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Warren Buffett does the thing to do what he says, not what he does: Morning Brief



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Monday, May 3, 2021

It’s so hard to pick stocks, even Buffett makes mistakes

“I recommend the S&P 500 Index Fund and have for a long, long time to people,” Berkshire Hathaway (BRK-A, BRK-B) CEO Warren Buffett said at the company’s annual shareholders’ meeting on Saturday.

“And I’d never recommended Berkshire to anyone because I do not want people to buy it because they think I’d knock them down for something.”

Sure, Berkshire is a massive $ 630 billion conglomerate with all sorts of companies under the umbrella. But in the investor community, the company is best known for its $ 282 billion equity portfolio. A portfolio overseen by Buffett, who is widely considered to be the largest investor ever thanks to his skill in stock selection.

And no matter what Buffett says, there will always be those who will try to mirror his performance by tracking his public statements and monitoring Berkshire̵

7;s legislative applications.

If you followed Buffett’s advice and bought the index last year, you probably would not complain: S&P surpassed Berkshire by 16 percentage points in 2020.

Yet none of this will prevent people from questioning and criticizing Berkshire’s various actions.

Buffett and Munger acknowledge poorly timed trades

The first shareholder question during the meeting’s hour-long Q&A was about Buffett’s decision to dump airline shares early during the COVID-19 pandemic – shares that have generated extraordinary returns this year since Buffett announced the sale.

Buffett went into detail about how these airlines have actually benefited from Berkshire’s sales, as it potentially accelerated financial support from the government. But his basic reasons for selling have not changed.

“I still do not want to buy the airline,” he said.

But he did not avoid the question of why Berkshire seemed to be “afraid when others were greedy.” In fact, he actually reminded the audience that Berkshire also trimmed its stake in banks, which have also surpassed the market over the past year.

“Looking back, you know, it would have been better to buy,” Buffett admitted. “I do not consider it a major moment in Berkshire’s history. But we too have more net worth than any company in the United States under accounting principles.”

Of course, these market bottoms will only become clear over time. And Buffett’s right hand man Charlie Munger made a blunt point about it.

“It’s crazy to think someone would be smart enough to marry money, and then just get out on the bottom deck in a crazy crisis and use it all,” Munger said in response to a question as to why Berkshire was no longer acquiring. in March 2020. “There’s always just one person who does it by accident. But it’s too harsh a standard. Anyone who expects Berkshire Hathaway is out of his mind.”

And so while Buffett and Munger may be proud to invest in good companies that eventually generated attractive returns, they are not exactly aiming to buy at the bottom and sell at peaks.

‘A good argument for index funds’

Prior to Q&A, Buffett shared two slides in an exercise illustrating how difficult it is to pick winners in the stock market.

The first page showed the world’s 20 largest companies measured by market value per 31. March 2021. It included well-known names like Apple (AAPL), Saudi Aramco, Microsoft (MSFT), Amazon (AMZN), Alphabet (GOOG, GOOGL), Facebook (FB), Tencent and Tesla (TSLA) at the top.

“How many of these companies will be on the list in 30 years from now?” he asked. “What do you want to guess? Think about it yourself.”

He then followed it up with a slide showing the 20 largest companies from 1989.

“None of the 20 from 30 years ago are on the current list,” he said. “None. Zero.”

Warren Buffett holds a clinic on picking stocks at Berkshire Hathaway's annual meeting.  (Yahoo Finance)

Warren Buffett holds a clinic on picking stocks at Berkshire Hathaway’s annual meeting. (Yahoo Finance)

“It’s a reminder of what extraordinary things will happen,” he said. “We were as confident in ourselves as investors and Wall Street in 1989 as we are today. But the world can change in very, very dramatic ways.”

To be sure, Buffett’s slides included many non-US names that you would never find in an S&P 500 index fund. But his general point is that it is better for you to invest broadly than to put all your money into what appears to be the winners.

“That’s a good argument for index funds,” Buffett added. “The most important thing to do was to be on board the ship.”

To advance his point, he also argued why it is not even enough to know which industries will boom versus bust. He noted that the new American car industry in the early 1900s eventually formed over 2,000 car companies.

“Of course you remember that in 2009 there were three left – two of which went bankrupt,” he said. “So there’s a lot more to choosing stocks than figuring out what will be a wonderful industry in the future.”

During the shareholders’ meeting, Buffett repeatedly reiterated his recommendation to investors to buy index funds rather than choosing stocks as he does. As Myles Abroad puts it: “As always, Buffett’s advice is to do what I say, not what I do.”

Though as Buffett said over the weekend, “It’s not as easy as it sounds.”

By Sam Ro, managing editor. Follow him at @SamRo

What to see today

Economy

  • 9:45 AM ET: Markit US Manufacturing PMI, Closing in April (60.7 expected, 60.6 in March)

  • 10:00 AM ET: Construction costs, month-over-month, March (1.7% expected, -0.8% in February)

  • 10:00 AM ET: ISM manufacturing, April (expected 65.0, 64.7 in March)

Earnings

For-market

After marketing

  • 16:00 ET: Diamondback Energy (FANG) is expected to report adjusted earnings of $ 1.83 per share. share at a turnover of $ 1.02 billion

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