the asking on media outlets. Here's a question to ask yourself on a day like this: what would Buffett or Munger do on a day like this? The answer is obvious and you know it: nothing. Not just do nothing, but not take any notice of events. If your stocks are chosen well, and your asset allocation is appropriate, then just watch the activity in amusement.
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