Power Up Wealth podcast – Episode 104 – The Oracle’s Farewell: Lessons From Warren Buffett
Mikal Aune 0:00
The Oracle of Omaha is saying farewell. I’m Mikal Aune, Executive Vice President of Smedley Financial. Today, we will be talking with our President, James Derrick, about lessons learned from one of the greatest financial minds of our time.
Shane Thomas 0:17
Welcome to the SFS Power Up Wealth podcast, where we provide impactful insight and expert opinions on timeless financial principles and timely investment topics, preparing you to make smarter decisions with your money.
Mikal Aune 0:33
James, thank you for joining me today.
James Derrick 0:35
Yeah, I’m happy to be here.
Mikal Aune 0:36
James is the President of Smedley Financial Services, and has been with the company over 25 years. He holds his CFA designation and an MBA. James, as we jump into this, tell us a little bit about who is the Oracle of Omaha? For all the people that may not even know or have heard about this, you know what is so important about this man?
James Derrick 0:55
Warren Buffett is not only one of the richest people in the world, but he’s also one of the most successful investors of all time. How he got there is really fascinating. There’s all kinds of highly quotable things that he has said over the years. I think we can learn a lot from him.
Mikal Aune 1:09
So some of the words of wisdom that comes through time and experience, right?
James Derrick 1:14
Absolutely, for example, he said, “We don’t have to be smarter than the rest. We have to be more disciplined than the rest.”
Mikal Aune 1:20
So did that impact how he invested and how he invested in these other companies? They’re running their own company, but it’s not like he’s manufacturing widgets. He’s buying other companies that are doing that.
James Derrick 1:30
Yes, so he had to be disciplined. In fact, his company, Berkshire Hathaway is a company that he purchased when he was not disciplined. One of the worst investments he ever made, and he kept the name to remind himself to stay disciplined. And he got his nickname Oracle of Omaha because of the discipline. So in 1969 he wrote a letter to shareholders, and he said, opportunities for investments have virtually disappeared. I mean, that’s a bold thing to say to your shareholders when it is your job to invest.
Mikal Aune 2:00
And what was happening in 1969 that had concerned him so much?
James Derrick 2:04
Well, the stock market was very frothy. I mean, prices were high, inflation was rising. Does some of this should rhyme a little bit with what we’re seeing in the 2020s and this is how he felt. And incidentally, this is how he feels right now. He hasn’t said these exact words, but he has been raising his cash. Now it takes a great deal of discipline, because it wasn’t until 1974 that he declared, and I quote, “Now is the time to invest and get rich.”
Mikal Aune 2:34
And what was happening in the market in ’74?
James Derrick 2:36
Well, it had come way down from ’69.
Mikal Aune 2:38
So it wasn’t like it had bottomed and it was coming back up again. It was still going down. And he’s saying, invest.
James Derrick 2:45
Inflation was still a problem. The stock market was still very choppy. It’s not like he’s looking for the bottom or the very best day to buy, but he just, he’s looking for good opportunities. And if he sees one, he jumps on it. These kind of calls. You know, he had calls like this in 1987 and in 2008. This is how he got his name, Oracle of Omaha. It was almost like he could see into the future. But here’s the surprising thing that people may not realize, these have nothing to do with his success. If you ask him how he was successful, it was because he was disciplined. He wanted companies with steady cash flows that he could buy at good prices, and he just waited till he could get them at good prices.
Mikal Aune 3:30
So how should individual investors learn from that or improve their investing?
James Derrick 3:35
We often say, buy low, sell high. But Warren Buffett said it like this. He said, “be fearful when others are greedy, and be greedy when others are fearful.” In 2008 you and I just looked this up, but in October 16, 2008 was like the depths of the financial crisis.
Mikal Aune 3:51
The market was in a free fall.
James Derrick 3:54
The markets in a free fall. I mean, it’s, it’s unlike any other time. You know, I’ve been around for, as you mentioned, more than 25 years, and it was unlike any other time. And the market was in a free fall. Lehman Brothers had collapsed. Bear Stearns had collapsed. We had the AIG bailout and the Fannie Mae and the Freddie May and Freddie Mac Fannie Mae. We had all these bailouts going on. Car companies were taking bailouts, and banks were taking bailouts, and and it just was a crazy, crazy time. So on October 16, 2008 Warren Buffett, once again, said, “Now is the time to buy stocks.”
Mikal Aune 4:23
And was he right?
James Derrick 4:24
Yes, it was not the bottom.
Mikal Aune 4:26
It was not the bottom.
James Derrick 4:28
It was not the bottom. The actual bottom came about six months one week less, about six months later, about six months later. So it’s not like he called the bottom perfectly.
Mikal Aune 4:37
But that wasn’t his investing style either. He wasn’t trying to hit the bottom.
James Derrick 4:41
No no.
Mikal Aune 4:41
And he wasn’t just basing it on the S&P 500, right? He was looking at what are good companies out there that I can buy, and if this company is at a good price, I’m going to buy them.
James Derrick 4:50
His opinion was, we lay out money now to get more money back in the future. And so you don’t need the bottom for that. You just need a long-term horizon. His ideal holding period was forever, and even though he didn’t always follow that, that was his goal was buy something that he could own and feel comfortable with forever.
Mikal Aune 5:08
I think that’s a good idea. You’re not trying to buy something that you’re just going to hold for a month and sell it. You want to buy a good company that you can see going for forever. Sometimes those companies don’t work out and you exit that position, but your holdings period should be a long time, you know, 5, 10, 15 years, if you can not 5, 10, or 15 days.
James Derrick 5:26
Yes. And so examples of companies, Berkshire Hathaway purchased over the years are GEICO and Coca Cola, Duracell, Chevron, Sees Candy, Kraft, Heinz ketchup. I mean, you know, like, whatever happens, like people are still going to want ketchup. They’re still going to want gasoline for their cars. He in recent years, he bought Apple. People need phones nowadays. It’s not like people are going to stop using cell phones.
Mikal Aune 5:48
And some of those things don’t change. Because even in 2009 you know, the market bottomed in March, but there was still a lot of concern. You know, I heard people saying, Hey, don’t buy in, because the market’s just going to go down further. And there was a lot of concern in 2009, but he didn’t seem concerned in 2009.
James Derrick 6:04
No, he’s very good with it, and he was driving through Omaha with a friend. He’s from Omaha, Nebraska, and he’s driving through in 2009 and this is kind of the depths, like maybe the market had had bottomed, or was just about to bottom. But we didn’t know that at the time, and we didn’t know if things were going to keep getting worse. And you know, 09 and in 2010 we didn’t know. So he’s driving through Omaha with a friend, and the friend says, Warren, how are we ever going to recover from this? And Warren says, Well, you know what the number one candy bar was in 1969. No. Snickers. Guess what the number one candy bar is in 2008? Snickers!
Mikal Aune 6:40
I agree with that, because that’s still my favorite candy bar. And I don’t think that was his point. He’s not trying to say this is my favorite candy bar, right?
James Derrick 6:48
Well, it might be his favorite candy bar, but, yeah, he didn’t even have to elaborate. The friend just sat there thinking about it. What he inferred was Warren was saying things haven’t changed as much as you think. People are still going about their lives, we’re gonna get through it. Warren was very optimistic. If you ever see like an interview with him, not just something that you’re reading and writing, but an actual interview, a video, he’s very optimistic. And I love this story because it shows that optimism coming through in a very logical way. And guess what? In 2020 when the pandemic hit the number one candy bar was Snickers, I looked it up.
Mikal Aune 7:25
Times don’t change. We always feel like things are different. Things have changed, and this time is different. There’s a lot of things that just stay the same, like Snickers.
James Derrick 7:32
Yeah, we don’t know what’s coming, but are people still going to drink Coca-Cola in 2026? Yeah, I think so.
Mikal Aune 7:38
So what do you think that we should be learning from his wisdom. He’s still around, so he’s just retiring from his company, but some of the things that he would do or invest for now, you know where we sit in the stock market. The market keeps going up. We’ve kind of had an AI boom. We’ve had some cryptocurrency boom, which has been good. Does he like it? Does he love it? What would he say? What would he do at this time?
James Derrick 7:59
Well, since 2008 it’s been one boom after another. I mean, we had the fracking boom and we had the electric vehicle boom, and we had the cryptocurrency boom, and we had the AI boom, and it’s just been one boom after another. It’s been 17 years since this country has experienced a real recession. That is a long, long time. What I’m not recommending is buying these companies that Warren Buffet has bought. That’s like a discussion for another day, but I think one of the lessons for right now comes from another quote of his, and I can only paraphrase this one because I don’t have it right in front of me, but he said, you only find out who’s swimming naked when the tide goes out.
Mikal Aune 8:39
That’s one of my favorite quotes of his.
James Derrick 8:41
My kids love that one as well for obvious reasons. And the fact is, is there a lot of people out there swimming. We’re all swimming in the economy, but there’s a lot of people who, after 17 years without a real recession, have gotten a little bit too comfortable out there. It is inevitable at some point, no matter how hard we work, the tide will go out, and those who are too comfortable out there or are not prepared for it, they’re going to get caught.
Mikal Aune 9:08
What are the biggest things that are going to catch people if we have a pullback, a major pullback?
James Derrick 9:12
Well, we usually say it’s not the prices, but it’s the financing. So anybody who’s over leveraged, you know, do you have too much personal debt, or do you have too much debt that you’re using to invest in the stock market? That kind of leverage is dangerous. You know, in 2008 when banks started going bankrupt, they went bankrupt in order of who had the most leverage. And the same would be true of individuals. And so the best thing you can do is just be prepared. Don’t max out your credit cards. You know, be ready. And when it comes to your investing, don’t invest like it’s going to go up forever.
Mikal Aune 9:46
Because it just that’s not nature doesn’t go up forever.
James Derrick 9:49
We don’t know what’s going to happen, and so we always invest like anything could happen. We want to participate in the growth, but be prepared, just in case something else happens.
Mikal Aune 9:58
Do you see any part of the economy that’s over leveraged right now?
James Derrick 10:01
There’s little pockets everywhere of leverage. And so, you know, it’s a very real concern. And so it all depends on whether the tide goes out or not. If the tide goes out, those little pockets are going to be exposed.
Mikal Aune 10:13
Or maybe when the tide goes out.
James Derrick 10:15
Sure.
Mikal Aune 10:16
Because at some point it will right. That’s just kind of the ebbs and flows of life.
James Derrick 10:19
It will. And knowing that it will, and remembering that it will, helps you to be ready.
Mikal Aune 10:23
“Be fearful when others are greedy, and be greedy when others are fearful.” So right now, it seems like there’s a lot of people that are greedy out there, so we should be a little more fearful, at least wise and paying attention. And like you said, not too comfortable.
James Derrick 10:36
Yeah, just remember your investments are for the long term, that the investing process is about buying things you actually want to own. It’s not an ATM machine.
Mikal Aune 10:46
What would you say were his some of his most defining characteristics?
James Derrick 10:51
Well, I mentioned the optimism, and when you see an interview with him, that really stands out, just an incredible amount of optimism. Patience, especially for investing perspective and gratitude. One of the quotes that he has said that I love is “someone is sitting in the shade today because someone planted a tree a long time ago.” You know, we’ve heard that quote from others in different ways, but I think it’s a great way to live.
Mikal Aune 11:19
And a great way to take a long term perspective, not just me here now, but me and future generations. And how do I help them get ahead?
James Derrick 11:26
Yeah, gratitude for the past and looking forward to the future to help others.
Mikal Aune 11:31
Great wisdom to live by. So James, if you said there was one thing that you want people to take away from Warren Buffett, what would that one thing be?
James Derrick 11:39
Let me read off a few of the final quotes that we have that we’re not going to have time to to explain. “Every saint has a past, every sinner has a future.” “Never ask a barber if you need a haircut.” “Somebody once said that in looking for people to hire, you look for three qualities, integrity, intelligence and energy. And if you don’t have the first, the other two will kill you.” “Chains of habit are too light to be felt until they are too heavy to be broken.” “It takes 20 years to build a reputation and five minutes to ruin it.” I think these are all good words to live by.
Mikal Aune 12:15
Each one of those, you can take a moment, you can contemplate and think about them and be like okay, they’re simple, but really a lot of depth. Provokes a lot of thought to as you think about each one, and try to figure out, hmm, okay, how should I change what I do, either investing or in my life? And try to learn something from somebody that was wise.
James Derrick 12:33
Absolutely.
Mikal Aune 12:35
James, thank you for sharing all this with us. It’s been wonderful.
Shane Thomas 12:43
Thank you for joining the Power Up Wealth podcast. Smedley Financial is located at 102 S 200 E Ste 100 in Salt Lake City, UT 84111. Call us today at 800-748-4788. You can also find us on the web at Smedleyfinancial.com, Facebook, Instagram, Twitter, and LinkedIn. The views expressed are Smedley Financials and should not be construed directly or indirectly as an offer to buy or sell any securities or services mentioned herein. Investing is subject to risks, including loss of principal invested. Past performance is not a guarantee of future results. No strategy can assure a profit nor protect against loss. Please note that individual situations can vary. Therefore, the information should only be relied upon when coordinated with individual professional advice. Securities offered through Osaic Wealth, Inc., member FINRA/SIPC. Investment advisory services offered through Smedley Financial Services, Inc.® Osaic Wealth is separately owned, and other entities and/or marketing names, products, or services referenced here are independent of Osaic Wealth.
