What Would Warren Buffett Do?
Last weekend, famed investor Warren Buffett held the annual shareholder meeting for his company, Berkshire Hathaway. The event normally serves as a value investor mecca, or “Woodstock of Capitalism”, as thousands of investors and fans flock to Buffett’s home city of Omaha, Nebraska. This year was a little different, with Buffett streaming his comments from an empty auditorium. But that didn’t stop the Oracle of Omaha from doling out his usual sage advice.
If you don’t already know about Warren Buffett, he’s widely considered one of the best, if not THE best, investor of modern times. By investing in attractive businesses and stocks, taking a long-term approach, and having an uncanny ability to identify value, he built his company Berkshire Hathaway into a global powerhouse worth nearly half a trillion dollars. In doing so, Buffett has become one of the richest people on the planet.
Yet despite the financial success, he remains as charming and disarming as ever, and regales his fans with business lessons told through his folksy demeanor. Here are a few key insights he shared from this year’s meeting that serve as good advice for anytime.
We WILL get through this
Let’s face it, times are pretty tough right now. Millions of people around the world are sick, many struggling to survive, countless jobs have been lost as the economy is shuttered, and there’s no clear end in sight. Yet with all that considered, Buffett, the eternal optimist, reminds us to not lose hope, even in the midst of a global crisis.
“But even facing that, I would like to talk to you about the economic future of the country, because I remain convinced, as I have. I was convinced of this in World War II. I was convinced of it during the Cuban missile crisis, 9/11, the financial crisis, that nothing can basically stop America. We faced great problems in the past. We haven’t faced this exact problem. In fact, we haven’t really faced anything that quite resembles this problem. But we faced tougher problems and the American miracle, the American magic has always prevailed, and it will do so again.”
So while we haven’t been through this specific situation before, we have faced major challenges as a society. And we’ve gotten through them all. That’s not to say there won’t be more difficult days ahead. There will be. And it will take a lot of work from everyone to get through this. But we’ve risen to the challenge before, and we’ll do it again this time.
Anything can happen in the short term
While Buffett is clearly still enthusiastic about the long-term prospects for the country and economy, he’s quick to remind us that the near-term outlook is harder/impossible to predict, especially when it comes to investing.
In his own words;
“Now, let’s move on now to a much broader subject, what I don’t know. I don’t know, and perhaps with a bias, I don’t believe anybody knows what the market is going to do tomorrow, next week, next month, next year… Anything can happen in terms of markets, and you can bet on America, but you got to have to be careful about how you bet, simply because markets can do anything.”
True wisdom is knowing what you don’t know. And if Buffett doesn’t know what the market will do in the short term, then none of us stand a chance!
But that’s okay. Because investing is not for tomorrow, next week, next month, or even next year. It’s for building wealth over time. And that takes patience. So don’t let your emotions dictate your decisions in the heat of the moment, even when the market is tanking. Have a plan for your money, and stick with it.
Invest in….low-cost index funds
Many people are surprised to learn Buffett is pro-indexing. After all, he became one of the richest people on earth by selectively choosing which stocks and businesses he wanted to own. But here’s what he has to say for us common folk.
“There’s huge amounts of money that people pay for advice they really don’t need and for advice where the person giving it could be very well-meaning in it and believe their own line. But the truth is that you can’t deliver superior results to everybody by just having them trade around a business…And in my view, for most people, the best thing to do is to own the S&P 500 index fund.”
Yep, you heard that right. The most famous investor of all time says you and I should invest our money in an S&P 500 index rather than pay someone to manage it.
Is this a shock? Not really. Buffett is unique. His skills, knowledge, and dedication would be extremely difficult for the average part-time investor (or even full time investor) to replicate. And for most people, it’s simply not worth it. The better alternative is to create a diversified portfolio of low-cost funds, and hang on to them for years so they can compound in value. If you want to start investing, we can help with our Investing Cheat Sheet or you can read how to start investing on a budget.
Learning more from Uncle Warren
If you want to learn more about Buffett’s ideas on life, business, and investing, you can read all of his past annual letters (and more) for free on his website. The site doesn’t look like it’s been updated in about 20 years, and that’s part of the charm. But there’s a ton of great info on it. There are also a number of books about him, and countless interviews that you can find with a quick Google search.
So get to it, and start learning from the Oracle of Omaha.