Michael Schaffer: Long-Term Investing in a Short-Term World
Wells Fargo’s Michael Schaffer: Long-Term Investing in a Short-Term World
By Greg Bartalos
Dow Jones & Company, Inc.
Michael Schaffer enjoys talking about the news and current events. When deciding where to invest client assets, however, the Warren Buffett acolyte tunes out the headlines and dispassionately embraces the long view.
“What we can learn from history is that people don’t learn from history,” says the president of Deerfield, Ill.-based Schaffer Private Wealth Group of Wells Fargo Advisors. “All this creates a lot of short-term thinking in the markets. They become focused on what is in the news, and money drives toward these companies and industries. It’s during this time that investment principles are forgotten.”
During this The Way Forward podcast—recorded before the tech-heavy Nasdaq Composite surged to a record high in July only to tumble into correction territory—Schaffer exhibited a palpable sense of unease about the then-current buzz surrounding Big Tech. “The longer the news cycle is, this is what creates this period of euphoria,” says Schaffer. “Investors miss out on some of these other companies that are out there that just have a long durable competitive advantage.”
When I interviewed Schaffer last year for this podcast, he discussed how investors can future-proof their portfolios from the threats that artificial intelligence might unleash: “ChatGPT is not going to change the railroad business. It’s not going to change the bourbon business. And so it’s just easier to look at those businesses and hold them for the long term.”
Below are highlights from our latest conversation:
Invest in companies with a durable competitive advantage. “One of the keys to investing is not assessing how much the industry is going to affect society or how much it will grow, but rather determining the competitive advantage of any given company, and above all, the durability of that advantage. Many healthcare companies and technology companies create a lot of short-term change, but a lot of them do not have a long-term durable competitive advantage. And this creates an opportunity for the long-term investor because when money’s going into one side of the market, the other side doesn’t get the funds.”
Investor temperament and not overpaying. “If you want to be a successful investor, you’ve got to have a good temperament. You need a temperament that neither derives great pleasure from being with the crowd or against the crowd. Just look at the data and assess how that affects the business. And price is very important for what you pay for an asset. If you pay too much, the odds of a good return go down.”
The best risk management tool you can have. “The most important thing is to have a plan and stick with it. That term is so thrown around but it’s the best risk management tool I think you can have. Have a checklist on what you’re buying and the reasons why. Just like a pilot that goes through bad weather, you need a checklist…When we’re talking with our partners, we tell them, ‘Even when we’re not doing anything, this is our plan. This is what we’re going to do, and this is why we’re sticking to it.’ The checklist comes into play mostly when we’re looking at businesses.”
The five criteria Schaffer seeks in long-term investments. “We want a moat, a long-term durable competitive advantage, a high barrier to entry, actual operating earnings and the power of those earnings and the financial strength they provide. We also want management that acts like a partner and is thoughtful about capital allocation.”
The staying power of companies that cater to the wealthy. “A lot of these companies sell to wealthy people…Nothing really affects that. Inflation and recessions don’t affect wealthy people as much. These are assets that they want to buy. They’re willing to pay a price for them, and they continue to do so. History’s shown that most of these companies have been around for a long, long time.”
The benefits of long-term stock ownership. “By holding on to those assets for long periods of time, not paying taxes, not paying capital gains, not having the friction cost of in and out, you’re just in that business. Those are great businesses to have for your family and your retirement because by and large, most of these pay dividends and raise their dividend every year…A lot of these are boring companies that you’re not going to talk about at a cocktail party. But these are really good assets to hold for long periods of time. And the compounding mechanism of not paying taxes is really strong.”
Tuning out the headlines to stay focused on the long term. “People get caught up in what’s going on in the news and what the media is talking about. A lot of people are working from home. They have got the TV on. If you watch any of the financial news networks, there’s not that much news everyday. They just keep talking about the same thing over and over and over again. And people hear that and they stick with it and then it becomes real to them, and all their investing principles and history is gone by the wayside.”
Write to Greg Bartalos at [email protected]
Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
Document WP-BAR-0001023729
Michael Schaffer, President, Managing Partner, at Schaffer Private Wealth group. He can be reached at 847-572-4361 at 500 Lake Cook Road, Suite 125, Deerfield, IL 60015
The report herein is not a complete analysis of every material fact in respect to any company, industry or security. The opinions expressed here reflect the judgment of the author as of the date of the report and are subject to change without notice. Any market prices are only indications of market values and are subject to change. The information contained herein is based on technical and/or fundamental market analysis and may be based on data obtained from recognizable statistical services, issuer reports or communications or other sources believed to be reliable. However, such information has not been verified by us, and we do not make any representations as to its accuracy or completeness. The material has been prepared or is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. All investing involves risk, including the possible loss of principal. There are no guarantees that any investing strategy will be successful. Additional information is available upon request.
Investment products and services are offered through Wells Fargo Advisors Financial Network, LLC (WFAFN), Member SIPC. Schaffer Private Wealth Group is a separate entity from WFAFN.
By Greg Bartalos
Dow Jones & Company, Inc.
Michael Schaffer enjoys talking about the news and current events. When deciding where to invest client assets, however, the Warren Buffett acolyte tunes out the headlines and dispassionately embraces the long view.
“What we can learn from history is that people don’t learn from history,” says the president of Deerfield, Ill.-based Schaffer Private Wealth Group of Wells Fargo Advisors. “All this creates a lot of short-term thinking in the markets. They become focused on what is in the news, and money drives toward these companies and industries. It’s during this time that investment principles are forgotten.”
During this The Way Forward podcast—recorded before the tech-heavy Nasdaq Composite surged to a record high in July only to tumble into correction territory—Schaffer exhibited a palpable sense of unease about the then-current buzz surrounding Big Tech. “The longer the news cycle is, this is what creates this period of euphoria,” says Schaffer. “Investors miss out on some of these other companies that are out there that just have a long durable competitive advantage.”
When I interviewed Schaffer last year for this podcast, he discussed how investors can future-proof their portfolios from the threats that artificial intelligence might unleash: “ChatGPT is not going to change the railroad business. It’s not going to change the bourbon business. And so it’s just easier to look at those businesses and hold them for the long term.”
Below are highlights from our latest conversation:
Invest in companies with a durable competitive advantage. “One of the keys to investing is not assessing how much the industry is going to affect society or how much it will grow, but rather determining the competitive advantage of any given company, and above all, the durability of that advantage. Many healthcare companies and technology companies create a lot of short-term change, but a lot of them do not have a long-term durable competitive advantage. And this creates an opportunity for the long-term investor because when money’s going into one side of the market, the other side doesn’t get the funds.”
Investor temperament and not overpaying. “If you want to be a successful investor, you’ve got to have a good temperament. You need a temperament that neither derives great pleasure from being with the crowd or against the crowd. Just look at the data and assess how that affects the business. And price is very important for what you pay for an asset. If you pay too much, the odds of a good return go down.”
The best risk management tool you can have. “The most important thing is to have a plan and stick with it. That term is so thrown around but it’s the best risk management tool I think you can have. Have a checklist on what you’re buying and the reasons why. Just like a pilot that goes through bad weather, you need a checklist…When we’re talking with our partners, we tell them, ‘Even when we’re not doing anything, this is our plan. This is what we’re going to do, and this is why we’re sticking to it.’ The checklist comes into play mostly when we’re looking at businesses.”
The five criteria Schaffer seeks in long-term investments. “We want a moat, a long-term durable competitive advantage, a high barrier to entry, actual operating earnings and the power of those earnings and the financial strength they provide. We also want management that acts like a partner and is thoughtful about capital allocation.”
The staying power of companies that cater to the wealthy. “A lot of these companies sell to wealthy people…Nothing really affects that. Inflation and recessions don’t affect wealthy people as much. These are assets that they want to buy. They’re willing to pay a price for them, and they continue to do so. History’s shown that most of these companies have been around for a long, long time.”
The benefits of long-term stock ownership. “By holding on to those assets for long periods of time, not paying taxes, not paying capital gains, not having the friction cost of in and out, you’re just in that business. Those are great businesses to have for your family and your retirement because by and large, most of these pay dividends and raise their dividend every year…A lot of these are boring companies that you’re not going to talk about at a cocktail party. But these are really good assets to hold for long periods of time. And the compounding mechanism of not paying taxes is really strong.”
Tuning out the headlines to stay focused on the long term. “People get caught up in what’s going on in the news and what the media is talking about. A lot of people are working from home. They have got the TV on. If you watch any of the financial news networks, there’s not that much news everyday. They just keep talking about the same thing over and over and over again. And people hear that and they stick with it and then it becomes real to them, and all their investing principles and history is gone by the wayside.”
Write to Greg Bartalos at [email protected]
Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
Document WP-BAR-0001023729
Michael Schaffer, President, Managing Partner, at Schaffer Private Wealth group. He can be reached at 847-572-4361 at 500 Lake Cook Road, Suite 125, Deerfield, IL 60015
The report herein is not a complete analysis of every material fact in respect to any company, industry or security. The opinions expressed here reflect the judgment of the author as of the date of the report and are subject to change without notice. Any market prices are only indications of market values and are subject to change. The information contained herein is based on technical and/or fundamental market analysis and may be based on data obtained from recognizable statistical services, issuer reports or communications or other sources believed to be reliable. However, such information has not been verified by us, and we do not make any representations as to its accuracy or completeness. The material has been prepared or is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. All investing involves risk, including the possible loss of principal. There are no guarantees that any investing strategy will be successful. Additional information is available upon request.
Investment products and services are offered through Wells Fargo Advisors Financial Network, LLC (WFAFN), Member SIPC. Schaffer Private Wealth Group is a separate entity from WFAFN.