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Warren Buffett argues that he does what he says, not what he does: Morning Brief

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Monday, May 3, 2021

Choosing stocks is so difficult that even Buffett makes mistakes

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

“And I’ve never recommended Berkshire to anyone because I don’t want people to buy it because they think I’m suggesting something to them.”

Of course, Berkshire is a huge conglomerate of $ 630 billion with all kinds of businesses under its umbrella. But in the investor community, the company is best known for its $ 282 billion portfolio. A portfolio controlled by Buffett, who is considered the greatest investor of all time due to his stock selection skills.

So, no matter what Buffett says, there will always be those who will try to reflect his performance by following his public statements and following Berkshire̵

7;s regulatory statements.

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

Yet none of this will stop people from questioning and criticizing Berkshire’s various crafts.

Buffett and Manger acknowledge poorly planned deals

The first question for shareholders during the question and answer hours of the meeting was about Buffett’s decision to dump airlines’ shares at their lows at the beginning of the COVID-19 pandemic – stocks that generated unusual returns for the year since Buffett unveiled the sale. .

Buffett went into detail about how these airlines actually benefited from the sale of Berkshire, as this potentially accelerated financial support from the government. But its main reasons for sale have not changed.

“I still wouldn’t want to buy the airline,” he said.

But he did not shy away from the question, which made Berkshire look “scary when others were greedy.” In fact, he actually reminded the audience that Berkshire had also reduced its stake in banks, which had also surpassed the market in the past year.

“Looking back, you know, it would be better to buy,” Buffett admitted. “I don’t consider it a great moment in Berkshire’s history. But we also have a higher net worth than any company in the United States according to accounting principles.”

Of course, these market bottoms become clear only from behind. And Buffett’s right-hand man, Charlie Munger, made a rough point about it.

“It’s crazy to think that someone will be smart enough to ask for money and then just go to the bottom of the deck in some crazy crisis and spend it all,” Munger said when asked why Berkshire is no more. acquires in March 2020. “There’s always someone who does it by accident. But it’s too strict a standard. Anyone who expects this at Berkshire Hathaway is out of their minds.”

So while Buffett and Munger can be proud to invest in a good business that ultimately generates an attractive return, they are not exactly looking to buy from the bottom and sell at the top.

“Great argument for index funds”

Before the Questions and Answers, Buffett shared two slides in an exercise illustrating how difficult it is to choose winners in the stock market.

The first slide lists the 20 largest companies in the world, measured by market capitalization as of March 31, 2021. It includes well-known names such as 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?” He asked. “What would you guess? Think about it yourself.”

He then followed with a slide listing the 20 companies from 1989.

“None of the 20 from 30 years ago are on the current list,” he said. “No. Zero.”

Warren Buffett gives a stock-picking clinic at Berkshire Hathaway's annual meeting.  (Yahoo Finance)

Warren Buffett gives a stock-picking clinic at Berkshire Hathaway’s annual meeting. (Yahoo Finance)

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

Of course, Buffett’s slides include many names outside the United States that you’ll never find in the S&P 500’s index fund. But his main idea is that it’s better to invest widely than to invest all your money in what seems to be is the winner.

“That’s a great argument for index funds,” Buffett added. “The main thing we had to do was get on board the ship.”

To contribute to this, he also justified the reason why it is not even enough to know which industries will thrive compared to the collapse. He noted that the emerging American automobile industry in the early 1900s eventually created more than 2,000 automobile 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 a wonderful industry will be in the future.”

During the shareholders’ meeting, Buffett repeatedly reiterated his recommendation to investors to buy stock index funds, as he does. As Miles Woodland puts it: “Buffett’s advice, as always, is to do what I say, not what I do.”

Although Buffett said this weekend, “It’s not as easy as it sounds.”

From Sam Ro, managing editor. Follow him in @SamRo

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