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Communicating With Investors During a Bear Market: Lessons From Warren Buffett

Robert Cohen 18 August 2022

Times are tough. Or, at least, disappointing for many. The stock market recently reported its worst two quarters in more than 50 years. Growth is declining and inflation is soaring. The pandemic’s aftermath continues to hamper supply chains, while war in Europe is multiplying energy, food, and commodity prices.

Many of our clients are not going to have the rosiest stories for their investors in the coming quarters. But even the toughest of circumstances can generate stories that ultimately benefit you and your company—as Warren Buffett discovered through his ill-fated investment in ConocoPhillips during the 2008 financial crisis.

Be Frank – And Take Responsibility

Investors and financial services (FS) clients don’t enjoy hearing bad news about their portfolio performance any more than FS firms like telling them. But it’s imperative that investment houses are open and transparent with their clients. If performance was poor, they need to know.

Legality aside, firms willing to confidently tell their clients difficult news may help build trust between them and their clients. It demonstrates integrity and respect. If the outlook isn’t great either, it’s best to inform the client in a calm and authoritative way.

An excellent example of brand-building honesty arose in 2009, when Warren Buffett responded to controversy surrounding a disastrous investment in oil giant ConocoPhillips at the peak of a bubble in oil prices. He wrote in his shareholder letter:

“I told you in an earlier part of this report that last year I made a major mistake of commission (and maybe more; this one sticks out). Without urging from Charlie or anyone else, I bought a large amount of ConocoPhillips stock when oil and gas prices were near their peak. I in no way anticipated the dramatic fall in energy prices that occurred in the last half of the year… I have been dead wrong. Even if prices should rise, moreover, the terrible timing of my purchase has cost Berkshire several billion dollars.”

In the letter, the Oracle of Omaha took full responsibility for his mistake, going as far as to absolve his partner, Charlie Munger. He was frank and continued to describe the problem in a straightforward yet detailed manner. His honesty went a long way towards preventing a significant tarnishing of his brand.

Stay the Course, Offer Solutions

“I still believe,” Buffett wrote, “that the odds are good that oil sells far higher in the future than the current $40-$50 price.” He was certainly right in his prognosis, but his timing could not have been worse. His 2008 purchase of ConocoPhillips took place when oil prices were at $146 a barrel, an all-time high then and still. He ended up selling much of his position in ConocoPhillips in 2013 to pursue other opportunities. However, by then the price of oil had rebounded to nearly $120, as the graphic below shows, and the stock was in a much healthier place than it was at the peak of the crisis.

While clients certainly appreciate honesty from their money managers, they equally appreciate managers who can show a willingness to stay the course or offer solutions when required. When reporting poor performance in a bear market, it’s critical to also present areas in which the portfolio succeeded or reasons it may succeed in the future.

Be Empathetic—And Confident

Amid declining returns, inflation, an ongoing pandemic, and geopolitical woes, it’s little wonder your clients will be feeling stressed right now. Ideally, FS firms should help create a sense of stability and security for their clients—a feeling that they have reliable partners that they can trust. Being confident when others are fearful can itself be a form of empathy.

With Buffett’s investors no doubt nervous about the existing and potential losses from ConocoPhillips, his honesty about his mistakes and his pledge to stay the course felt genuinely empathetic and attuned to his clients’ concerns. By not trying to whitewash or ignore the negatives, Buffett did much to reassure his investors and bolster trust.

Have No Fear—The Good Times Will Return

Patience is a virtue, as they say. As far as mindset goes, when communicating to their clients or coworkers, it’s helpful for every financial professional to ensure their investors consider that the economy runs in cycles.

Berkshire would, in fact, particularly benefit from patience with its ConocoPhillips investment, after a rebound in oil prices led to a rise in the company’s stock price. So perhaps a broader lesson is this: though touting long-term returns when markets are tumbling might seem like prevarication, it is anything but.

Markets do indeed rise and fall but, over the long term, investors usually benefit. The challenge is to communicate clearly to your clients, during difficult times, that poor performance is likely to be temporary. To do this, avoid dissembling or, worse, gaslighting, and instead focus on empathetic, confident and above all honest copy.

In a 2008 New York Times piece during the depths of the crisis, Buffett would write “In short, bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price.” As markets would later rocket upward, his writing was proven prophetic, once more.

Conveying the right message to investors is our bread and butter at Copylab, so please drop us a line if we can help you with your content or strategy.