During the Great Financial Crisis of 2007-2009, I don’t think I’d be too far off the mark if I said that most investors were essentially scared off investing by the drastic falls in stock markets around the world. But of course, there were a select few that saw opportunity while others were cowering, and chief among them had to be American billionaire investor Warren Buffett. Just last week, I wrote about how he invested US$5b in US banking giant Goldman Sachs’ preferred shares during the crisis, which came with 10% annual dividends. The investment also came with warrants that…
During the Great Financial Crisis of 2007-2009, I don’t think I’d be too far off the mark if I said that most investors were essentially scared off investing by the drastic falls in stock markets around the world.
But of course, there were a select few that saw opportunity while others were cowering, and chief among them had to be American billionaire investor Warren Buffett.
Just last week, I wrote about how he invested US$5b in US banking giant Goldman Sachs’ preferred shares during the crisis, which came with 10% annual dividends. The investment also came with warrants that culminated in him receiving US$2.15b worth of Goldman’s ordinary shares for free.
Goldman Sachs wasn’t Buffett’s only investment during that period, as I also wrote that he had pumped money into companies like General Electric and Constellation Energy among others.
A few days ago, an article from The Wall Street Journal surfaced that trumpeted just how much Buffett managed to profit from his investments during the crisis; its title says it all, “Buffett’s Crisis-Lending Haul Reaches [US]$10 Billion”.
I won’t be rehashing the analysis that was made to derive the US$10b figure, but some of Buffett’s words in the article caught my eye (emphasis mine):
“In terms of simple profitability, an average investor could have done just as well investing in the stock market if they bought during the panic period… You make your best buys when people are overwhelmingly fearful.”
While Buffett certainly had access to enormous deal-making capabilities that average investors can never dream of, it seems he was of the opinion that achieving similar, or even better returns than him was more about temperament than anything else.
In the same article where I talked about Buffett’s investment in Goldman, I also wrote about an op-ed (well-worth repeated readings) he wrote for The New York Times, published on 16 Oct 2008, which carried a title that emphasised his actions during the crisis, “Buy American, I Am”.
In the op-ed, he was almost calling out for investors to invest in the stock market. He wrote:
“Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky’s advice: “I skate to where the puck is going to be, not to where it has been.”
I don’t like to opine on the stock market, and again I emphasize that I have no idea what the market will do in the short term. Nevertheless, I’ll follow the lead of a restaurant that opened in an empty bank building and then advertised: “Put your mouth where your money was.” Today my money and my mouth both say equities.”
It’s been almost five years since the op-ed was published and from that date on, the S&P500 Index, a widely-followed benchmark for the American stock market, has gained 77%, or almost 12% per year.
Average investors with normal brokerage accounts would have easy access to ETFs that tracked the index and could have achieved such returns without much sweat. All they had to do was to have the right temperament to be able to invest while being in a climate of pervasive fear.
It’s not just in the USA where investors can take advantage of bargains that appear when others are fearful. In Singapore, the benchmark Straits Times Index (SGX: ^STI) has actually gained 116% to its current level of 3,138 points from its bottom of 1,455 that it touched on 10 March 2009 during the crisis.
Local stock market bellwethers like Jardine Matheson Holdings (SGX: J36), Sembcorp Marine (SGX: S51), Oversea-Chinese Banking Corporation (SGX: O39), and DBS Group Holdings (SGX: D05) have gained 233%, 226%, 150%, and 143% respectively in those four-and-a-half years since the STI’s bottom.
Those were just some of the bargains that appeared during the crisis that any average investor here in Singapore could have invested in.
Critics often emphasise that Buffett’s investing-feats during the crisis were the result of access to sweetheart deals that ordinary investors would never be able to receive.
But they fail to point out that even a simple investment into an index fund or ETF at the point of maximum pessimism, which would definitely have been easily available to ordinary investors, would have garnered great returns as well. All it took was having the right temperament to invest and see opportunity where others can’t.
While it might not always be true, Buffett’s investing returns during the crisis really is a case of “if Buffett can, so can you.”
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