Edward Quince (EQ): Warren, you have famously advised investors to ignore pundits and macroeconomic forecasts. In a world saturated with non-stop financial news, what gives you the conviction to disregard the market chatter and daily data points as "noise"?
Warren Buffett (WB): "We think any company that has an economist, you know, certainly, has one employee too many". The cemetery for seers has a huge section set aside for macro forecasters. The truth is, "nobody knows what the market is going to do tomorrow, next week, next month," and I have never found anybody I wanted to listen to on the subject.
EQ: Yet investors seem compelled to follow the consensus, often deriving comfort from agreement. How does an individual investor cultivate the intellectual detachment required to avoid the herd?
WB: "You have to think for yourself. An ability to detach yourself from the crowd is a quality you need". Whether someone else agrees or disagrees with you does not make you right or wrong. Your reasoning is right because your facts are right and your analysis is right. We derive no comfort because great numbers of people agree with us, nor if they don't.
EQ: Many successful investors use macro trends or Fed policy as a starting point. You and Mr. Munger seem to completely reject that approach.
WB: Charlie Munger and I have been buying stocks and businesses for 50 years. In that entire time, we’ve never had a discussion of macroeconomic factors in making a decision as to whether to buy, or sell a business. We pondered what the business was likely to do, not what the Dow, the Fed, or the economy might do. If I were buying a farm or an apartment house, I wouldn't think about what the Fed was going to do. Our action is strictly determined by the availability of attractive investment opportunities that meet our standards.
The Edward Quince Takeaway
Recognize that noise is an expensive distraction. Superior returns are achieved not by guessing macro trends, but by deep, independent analysis of a business's intrinsic fundamentals. Cultivate the ability to detach yourself from the crowd, knowing that market popularity is no substitute for sound thought.
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