Lessons Warren Buffett shared at the 2021 Berkshire Hathaway shareholder meeting

When Warren Buffett talks, people listen. Even if you own no Berkshire Hathaway shares, you can certainly find interesting things among what is said at the company’s shareholders meeting. 2021 Berkshire Hathaway annual shareholders meeting (https://www.berkshirehathaway.com/sharehold.html) was no exception. Here are a few of our takeaways everyday investors may find useful.

Picking stocks is not an easy game

“I do not think the average person can pick stocks”, Warren Buffett said. He presented the lists of the world’s 20 largest companies by market capitalization in 1989 and as of March 31, 2021. He pointed out that not one of the 20 from the 1989 list was on the current list. The legendary investor invited to make an estimation, how many of these companies will appear on the list in 30 years. As he said, “it’s not going to be all 20. It may not even be all 20 today or tomorrow”. It brings to mind how dramatically things can change.

People purchase stocks of industries they find very attractive and ignore sales or earnings numbers. However, as the Oracle of Omaha said, “there was a lot more to picking stocks than figuring out what’s going to be a wonderful industry in the future”. He took a look at what was the most promising industry back in 1903, when Henry Ford was starting the Ford Motor Company. That was the auto sector. With respect to the American automotive sector Mr. Buffett pointed out: “there were at least 2000 companies that entered the auto business because it clearly had this incredible future. And of course you remember that in 2009, there were three left, two of which went bankrupt”. “Everybody started car companies just like everybody’s starting something now… But there were very, very, very few people that pick the winner”, he said.

A diversified stock portfolio is the best way to invest

The two lists of the largest companies are a good evidence that “overall equities were absolutely the place to be”, as Berkshire Hathaway CEO said. The value of the largest enterprise has increased by a factor of 20 in the past 30 years. The overall value of the top 20 firms has increased more than 16-fold. Obviously, the companies it the lists are different. However, a portfolio of top 20 enterprises performed greatly. Thus, instead of picking stocks, it would be preferable for retail investors to hold a diversified portfolio of equities.

High valuations can be justified by low interest rates

Warren Buffett doesn’t think the current valuations of big tech companies are crazy. They are justified by something that is fundamentally important when it comes to investment: interest rates. As Mr. Buffett said, interest rates “are to the value of assets, what gravity is to matter”. Fisk-free interest rate “is the yardstick against which other values are measured”. And this unbelievable reduction in treasury bill yield led to this incredible increase in valuations.

The stock market should not be considered as a casino

Many people are involved in gambling rather than investment. In 2020, there was “the greatest increase in the number of gamblers essentially. And there’s nothing wrong with gambling”, Buffett said. However, the gamblers “actually don’t have a lot of good results”. Buying stocks and holding them would be a better option. Day trading looks like an easy game. However, Warren Buffett warns particularly new entrants to the stock market against it.

Worthlessness of cryptocurrencies

Warren Buffet dodged the question of whether cryptos can still be considered as worthless artificial gold. He didn’t want to make hundreds of thousands of people that own bitcoin unhappy. Charlie Munger, vice chairman of Berkshire Hathaway, was less reserved and called bitcoin “disgusting and contrary to the interests of civilization”. Warren Buffett responded to that: “I’m all right on that one.”

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