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The long and short of investing, Buffett style

Buffett’s success suggests—or even proves—that the only practical way of making money is to do a handful of straightforward things and keep doing them for decades, tells Dhirendra Kumar.

business Updated: May 10, 2009 21:35 IST

A couple of days ago, I watched a television interview with Warren Buffett on an investment news channel. Buffet was engaging as usual but it was quite something to see the contrast between the legendary investor and the interviewer, who seemed like two different species.

If a fly (which lives for perhaps a few hours) and a tortoise (who can survive for a hundred years or more) had a conversation, it would probably sound like Buffett and that interviewer.

The interviewer asked Buffett to comment on how his companies would cope with the downturn. Buffett replied that things were certainly down at the moment but he expected them to be okay in three to five years. I could see that the mere mention of a time-scale like three to five years had derailed the interviewer’s thought process. Coming as she did from a world where three to five hours or at most three to five days is the standard unit of time, the idea of an investor talking in years seemed to jolt her.

Next, she drew the old man’s attention to a news item that US unemployment was up to 700,000 and wanted to know what he thought. Buffett said that he was sure that five years from now, the employment situation would be much better than it was today. Again, this time-scale put an end to that line of questioning.

However, the messiah of investing had reserved his best shot for the last. Asked if the economy was getting better, Buffett said that the Dow Jones index had started the 20th Century at 66 points and ended it at 11,000 points. During these hundred years, there had been two world wars, the Great Depression, an oil shock and countless recessions. But in the end they it had all worked out so he wasn’t really worried about the future.

Some time ago, I read a newspaper article in which investment managers suggested that Buffett's approach was unrealistic, saying investors needed to be more 'flexible'. They seemed to suggest that Buffett is an impractical cave hermit. But Buffett’s real world investors have made returns of some 5,000 times.

Buffett’s success suggests—or even proves—that the only practical way of making money is to do a handful of straightforward things and keep doing them for decades.

( Dhirendra Kumar is the Managing director, Value Research )