Ignore Political and Economic Forecasts: Mind Your Owned Businesses


In his Berkshire Hathaway 1994 annual report Warren Buffett said ignore political and economic forecasts. I considered this one of the more profound pieces of investment advice and wisdom that I ever came across. It has been my opinion prior to and since I read this advice that investors spend way too much time and energy worrying about things that really don’t – and shouldn’t – matter. I have learned that it is futile to attempt to predict future political, economic or market directions and magnitudes. Nevertheless, most investors seem almost obsessed with trying to do it.

Additionally, it is my humble opinion that investors also place too much importance on evaluating their portfolios based solely on what the current market price shows. Market value is only one of many ways to evaluate how your portfolio is performing. Furthermore, I believe that most of the other ways are more important. Current market value and the intrinsic value of your portfolios are often quite different. To my way of thinking, current market value tells you more about your current liquidity than it does the true value of what you own.

Stated differently, market value often either overstates or understates the true value of the businesses that you own. Consequently, I consider it significantly more important and intelligent to assess the value of your businesses based on sound principles of business, economics and accounting (fundamental values). Therefore, by knowing the true worth of your holdings, you can make more intelligent decisions as to whether you should be buying more, selling, or holding in relation to the market value. To clarify, I do not believe in paying more for a business than it is worth, nor do I believe in selling a business for less than it’s worth. Current market price rarely gives me the whole picture.

In addition to market price and the associated volatility, I also prefer to consider the operating results, which include the growth of earnings, cash flows and dividends. To clarify, if earnings and dividends are growing and market price is inexplicably falling, I see this as a bargain. On the other hand, if I see market values excessively high and fundamentals do not justify the lofty levels, I see risk and potential loss. To summarize, I trust fundamentals more than I do emotionally-charged market behavior.

Nevertheless, the vast majority of investors that I have talked to see only the bottom line with little consideration, regard or concern about how well their businesses are performing. Consequently, they tend to be inclined to want to sell when they should buy – and vice versa. Additionally, most investors tend to worry about macroeconomic forecasts that are for the most part unpredictable, and rarely turn out to be accurate.