Even Buffett Can’t Beat the Market Every Time

Mark Skousen

Named one of the "Top 20 Living Economists," Dr. Skousen is a professional economist, investment expert, university professor, and author of more than 25 books.

In May, my son Todd and I attended the 50th anniversary of Berkshire Hathaway, Inc. (NYSE: BRK-A), the investment company run by Warren Buffett from his offices in Omaha, Nebraska. We celebrated the fact that Buffett is the greatest investor of all time. In 1973, Berkshire stock traded for $78 a share. Today, it’s worth $200,000. That’s a 21% annualized increase over a 42-year period of time. Meanwhile, the stock market (S&P 500 index) has increased by 10% a year. That’s quite a difference.

The year 1973 also marks the first edition of “A Random Walk Down Wall Street,” an investment book that was written by Burton Malkiel, a professor at Princeton University. He made the case that only a handful of investors can beat the market consistently over the long run, and if they did, it might be due more to luck than skill. He famously wrote that a monkey throwing darts at the pages of The Wall Street Journal could pick stocks as well as a professional stock broker or mutual fund money manager.

Studies since then have confirmed that the vast majority of individual investors, money managers and actively traded mutual funds underperform when compared to the market averages. The solution? Buy stock index funds. You won’t be able to beat the market but at least you won’t underperform the market.

Two years later, in 1975, Jack Bogle started the first Vanguard S&P 500 Index Fund, now one of the most popular mutual funds in the business.

Warren Buffett has, from time to time, ridiculed the efficient market theory that developed to justify index investing.

But today, with his own investment company valued at over $320 billion, even Buffett admits that beating the market is almost impossible. Last year, when he was interviewed by Tony Robbins, Buffett told Robbins that investing in index funds is the best way to go.

In fact, Buffett’s Berkshire stock fell 11% this year. His favorite stocks, such as IBM, Procter & Gamble and Walmart, are all down this year. As the old baseball saying goes, “Even the great hitters have their slumps.”

You can beat the market in the short term by being in a “hot” sector. But what if the hot sector suddenly turns cold? Oil stocks used to be hot; now they’re not. Biotech was on fire earlier this year and then collapsed in the fall. Many stock pickers are down this year because they chose the wrong sector.

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As for me? Forecasts & Strategies is ahead this year, because we have a well-diversified portfolio in a variety of sectors — financial, healthcare and defense, among others. We also have the Flying Five stocks, consisting of the five Dow stocks with the highest dividends and the lowest prices. There is a technique to finding undervalued stocks every year, but most of the time it works. Even though some of my stocks are down (such as my favorite pipeline stock), the overall return is positive. I can safely say I beat Warren Buffett — this year, anyway.

I also recommend the S&P 500 Index exchange-traded fund (ETF), symbol SPY. It is actually slightly profitable for the year.

You Blew It! Is Your Mail Disappearing or Arriving Super Late?

Like most of you, I’ve dealt with the U.S. Postal Service for many years, for better or for worse. Certain clerks at the post office are friendly, helpful and competent. Then there are others who are slow, uncaring and unfriendly. You meet all kinds of workers at the post office.

One clerk here in New York says he plans to write a book about his experiences as a post office employee. I suggested he call it “Going Postal.” He laughed.

Two experiences come to mind lately about why we need to privatize the post office and make it more efficient. Right now, it costs us taxpayers $3 billion a year in federal subsidies.

For the past few months, my newsletter, Forecasts & Strategies, has been arriving in my post office box more than a month late. Imagine waiting that long to get timely investment advice. Second class mail should arrive within a week of mailing. My publisher is looking into it, but so far there’s no solution.

Second, I’ve been bringing lots of packages into the post office lately in order to mail copies of my book “Maxims of Wall Street.” One clerk in particular complains every time I enter the post office. “Oh, no, here he comes. More work!” I told her that if I entered any other business, the clerk would be happy because it means more business and more profits. But not post office employees apparently, who have little incentive to help customers.

Last Call for Best Holiday Gift for Subscribers!

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Christmas is approaching, but there’s still time to order copies of “The Maxims of Wall Street” — the ideal holiday gift item. Unlike candy or wine, this gift offers a lifetime of sound investment advice with more than 800 sayings and dozens of short stories. As one subscriber said to me recently, “There’s more wisdom in your book than 4 years of college education!” And there’s even quite a bit of humor in “Maxims” — see for example page 25, “how to make a million.”

You pay only $20 for the first copy and all additional copies are only $10 each. All will be personally autographed, and I pay the postage! I’m offering “half off” because I know “Maxims” makes a great gift for friends, relatives, business colleagues, investors, your favorite stockbroker and money manager. Many people order a whole box of 32 copies. The price of a box of books is only $300 postpaid. To order your copies at this super discount, call Ensign Publishing toll-free at 1-866-254-2057, or go to www.miracleofamerica.com/maxims.

Thank You for Joining Me for another Profitable Year!

I end this Skousen CAFÉ with a big thank you to all of the subscribers to my monthly investment newsletter, Forecasts & Strategies, as we enjoyed another profitable year together. It has not been easy to stay fully invested in the face of a Chinese stock market crash, the slump in oil prices, terrorist attacks around the globe and constant doom-and-gloom predictions. Bull markets climb a wall of worry. But if you have held on, you are ahead of the game.

I’d also like to thank all of you who came to my annual FreedomFest show in Las Vegas in July and witnessed the biggest turnout ever (2,500 attendees) and major media coverage. I hope you will join us next year at the Global Financial Summit in The Bahamas, March 13-16 (gfs.freedomfest.com) and FreedomFest, July 13-17 (www.freedomfest.com). Both events are great ways to learn, network and celebrate liberty.

Upcoming Conference

Special Announcement: Subscribers to the Skousen CAFE should be happy to know that for the first time in two years, I am hosting the Global Financial Summit, a special private investment seminar, in The Bahamas. The focus will be on “High Income & Fast Money Investing” — combining my two most successful trading services!

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My “All Star High Income & Fast Money” experts for this exclusive private meeting will include Alex Green, investment director of the Oxford Club and editor of three trading services (Momentum Alert, Insider Trader and True Value Alert). Alex is rated the #5 best investor according to Hulbert Financial Digest. I’ve also confirmed Martin Truax, vice president at Raymond James, whose “income & growth” portfolio has more than tripled during the past 10 years. He and his partner Ron Miller also have developed a highly successful trading system using “red” and “green” signals to determine when to get in and out of markets (they flashed “sell” in May and now are flashing “buy” — good calls!).

Our keynote speaker will be Steve Moore, the chief economist for the Heritage Foundation and the #1 columnist for the Wall Street Journal, who will speak on “Money & Politics 2016: The Inside Story for Private Investors.”

Grover Norquist, president of Americans for Tax Reform, and Ziad Abdelnour, CEO of Blackhawk Partners, are two of the world’s top experts on Middle East politics and will tell us the truth about this never-ending crisis and what it means to investors.

The dates are March 16-19, 2016, at the five-star Atlantis Resort on Paradise Island, Nassau, The BahamasThis is during high “Spring Break” season, so I urge you to make your flight reservations now.

I soon will be announcing more top experts in portfolio management, tax and estate planning and foreign investing. But I want to encourage you to sign up now and take advantage of our special “early bird” discount — $200 off the retail price for Skousen CAFE subscribers if you register by Dec. 31. The price is only $495 per person/$795 per couple with the discount. And hotel rates at the five-star Atlantis Resort are only $209 per night. We are limiting this private meeting to 200 attendees only. To sign up, call Karen or Jennifer at 855-850-3733 ext 202, email info@freedomfest.com or go to gfs.freedomfest.com.

In case you missed it, I encourage you to read my e-letter column from last week about whether or not you should invest in alternative energy. I also invite you to comment in the space provided below.

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