May 30, 2024
He has challenged Mark Zuckerberg to a cage fight, lashed out at Mark Cuban and mocked Bill Gates’ appearance. So of course Elon Musk had something to say about one of the most prominent billionaires in the world: Warren Buffett.
“To be totally frank, I’m not his biggest fan,” Musk told Joe Rogan on an episode of “The Joe Rogan Experience” podcast. "He does a lot of capital allocation. He reads a lot of sort of annual reports of companies and all the accounting and it's pretty boring really."
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In 2018, Musk also described Buffett’s principle about companies with sustainable competitive advantages as “lame” during a Tesla earnings call.
"First of all, I think moats are lame," he said. "They’re like nice in a sort of quaint, vestigial way. But if your only defense against invading armies is a moat, you will not last long. What matters is the pace of innovation. That is the fundamental determinant of competitiveness."
When asked about it, Buffett responded, “Certainly you should be working on improving your own moat and defending your own moat all the time. And Elon may turn things upside down in some areas. I don’t think he’d want to take us on in candy.”
To be fair, building rockets, implanting chips and manufacturing electric cars is much sexier than pouring over earnings reports all day. However, there is some evidence to suggest that ordinary investors would do well following Buffett’s "boring" approach.
Good investing is boring
Buffett probably wouldn’t be offended by Musk’s comments since analyzing company fundamentals and looking at less flashy and exciting industries is at the heart of his investing style.
He isn’t the only one to take this approach. George Soros, another famous investor, once said, “If investing is entertaining, if you're having fun, you're probably not making any money. Good investing is boring.”
Value investing, which Buffett is a proponent of, is focused on finding beaten-down and overlooked companies. Berkshire Hathaway's portfolio, for instance, includes DaVita HealthCare Partners (DVA), a network of kidney dialysis centers, and Louisiana-Pacific (LPX), a manufacturer of engineered wood panels.
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Buffett’s game plan seems to be focused on finding strong companies that generate steady cash flows and deliver predictable performances, rather than chasing innovation or high-stakes ventures.
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Boring is key to building wealth
Launching a successful business is incredibly difficult. One in four small businesses fail within the first year, according to the U.S. Bureau of Labor Statistics (BLS). Operating a business is significantly more difficult when economic conditions are not favorable. Amid high interest rates and a pullback in consumer spending, total bankruptcies — including consumer, small business and big corporates — have been climbing steadily for 20 months up to April, according to Epiq data cited by Bloomberg.
So your chances of running a successful business, let alone a trillion-dollar tech giant, are slim. Your chances of earning long-term investing success with stock picking are also abysmal. Even professional hedge fund managers have underperformed the S&P 500 and Nasdaq in the first three months of 2024, according to PivotalPath’s Equity Sector Index.
In other words, a retail investor who simply invested in a low-cost index fund that tracks the S&P 500 would have outperformed this hedge fund index.
In fact, even Berkshire Hathaway stock is barely able to outperform the S&P 500 index. Its shares are up 12.7% so far in 2024, while the benchmark is up 10.5%.
This illustrates the magic of boring investing. You don’t need to reinvent the wheel or uncover the next big tech breakthrough to generate wealth. Simple, boring investing and compounding truly is a potent combination that all retail investors should take advantage of.
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Vishesh Raisinghani is a financial journalist covering personal finance, investing and the global economy. He's also the founder of Sharpe Ascension Inc., a content marketing agency focused on investment firms. His work has appeared in Moneywise, Yahoo Finance!, Motley Fool, Seeking Alpha, Mergers & Acquisitions Magazine and Piggybank.
Managing Money • Mar 30
