I’m a Big Fan of the Moves These Investment Legends Have Been Making

Quick Read

Prominent value investors like Li Lu, Monish Pabrai, and Guy Spier deliberately make minimal trades, and it’s a smart move over the long run.

Investors should avoid overreacting to pessimistic long-term return forecasts and resist the urge to constantly trade, as doing nothing when a portfolio is on track historically outperforms more active approaches.

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With the broad market starting to get just a bit more expensive, while the retail crowd digests a less-than-bullish report issued by Apollo, which suggests that the S&P 500 could be looking at 0% returns for the next decade, it certainly seems like it’s time to think differently about how to put new money to work, especially as the AI revolution looks to enter more of a monetization phase.

While I do think that the transformative technology could prove any sort of “lost decade” kinds of projections wrong, especially as mega AI IPOs like SpaceX, OpenAI, Anthropic, and more look to touch down on the public markets at some point over the next year or so, investors should always be mindful of the price of admission into the market as well as certain types of stocks.

Any way you look at it, there’s more than one big institution that’s taming its return appetite for the decade ahead. And while I certainly wouldn’t take drastic action on a prediction that may very well be underpricing the capabilities of AI and its ability to drive corporate earnings through the roof, I do think that staying the course and ensuring diversification are as important as ever, even though an investor in DRAM or NAND would probably want to go all-in on that red-hot corner of tech at the moment!

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Some big investors win big by doing less

While hedge funds and big names tend to make headlines for the buys, sells, or options trades they’ve made in a prior quarter, I find it also remarkable when a respected value investor does less.

The great Li Lu, who was a friend of the late Charlie Munger, runs a concentrated portfolio over at Himalaya. The man only made one buy in the fourth quarter, and that was buying shares of footwear firm Crocs (NASDAQ:CROX), a deep-value play that proved quite well-timed. The other move was a sell. But it is worth noting that Li Lu’s fund didn’t do anything in the quarter prior (Q3).

Another brilliant billionaire legend who isn’t making that many moves is Monhish Pabrai of Dalal Street Holdings. He’s a well-respected value investor who probably deserves more of the spotlight than his more active (and more diversified) peers in the smart money scene. Why? The man is a value investor at heart and puts into practice the philosophies of the greats.

As of the fourth quarter, Pabrai made just four moves, adding to two core holdings while trimming one name and selling out of another. Mohnish Pabrai’s long-time friend, fellow value investor Guy Spier, is also known for not making too many moves in any given quarter with his concentrated fund.

While keeping the trades and holdings to a minimum might be a brilliant way to invest like Buffett and Munger, few actually have what it takes to concentrate on the best ideas while saying “no” to the non-stop pitches thrown one’s way by the market.

Don’t be afraid to do nothing if your portfolio is already on track

Indeed, a lack of moves suggests there may be no need to chase, liquidate, or rotate. In fact, doing nothing has been proven over time to get results compared to more active portfolios. As the saying goes, don’t just do something, stand there!

Smart investors understand that investing is a game with no called strikes. That’s an invaluable piece of wisdom from none other than the great Warren Buffett. And while it’s hard to put into practice (do you know when the last time you didn’t buy or sell stocks for a whole quarter or even a full year?), I still think it’s a move that makes sense when nothing quite striking warrants your swing of the bat, while a lot of noisy events entice some investors to make big, wild swings on speculative trades or just gamble with short-dated options.

At the same time, getting into a panic over modest returns expected ahead or higher valuations also is not a great way to go. You can read all the “lost decade” calls you want, but at the end of the day, nobody knows what the next decade will hold.

AI could power market-beating growth, rather than a low-single-digit or even negative return. Only time will tell. And if you’re neither feeling bullish nor bearish and view your portfolio as in the spot that’s “just right,” don’t be afraid to hold steady and leave the buy and sell button alone.

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