Investor Education
Private equity is an alternative investment that invests money in privately held companies or focuses on taking public companies private via a buyout strategy. Private Equity firms have bought out many public technology companies due to their struggles in the public markets. For example, Thoma Bravo has spent over $15 billion this year purchasing technology companies to further their presence in the space.
Read our overview of Private Equity
Looking Foolish
“I think one of the largest determinants of investment success over the long-run is the ability to think and act contrary to the group without being concerned about looking foolish.” —Peter Kaufman, Chairman and CEO of Glenair Inc.
Mr. Market shall giveth, and then taketh away. After strong gains the prior week, the S&P 500 gave it all back this past week, falling by 4.8%, while the Nasdaq dropped even more with a 5.5% loss.
Back in 2010, with the financial crisis behind us but still firmly in memory, everyone worried about a double-dip recession. Well, not quite everyone. Warren Buffett, whom many have been claiming has lost his touch for the better part of 25 years, didn’t quite see it the way much of the media was writing about it:
Warren Buffett ruled out a second recession in the U.S. and said businesses owned by his Berkshire Hathaway Inc. are growing.
“I am a huge bull on this country,” Buffett, Berkshire’s chief executive officer, said today in remarks to the Montana Economic Development Summit. “We will not have a double-dip recession at all. I see our businesses coming back almost across the board.”
Berkshire bought railroad Burlington Northern Santa Fe Corp. for $27 billion in February in a deal that Buffett, 80, called a bet on the U.S. economy. The billionaire’s outlook contrasts with the views of economists such as New York University Professor Nouriel Roubini and Harvard University Professor Martin Feldstein, who have said the odds of another recession may be one in three or higher.
“I’ve seen sentiment turn sour in the last three months or so, generally in the media,” Buffett said. “I don’t see that in our businesses. I see we’re employing more people than a month ago, two months ago.”
Buffett made those comments in September 2010, at a time when many would have thought investors were less than wise to buy stocks like Apple or Amazon or Microsoft after they had run up from the crisis lows, given the double-dip risks. All of those stocks are up over 1,000% since those comments 12 years ago. Mr. Buffett was doing other things than investing in those businesses, but he came around to Apple a few years later and made tens of billions of dollars in profit on the position for Berkshire shareholders.
In 2011, worries turned to Greece and other European countries. They were clearly going bust, so everyone said. In September 2011, 1-year Greek government bonds were yielding more than 135% at one point. Feel free to re-read that sentence. There are no decimal places in 135%. And even after the European Central Bank threw money at the troubled countries to prevent defaults, the Greek 5-year bond still yielded 17% in June 2015. But 4 years later, in June 2019, Greece’s 5-year bond yielded less than the U.S. 5-year bond.
What all of the above have in common is that if you had let the major worries of the day guide your thinking, you may have sat in cash and missed some great investment opportunities. We’re not saying you should go out and buy everything that has been beaten down. And maybe having a little or a lot of extra cash and liquidity isn’t a bad idea right now.
But great ideas tend to sprout when crisis and volatility and fear rule the headlines. When you do the work and have the conviction in an idea, don’t let the prospect of looking foolish dissuade you from your convictions. As Peter Kaufman said in a 2018 talk:
Lou Brock set the Major League record for stolen bases with the St. Louis Cardinals many years ago. And he once said, “Show me a man who’s afraid of appearing foolish and I’ll show you a man you can beat every time.” And if you’re getting beat in life, chances are it’s because you’re afraid of appearing foolish.
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