May 4, 2020
Berkshire Hathaway CEO Warren Buffett did not host the Annual General Meeting of Berkshire Hathaway this year in Omaha due to coronavirus-led travel ban, but he virtually welcomed the shareholders and investors world over to what he calls the Woodstock for Capitalists. The Oracle of Omaha shared his views on economy and stock market, especially the impact of coronavirus crisis. He also threw light on the US’ 243-year-long history. In his four-hour long address to investors in black and white plain slides, he not only reiterated some basic principles of investing but also updates on his investments. Here is a compilation of five lessons from Buffett that are relevant to Indian investors:
Growth is inevitable but be careful
Unlike market crash of 2008 post global financial crisis, when Buffett went on an aggressive buying spree, he has laid low in the recent drop in the markets. Berkshire is in fact net seller of equities so far in 2020 despite the company sitting on $137 billion cash pile. When asked, he said the cash pile “isn’t all that huge when you think about worst-case possibilities”. However, he is still bullish on America. His message was loud and clear. “Don’t bet against America”. But he did emphasise on exercising caution unlike 2008 when he categorically stated “Buy American. I am”.
“I don’t believe anyone knows what the market is going to do tomorrow, next week, next month, next year. I know America’s going to move forward over time, but I don’t know for sure and we learned this on September 10, 2001. And we learned it a few months ago in terms of the virus. Anything can happen in terms of markets. And you can bet on America but you’re going to have to be careful about how you bet. Simply because markets can do anything,” he said in the AGM.
Equities ‘enormously sound’ investment
Buffett made a case for investing in equities, which he believes will outperform treasury bills in the long run. However, treat equities as partnership in the company. Don’t gamble. “I hope that everybody will buy stocks with the idea that they are buying partnerships in the business and not chips that can move up or down. Equities are enormously sound investment provided they are an investment and not a gambling instrument. It will outperform bonds, treasury bill and the money under the mattress over the long run unless you see them as gambling instruments,” he pointed out.
Accept mistakes and make amends
Buffett has been bullish on airline stocks. According to Berkshire’s exchange filings, the company owned 9-11 per cent stakes in airlines such as Delta Air Lines, American Airlines, Southwest Airlines and United Airlines. However, Buffett sold them all in April. He accepted that he made a mistake and now he is unsure if people will again fly the way they used to do in pre-COVID era. “I don’t know that three, four years from now people will fly as many passenger miles as they did last year,” he said. “You’ve got too many planes.”
The lesson here is don’t marry your stocks. If your original investment thesis fails, you shouldn’t shy away from exiting your positions. “When we sell something, very often it’s going to be our entire stake. We don’t trim positions. When we change our mind we don’t take half measures. And if we like a business, we’re going to buy as much of it as we can and keep it as long as we can,” he explained.
Index investing is the best approach
Warren Buffett believes a layman investor should stick to index investing instead of falling for investments suggested by advisors. “People will try and sell you other things because there is more money in it.” Taking a dig at them, he said, “Most good sales people believe in their own baloney. That’s part of being a good sales person.” He once again pointed out that people pay huge amounts of money for advice that they really don’t need. “In my view, for most people, the best thing to do is owning the S&P 500 index fund. If you bet on America and sustain that position for decades, you’d do far better than buying Treasury securities, or far better than following people who tell you where to invest.”
In India, you have various index funds from Nifty50, Nifty Next 50, Nifty 500 to Nifty Midcap 150 index funds. In fact, you can invest in S&P 500 index fund as well. Just in April, Motilal Oswal AMC launched India’s first international index fund that gives you exposure to top 500 US companies.
Don’t live or invest on debt
In an age of ‘Buy Now and Pay Later’ where easy money is available on tap of your phone, Buffett doesn’t want you to use credit cards. “People should avoid using credit cards as a piggy bank to raid. It just doesn’t make sense. You can’t go through life borrowing money at those rates and be better off.”
He has consistently advised against investing on borrowed money too. “You never want to use borrowed money to buy into investments, and we run Berkshire that way. There’s no reason to use borrowed money to participate in the American tailwind. But there’s every other reason to participate,” he said.