At a time when we are so starved for some good news, even the hint of a good news, the AGM of Berkshire was probably the best antidote in the this gloom and doom scenario.
Warren Buffett’s words are literally pearls of wisdom, not just for seasoned investors but more so for the newbies. With individual investors holding more stocks than ever before, with many even upping the ante by borrowing to magnify their bets or increasingly buying on small dips in the market, his words at the current AGM could not have come at a more opportune time.
Speaking onstage from Los Angeles, in this virtual AGM, Buffett, Berkshire’s chairman and chief executive, and his business partner Charlie Munger, alongside fellow vice-chairmen Greg Abel and Ajit Jain, took questions for roughly four hours and they could have gone on forever. It’s a complete delight, filled with great wit and wisdom.
Let’s take a break from all the pandemic and election news and savor these words of the wise men, Buffett and Munger; it will help us better or correct our investing perspective:
Simple advice to newbies - There’s a lot more to picking stocks than figuring out what will be an incredible industry in the future. I just want to tell you that it’s not as easy as it sounds.
Tough to pick long-term winners - In 1903 there were more than 2,000 car companies, and nearly all of them failed, even though cars have transformed the country since then.
Even if you understand the promise of an industry, you need to choose the winner in that industry. There’s a lot more to picking stocks than figuring out what’s going to be a wonderful industry in the future.
Most people will fare better by owning an S&P 500 index fund instead of betting on individual stocks – Buffett has advised the trustee of his will that when he passes, 90% of his bequest to his wife, which is in Berkshire stock, should be in a stock index fund like the S&P 500, and 10% in Treasury bills.
On stock trading platform Robinhood –it allows people to buy and sell stocks for free, going on to only encouraging a “gambling impulse”.
Words of wisdom on Robinhood like platforms - There is nothing illegal to it, there’s nothing immoral, but I don’t think you build a society around people doing it.
On the value of cryptocurrencies – Munger said he did not support a currency that was “so useful to kidnappers and extortionists. Nor do I like shovelling out a few extra billions and billions and billions of dollars to somebody who just invented a new financial product out of thin air. I think I should say modestly that I think the whole damn development is disgusting and contrary to the interests of civilization.
Buffett said selling airline stocks helped - Airlines might not have been able to secure as much government aid as they have during the pandemic if they still had “a very rich major shareholder like us.”
Overpriced valuations - Buffett said he wanted to invest more of Berkshire’s cash, but the current competition he faced from PE and other investment funds had made it difficult for Berkshire to find reasonably priced acquisitions.
Special purpose acquisition companies, day traders and private-equity funds that have driven valuations in both private and public companies to record levels were more gamblers than investors.
Munger said, “I don’t mind the poor fish that gamble. I don’t like the professionals that take the suckers.”
On SPACs - “It’s a moral failing. It’s not just stupid, it’s shameful.”
On the rising wave of retail investors who merely gamble on stocks - It creates its own reality for a while, and nobody tells you when the clock is going to strike 12 and it all turns to pumpkins and mice.
On tech share valuation - Interest rates basically are to the value of assets what gravity is to matter and the rate on short-term Treasuries is really nothing today. If Treasury rates are really supposed to be this low, those high-flying tech shares are a bargain, which is direct contrast to the current opinion in the market that tech stock valuations are extreme.