ET Prime Special: Investing lessons from Warren Buffett – Part 3. Managing a predicted cycle deterioration. The year is 1979

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Synopsis

Should temporary declines in operating earnings send you into a tizzy? Certainly not. As Warren Buffet had predicted, the insurance cycle turned downward in 1979, sending RoE and operating earnings into decline. Yet his company’s stock jumped 23-24%, outperforming the S&P 500. The message: Accurate cycle forecasting and disciplined capital allocation can generate superior returns even during periods of temporary earnings decline.

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