At Berkshire Hathaway’s annual meeting last month, Warren Buffett conceded that he missed an opportunity on Amazon and made a mistake by not buying Google shares. When probed as to why he didn’t buy shares on these two companies, he summed it up in one word – “Stupidity”, said Buffett. He admitted that it was too late to buy these expensive stocks now.

But, Buffett is not alone. The recent rally has a certain section of the population wondering how they missed the opportunity to buy into the stock market years ago, and now finding themselves sitting on paltry returns from their savings account. All the while, another strata of consumers are patting themselves of their backs for extraordinary portfolio returns and their prescience in continuing to invest through the course of the bull run but remaining blissfully oblivious to any impending correction. And then, there is third group, who bet against the market, lost their shirts and have sworn away from ever investing again. Which group do you fall into?

Stock rallies and corrections are a sort of miniature bubbles. As bullish sentiment about the economy or a company spreads, investors get carried away from rational thought. Eventually, stock prices reaches its logical maximum and a legitimate rally turns into a speculative craze. Likewise, in a correction or a recession, negative sentiment tends to mask clarity of thought and the negativity becomes so malignant that lack of rational analysis prevents investors from getting in on the next stock market rally.

Future Wealth’s View

Warren Buffett is an old school investor and likes old school companies – American Express, Coca Cola, IBM etc. It is no wonder that he missed on Amazon and Google. He also passed up on Netflix, missed the early run up in Apple and only began accumulating a position in that stock few years ago. Despite that, Berkshire Hathaway stock has posted a 12 month return of 21% and 5 year return of 15.3%.

As painful as it is to miss buying into a hot stock early on, or not selling one before it blows up, Warren Buffett’s confession gives us a valuable lesson – Stick to your domain of knowledge. Sound understanding of companies in subject areas that one is familiar with, judicious research on a company’s financials and taking a long term position based on fundamentals are all keys to successful investing.

The biggest mistake investors can make is taking an all-or-none mindset. This is especially true among millennials where only 1 in 4 (25%) own stocks. Of those that don’t invest, more than half (~55%) said they don’t have the money to invest. One in five (20%) said they don’t know enough about stocks to invest.  Baring a change in their risk and investment profile, when some of these millennials come up for retirement, the results are going to be painful.

At Future Wealth, we believe in taking an approach for our clients that lies midway between living dangerously and following Elon Musk, on the one hand, and putting money under the mattress and watching Golden Girls episodes, on the other. Warren Buffett will see you now.