Panic-Bird Investing – and Warren Buffett

Today I read an interesting fact. In the 1860s, there was a unique group of successful stock market investors. They went against the grain and were thought of as outsiders by their investing peers. They were called “panic birds.”

Here’s what they did that was so different from what other investors did:

  • You had to physically visit Wall Street to buy or sell stock then. Most investors were on Wall Street daily, regardless of whether they were buying, selling, or just observing the market. The panic birds, though, stayed far away from Wall Street when conditions were normal. They didn’t want to get caught up in the prevailing group think or speculative mindset that prevailed among investors on Wall Street. They wanted to be able to see things clearly and think objectively.
  • They went to Wall Street only when the market and other investors were in a panic or desperation was rampant.
  • They bought only when two conditions were met: prices had crashed and liquidity was scarce (i.e., they were getting the bargain of a lifetime).
  • When they did buy, they didn’t buy broadly; instead, they bought carefully in only the highest quality companies.
  • They held their investments long term. This wasn’t common—people regularly bought and sold in those days.

This list describes some successful investors alive today. For example, Warren Buffett has a panic-bird investing style. He’s had outsize success, and he’s well respected on Wall Street. Yet he lives in Omaha, Nebraska. He buys only when companies are trading at a material discount from what he believes their intrinsic value is. He’s been known to buy large positions in a handful of companies during times of crisis, and he usually holds those positions for a long time.

I found all this interesting. It showed me that most good ideas aren’t new. They’re borrowed from people who came before us, figured things out through trial and error, and went on to achieve outsize success. I suspect that Buffett and other successful investors studied history and borrowed from the most successful and timeless ideas as they formulated their investing approaches.