Good Enough

Kenyon Sayler

AT THE FIRST Berkshire Hathaway annual meeting I attended, Charlie Munger was explaining an investment that the company had made. He said it was likely to provide satisfactory returns.

At the time, that seemed like an odd statement. Satisfactory? Not great returns. Not market-beating results. Not returns of 10% or 15% per year. Not even market average performance. Just satisfactory.

Since that meeting, I’ve come to appreciate satisfactory returns. Satisfactory covers a wide range, everything from beating the performance of Treasury notes to bragging-around-the-office-coffee-pot returns.

It also allows me to keep holding my portfolio. For the past 30 years, I’ve had a significant small capitalization and foreign stock tilt. With U.S. large-cap stocks on a tear over the past decade, it’s been a tough period for a portfolio with such a tilt. Friends question my asset allocation—as well as my sanity.

I do believe that small-cap stocks will outperform over the long haul. I also think it’s better to pay less for future corporate earnings rather than more. Since most foreign stock markets have a lower price-earnings ratio than the U.S., I believe that performance across markets will converge. That could mean that foreign stocks soar or U.S. stocks struggle. It doesn’t matter to me. Either way, I’ll see some benefit from diversifying globally.

Unfortunately, we may not know if my convictions are correct for another three or four decades. Both small caps and foreign stocks have had long periods of underperformance. It could turn out that having these two tilts will look brilliant. Or it could look like a huge mistake.

Over the past decade, my portfolio has underperformed the S&P 500. But I’m okay continuing to hold it because the returns have been satisfactory. We’ve sent our children to college. We’ve retired on our own timeline. Life is good. I’m satisfied with satisfactory returns.

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