A year ago, Bill Brigham put into a motion something he had been talking about for a couple of months.
During the July 5 Lowndes County Board of Supervisors meeting, the District 2 Supervisor, a retired banker, made a motion to convert to cash the maximum amount allowed from the county’s $32-million hospital trust fund.
Essentially, Brigham was betting against the stock market.
At the time, the Dow Jones average hovered around 18,000 and Brigham — noting among other things the upcoming presidential election and the volatility it might create — figured the market, enjoying what were historic highs, was more likely to go down than up.
It’s worth noting that the two investment firms the county uses to manage the trust fund neither recommended nor objected to converting the investments to cash. That, they said, was up to the supervisors.
The market did not go down, however. Instead, it gained 1,762 points by the end of 2016 and had grown by 2,655 points by the time the supervisors converted the cash back into stocks and bonds in April. The decision cost the county several hundred thousand dollars in investment earnings.
We note all this not to criticize the supervisors’ action, but to illustrate an abiding truth: You cannot “time” the market. Stock market trends are not predictors of future performance. Fluctuations (sometimes dramatic ones) come with the territory.
History has shown that a wise strategy for long-term investments like the county’s is a passive approach.
Markets will fluctuate, sometimes wildly, and there will be periods of slumps and rallies, sometimes for extended periods.
But those who fare best are those who exercise patience and do not react to the incremental dips and surges that have long been a part of investing.
There is perhaps, no better illustration of this than Warren Buffett’s “Million Dollar Bet.”
Nine years ago, Buffett challenged a hedge-fund group to a wager. Buffett and the hedge fund would invest $500,000 each over a 10-year period.
Buffett chose what might be described as a generic investment — a low-cost, passive index fund, which is essentially a fund comprised of stocks that track the stock market. The hedge fund group chose to use an average of five hedge funds.
With a year left on the wager, the competition is already over. Buffett is winning by a landslide. Over nine years, his index fund has a compounded annual increase of 7.1 percent to just 2.2 percent from the hedge fund. In total gains, Buffett’s index fund is up 85.4 percent. The average gain of the five hedge funds is 22 percent.
In any one year, one of the group’s hedge funds might have ran laps around Buffett’s investment. But it was a 10-year proposition.
Meanwhile, the supervisors have converted their cash back into the market, at a higher cost, it should be noted.
We suspect they have learned a lesson through the experience.
Buffett bet on the tortoise and even a child knows how that story ends. We hope our elected officials will take note of his example.
The Dispatch Editorial Board is made up of publisher Peter Imes, columnist Slim Smith, managing editor Zack Plair and senior newsroom staff.
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