Buffett: No Fish In The Barrel

The Berkshire Hathaway Annual Meeting was a mixture of caution, wisdom and honesty. This was very refreshing after last year’s historical pep talk, which was void of any pep and was light on wisdom.

Caution

Buffett started out by showing the 20 largest capitalization companies in the world today. Then he showed the 20 largest in 1989. He asked how many remain among the largest today. The answer was zero. It was dominated by Japanese companies which were at the top of a mania. Beside Saudi Aramco, today’s list is loaded with U.S. technology giants and included Berkshire Hathaway (BRK.B). Buffett bought into Coca Cola (KO) in 1989, which wasn’t in the top 20 at that time.

The irony of this terrific exercise was the conclusion Buffett drew from it. Buffett used it to endorse ownership of the S&P 500 Index. History shows that the worst time to buy the index is when it is dominated by popular stocks. Imagine you bought the Nikkei Index in 1989 owning the largest Japanese stocks in the top five of the world list. Here is the Nikkei Index of the Tokyo stock market from 1989-2009. Who would be excited by the 20-years of losses in that index?


Source: Bloomberg.

Sometimes we think that Buffett wants investors to be left with two choices for common stock investing, indexing or BRK.B. It seems a little out of line as we enter an era that is likely to reward a completely different set of investments than the prior era.

Warren and Charlie warned of “rampant speculation” as exhibited in SPACs and IPOs. He shared his favorite John Maynard Keynes quote:

“Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done.”

Trust Buffett and Munger, there will be torture in the stock market from this euphoria episode.

1 2 3 4
View single page >> |

Disclosure: This article contains information and opinions based on data obtained from reliable sources, which is current as of the publication date, and does not constitute a recommendation ...

more
How did you like this article? Let us know so we can better customize your reading experience.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.