Warren Buffett recently came out with his letter to Berkshire Hathaway shareholders, where he not only discusses the performance of Berkshire, but also shares some investing tidbits. In this year’s letter, he made several comments that I felt were spot on during this recent period of volatility. The first being,
“The connection of value building…that I’ve just described will be impossible to detect in the short-term. Stocks surge and swoon seemingly untethered to any year to year buildup in their underlying value. Over time however, Ben Grahams oft-quoted maxim proves true: In the short run the market is a voting machine: in the long-run, however, it is a weighing machine”.
He pointed out that Berkshire Hathaway stock was not spared during the great recession and went down in value over 50% (the share price is up almost four-fold since the lows of 2009). Buffett did not panic during this time either; he made multi-billion-dollar investments in Goldman Sachs, Bank America, and GE, just to name a few.
One other quote I thought worthy of sharing:
“Though markets are generally rational, they occasionally do crazy things. Seizing the opportunities then offered does not require great intelligence, a degree in economics, or a familiarity with Wall Street jargon such as Alpha & Beta. What investors need instead is an ability to both disregard mob fears or enthusiasms, and to focus on a few simple fundamentals.”
Many of us invested in the dot-com bubble, and here we are twenty years later, with this euphoria surrounding technology stocks again (aka the FAANG stocks, including Facebook, Apple, Amazon, and Google).
This past Saturday, Yahoo live streamed the question & answer session with Warren Buffett and his partner Charlie Munger from the annual shareholder meeting. It is always interesting to get the perspective on things from the greatest investor of our time, so this is how I spent part of my Saturday. I always find it interesting how shareholders want to ask him about the investments they did not make, like Google and Amazon. Mr. Buffet always comes back around to the solid businesses they have invested in, and how they cannot invest in every company. There were a couple of questions from Chinese investors asking about investing in China and other countries outside of the U.S. He shared how they have made direct investments in China as well as other countries around the world. This has been a change in their philosophy over the past several years from always owning only U.S.-based companies. Mr. Buffett is still “bullish” on the American economy and says there is no other country quite like ours. There was a shareholder question about bitcoin and what their perspective was on crypto-currencies. Mr. Buffett came back with what I think is the best response I have heard yet on crypto-currencies, and it went something like this:
“I am sure checks were very disruptive to other payments methods when they were first introduced, but I doubt anyone invested in them thinking they would go up in value over time.”
The “Oracle of Omaha” is always informative. As much as things change, it’s always amazing to me how investor behavior does not. Investors know there will be volatility in the equity markets, yet every time things get a little dicey, they panic. Let’s heed the Sage’s advice and focus on what we can control.
Brett S. Carleton, CFP®