Our growth positions pulled back in September. The returns are still healthy in the double-digit territory on a year-to-date basis. We are not doing anything stupid because the long-term trend in the market is still positive. Trends and cycles can go on far longer than you expect. There will eventually be a turning point (certainly it is not going to happen tomorrow) and I will be watching those clues for my investors.
The pullback that began in August is a necessary consolidation. Volatility is the price of admission when you want to obtain high returns over the long term in the market. Swift and huge swings in emotion always catch some investors off-guard.
In 2009, Charlie Munger was asked how concerned he was that Berkshire Hathaway shares which made up most of his net worth dropped more than 50%. He quickly interrupted the interviewer and responded: Zero. “This is the third time that Warren Buffett and I have seen our holdings in Berkshire Hathaway go down, top tick to bottom tick, by 50%.”
One of the profitable high growth stocks in our long-term portfolio has returned more than +1,200% over the last 10 years. In case you think I’m pulling your broken legs, to obtain those returns, an investor would have to tolerate several drawdowns of enormous magnitude, including a drawdown of more than 50% last year. The bear market was obviously a lot worse last year.
Grumble what you want. This happens repeatedly with all of the most profitable stocks in the market. Many of my investors have seen life changing returns over the years not because we were super lucky. Well, we have seen multiple crises in the last 100 years. We embrace volatility which presents us new opportunities from time to time.
We do not control the markets. We earn superior long-term returns by doing the smart thing, keeping perspective during challenging times. Up, up and away? At the risk of sounding like a broken track record, nothing goes up in a straight line even in a bull market.