Lost amid the hoopla of Warren Buffett’s prediction this week that the Dow Jones Industrial Average would top 1,000,000 was a comment that traders shouldn’t miss.
Yes, the Oracle of Omaha said the Dow would hit 1 million.
That might seem impossible with the benchmark standing near record-high levels at roughly 22,350, but Buffett gave the Dow 100 years to get there. That’s a crazy gain of 4,500 percent, but the Oracle of Omaha actually is making it easy on the index because the Dow would only have to deliver a compound annual return of 3.87 percent.
“That is not a ridiculous forecast at all, if you do the math on it,” Buffett said at a New York event commemorating the 100th anniversary of Forbes magazine. “It’s an amazing country we live in.”
Buffett’s larger point was that he would bet on America, now and for the foreseeable future.
But in the talk, a smaller point he made that was mostly ignored is the one that stands out to me.
Buffett currently ranks second on the Forbes list of the richest people in the U.S., with a net worth estimated at $78 billion. He noted that over the years, about 1,500 different people have made the Forbes list of richest Americans. Some are entrepreneurs, others made their money in real estate or the stock market.
“But the one thing you don’t see in those 1,500 names,” Buffett said, “you don’t see any short sellers.”
To be honest, there are no stock traders on the Forbes rich list either. I’m certainly not going to make it.
But you don’t have to be among the country’s richest people to be a successful trader; you do have to remember that it’s hard to make yourself wealthy betting against the market.
As a long-term investor, you can’t argue the direction of the market. It’s going up, and I wouldn’t bet against Buffett’s call of 1 million happening before 2117.
But as a swing trader, your job is to outperform the market over those short stretches, and going whatever direction the market tells me to go in the short-term makes sense.
That means there are times when you go short or you bet against the market, but do it knowing that the long trend is working against you; you’re extra careful because no matter how good a short set-up looks, it is still swimming against the long-term tide.
Warren Buffett is practically a god to long-term investors, but swing traders can learn from him too. And if all you learn from his latest talk is that shorting the market will be hard – for the rest of your life – it’s a reminder worth thinking about the next time you want to place a short-term bet against the market and the country that Buffett loves so much.