I’ve been sitting back and reading Warren Buffett‘s 2023 letter to shareholders.
This one seems, perhaps, even more thoughtful than most recent ones. Maybe it’s to do with the passing of Charlie Munger, who died in November.
Whatever it is, this letter does a great job of summing up Buffett’s wisdom. And one thing seems especially apt today.
Beat the market?
There’s been an idea for years that, if all company data is available for all to see at the same time, it should be impossible to beat the market consistently.
It’s called the efficient… something or other. I try not to take too much notice of big words from ivory tower academics.
Warren Buffett himself seems to be the one who tests, and disproves, that nonsense. He’s been soundly beating the market since he took control of Berkshire Hathaway in 1965. And he was armed with the same information everyone else had.
But doesn’t the vastly quicker, minute-by-minute, stream of data that bombards us today make it harder and harder to beat the market?
The rational investor
I think it’s exactly the opposite. I’d say today’s shorter attention spans are making people less rational, if anything.
What evidence do I have? I offer:
Occasionally, markets and/or the economy will cause stocks and bonds of some large and fundamentally good businesses to be strikingly mispriced. […] If you believe that American investors are now more stable than in the past, think back to September 2008. Speed of communication and the wonders of technology facilitate instant worldwide paralysis.
Warren Buffett, letter to shareholders, 2023
As far as I can see, the past decade has been littered with vastly mispriced stocks.
Strikingly mispriced
Now, I don’t want to bang on about Lloyds Banking Group (LSE: LLOY) again. Oh, hang on, yes I do. I love banging on about Lloyds.
Do I think Lloyds shares are mispriced? I sure do.
I mean, forecasts put the price-to-earnings (P/E) ratio at nine, dropping to only around six by 2026. And we’re looking at a 5.4% dividend yield, which could rise to 7% by 2026.
Oh, there’s a big share buyback going on too. And, as the UK’s biggest mortgage lender, it’s surely in a long-term winning market, isn’t it?
We don’t all agree
The thing is, a lot of big investors clearly don’t agree with me. And there is risk with Lloyds, for sure.
The mortgage business that I see as a long-term cash cow could look like a short-term liability to another investor. And they’d be right too.
How we decide is based, in part, on how far we look ahead.
Today, I’m more convinced than ever that more and more people are looking at share prices with short-term eyes. Get into, or out of, the latest craze. And then on to next week’s hot thing.
Private investors
So no, the days of private investors being able to beat the market are not over. And I don’t think they ever will be. Too many people always want to get ahead quickly, and they make the mistakes that leave the door open for long-term investors.
With some hard work, and a bit of luck, we should have a better chance thanks to the lessons we learn from Warren Buffett.
And Charlie Munger. Buffett owes a lot to Charlie. I think we all do.
