Don’t get swayed by billionaires
Updated: Jul 3, 2020
Since I have been out of the market for a while, I have been spending more time reading about the financial markets and have also been watching videos on YouTube on the same topic. And I realised everyone has their own strong opinions on the markets. From bank analysts to journalists, people have been keener to put their opinions out there for everyone to hear or read about. Of course, this is not a criticism because I have been doing the same through this blog. And while observing this phenomenon, I also realised that some individuals are obviously more credible than others. But that is actually not true. Everyone that comes on these financial talk shows have their own agenda. And this became extremely clear to me after watching an interview by billionaire Bill Ackman.
2 weeks ago, Bill Ackman came on CNBC and gave a chilling interview and I urge everyone to check this out if they have not already done so. Basically what he says in the interview is that the economy is going to come to a complete crash and paints a very apocalyptic picture of all businesses from the big corporations to the mom and pop stores going bankrupt. And he cites examples of Hilton hotels, some airlines and other consumer industries who’s stocks have plummeted down. And his call to action is for President Donald Trump to shut down the economy to in order to save it.
I actually found it a convincing argument because here was a billionaire finally putting human lives and society ahead of profits and urging the government to take action, even though it might mean huge losses for those in the stock market. Ackman also suggested possibilities that hospitality and tourism industry stocks could go to zero very quickly. And the most memorable quote from that interview was “Hell is coming”.
Additionally, this guy is a billionaire with years of experience in the market, surely he is a credible individual and the government should heed his advice. Therefore, I was pretty much convinced that President Trump should take action. I did not buy or sell any stocks because I was unsure of its effects on the market.
So, fast forward 2 weeks and it is revealed that Ackman’s fund was actually holding shorts which they cashed in on and made over $2 billion in profits because the market went crashing down after his interview. So basically what he did was he bet that the market was going to drill even deeper and he went on CNBC and scared the hell out of anyone who was listening. And when the market did crash, he exited with his profits.
Bill Ackman obviously is a billionaire for a reason. He is always 1 step ahead of the market and his influence as a billionaire actually helps him make even more money. Even though, I did not impulsively sell after all this fear mongering, many did. And no matter how much he justifies himself, Ackman definitely leveraged his influence to scare the retail investors. So my reflection on this is everyone has an agenda, and while there will be really smart people out there who’s predictions will come true, what is important is that as an investor we build our capability to take that information and judge the situation ourselves. Markets will be manipulated all the time, and there is really not a single source that will be impartial in its analysis. So I would questions every single thing I read or hear about, even if its coming from experienced “gurus”.
Mimicking Billionaire's portfolios
On forums, I often read about people trying to mimic these billionaire portfolios and I think that is quite a silly thing to do primarily because its impossible. Let’s take for example Warren Buffett, the Oracle of Omaha. There are many that try to emulate him and its great because his investment principles are something that every investor should learn about. But following his investment principles does not mean one has to follow his exact same investments. And the main reason for this is, you will never get the same deal as Warren Buffett. Its literally impossible for an average person to get access to that deal.
Lets take an example of Bank Of America (BAC). Now this is a stock that I own as well. And the main reason I looked into this stock was that Berkshire Hathaway (Buffett’s company) has invested heavily in that company. When I did more research, it was quite evident that they got an extremely good deal which made that investment a no brainer. My investment is just the same deal that all the common stockholder have. I chose to eventually purchase the BAC stocks because I felt that it was a good investment, not because Warrant Buffett owns it.
Warren Buffett’s Bank of America deal in 2011, gave him a preferred stock with a dividend of 6%. This means if the company liquidates, the preferred stockholders will get preference and get paid out first. Also, the common stock only gives and average of 2%-3% dividend yield, and here Buffett was receiving a 6% annual return. The cherry on top of the cake is that Buffett has an option to buy 700 million shares of their common stock at $7 a share until 2021. If you Google the price of BAC right now, even after the market crash, it costs about $20. So for those jumping into every deal that Warren Buffett makes, I would advise to read up on what he is buying and what you will be buying. Its almost guaranteed that you will be purchasing 2 different things and the investment might not be as attractive for retail investors.
So in conclusion, right now is a crazy time. The market is moving wildly and its not even reacting to the government stimuli. It is actually a great time for people to come in and profit on the fear and uncertainty, including all the “credible” individuals. So its even more important for the average investor to not be swayed by them. Stay Cynical 😊
Disclaimer: This post should not be interpreted as investment advice as I am not a professional financial consultant. The objective of this blog is to share my experiences with others and receive feedback. I will provide links to my information sources to the best of my abilities, but the reader is responsible for their own due diligence