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If you wait for the robins

October 21, 2024 emcee Leave a Comment

Over the last two years, too many people bailed out on stocks because they wanted to avoid a possible recession. Peter Lynch once said: “Far more money has been lost by investors trying to anticipate corrections, than lost in the corrections themselves.”

Economic forecasts are crapshoots. Even from well-meaning business leaders.

Steve Schwarzman is the co-founder CEO of Blackstone, the largest global alternative investments firm in the world. He has a good view of global economic conditions as his company is involved in major transactions all over the world. I listen to his views with interest in every quarterly earnings call.

In the second quarter 2022 call, he struck a pessimistic tone on inflation: “We’re cautious on inflation which we think could stay higher for longer than most expect and central banks will have to continue responding. It will be a difficult balancing act to combat inflation, while trying to minimize the negative impact on economies.”

Eighteen months later (4Q23), he had changed his mind: “We now believe CPI is running below the Fed’s 2% target, after adjusting the reported numbers for shelter costs, which lag what we’ve observed on the ground as one of the largest investors in this area. At the same time, the U.S. economy has remained quite strong.”

Thomas Peterffy is the founder and chairman of Interactive Brokers, the largest electronic trading platform in the United States. I listen to his quarterly commentary on the state of the trading markets. He does not believe that the Federal Reserve can control inflation. In January 2023, he said this:  

“I believe inflation is going to stay with us. It is likely to stay above 4%, and the Federal Reserve will keep rates at this level or higher, and eventually will have to give up on getting inflation down to its current 2% target”

He has been saying this since 2022. But it seems his views don’t jive with today’s economic numbers.

Jamie Dimon has been the chair and CEO of JPMorgan Chase, the U.S.’s largest bank by deposits, since 2006. In mid-2022, Dimon said a “hurricane” was about to hit the US economy. It could be “a minor one or superstorm Sandy”. “You’d better brave yourself.”

Six months later though, he dialed back prediction of economic hurricane by saying “I shouldn’t have ever used the word ‘hurricane’”. “It could be nothing [or] it could be bad, and I think we should understand, I’m not predicting one or the other.”

Today, he admits he was too pessimistic then. His CFO said in this quarter’s earnings call that the US has achieved a so-called soft landing.

I own both Blackstone and Interactive Brokers shares. A big factor in owning the shares is my admiration of Schwarzman and Peterffy for their excellent stewardships of the two companies.

Though I have never owned JPMorgan shares, but I also admire Jamie Dimon for his astute leadership of the bank. I read his detailed annual letters with interest.

But I don’t pay any attention to their economic forecasts. I don’t think much of economic prognostications in general. It’s one key aspect of Warren Buffett’s teachings. He said this in the aftermath of the 2008 financial crisis:

You’ll probably find this interesting. Charlie and I, to my memory, in 53 years, I don’t think we’ve ever had a discussion about buying a stock or a business, or selling a stock or a business, that has been — where we’ve talked about macro affairs. I mean, if we find a business that we think we understand and we like the price at which it’s being offered, we buy it. And it doesn’t make any difference what the headlines are, it doesn’t make any difference what the Federal Reserve is doing, it doesn’t make any difference what’s going on in Europe. We buy it. –2012 Berkshire Annual Meeting

I trust that the U.S. economy, while going through multi-year cycles, will continue to march forward and upward. This is key to my investing thesis. If I don’t believe in the long-term prospects of U.S. economy, my investing would look very different.

So long as I could keep my emotions in check and stay invested, my portfolio will recover from any economic crisis, deep or shallow. Soft landing or hard, shallow recession or deep, and notwithstanding geo-political events.

Did the three CEOs’ collective pessimism circa 2022 force them sell their own stakes in the companies? No, it didn’t. They knew their businesses would survive any economic shocks. Their macro outlooks might have been cloudy then, but they were clear-eyed about their own businesses.

All clear. Today, many CEOs and financial commentators are sounding “all clear” on the U.S. economy. It seems that a near-term recession has been written off. But the stock market has already anticipated this. It is up ~23% since the beginning of the year. Most stocks are reaching fresh new highs. If I had been waiting for this all-clear signal, it would have been too late to jump in.

“If you wait for the robins, spring is over.” Warren Buffett wrote this in his famous 2008 NYT article: “Buy American. I am.” He urged investors back then to invest in businesses and not wait for economic conditions to improve. As CNBC reported back then: Buffett admits that he doesn’t have the “faintest idea” whether the stock market will be higher or lower in a month or a year, he argues that it’s likely the market will move higher well before we see improvements in investor sentiment or the economy.

I invest when the market is going down no matter how bleak near-term economic prospects may appear. Like I did in 2022. Those stock purchases are up 65% today while the S&P 500 index is up 20% since its prior peak of January 2022.

Postscript: Just four days ago, on October 17th, Blackstone reported its third quarter earnings. On the conference call, Jon Gray, its COO said this: “We said we’d deploy significant capital ahead of the all-clear sign, as we believe some of the best investments are made during times of uncertainty. For the second consecutive quarter, we invested or committed over $50 billion, the highest in more than two years.” Amen! I’m happy to have my capital invested with the management who thinks like me.

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