This past Saturday, the Woodstock for capitalists was on as Warren Buffett and Charlie Munger held their annual shareholder conference.
If you want to succeed in investing and reach your financial goals, this conference and the insights from it are all you need to listen to in order to learn about investing, what’s going on, and what to do about it.
In today’s article, I’ll summarize what the key points to take out are and also save you the 6-hour watch.
Starting this year, companies that own stocks have to mark them to market on a daily basis and include the changes in their bottom line. This has made BRK report a loss, but as you can see below, operating earnings are positive.
So, don’t worry about the bottom line, look at what the business has done.
Indexes Change – Survivors Win
Buffett talks about his first stock purchase, but what I want to focus is the slide he used showing various indexes.
Buffett discussed the DOW Jones Index which has survived since then, but nobody knows how the railroad index has done, the utilities, or the 65 stocks index over the last 75 years. Survivalship bias is one of the biggest dangers impacting investors because you only see what survives but not what dies with investing. We now have the S&P 500, the Nasdaq, MSCI global, and 6,000 other indexes. Be careful as not every index will bring equal results.
Invest When Things Aren’t Good – Discussion On Gold
Buffett discussed what it was like to invest during the war and how if you had invested $10,000 in the S&P 500 at the time—which, by the way, didn’t exist back then—then you would now have $51 million. Last week, I talked about how no one has an investing horizon like Buffett has had, so that’s another thing to keep in mind when listening to him.
If you bought gold at the same point in time, you could have bought 300 ounces of gold that didn’t produce anything. Today’s value would be around $400,000 which would be about $50 million less.
I agree with Buffett and that is why I always say that gold isn’t an investment, it is a hedge against loose monetary policy and has to constantly be rebalanced. Further, I prefer miners which actually produce something and some even pay dividend.
China & U.S. – Long Term Superpowers
On a trade war question with China, Buffett explained how world trade is a win-win situation for both countries and he believes in the benefits of free trade. Those benefits are huge and the world’s development depends on it, so he sees it as thing that will last where no one will do foolish things.
However, the gap between countries mustn’t become too wide and also that a war would threaten global prosperity.
Buffett always talks about investing in great businesses with great management. One of the companies that is in trouble is Wells Fargo. Buffett is sticking with the stock and believes the management will correct what is going on.
On the business side, the bank is still profitable, and recently paid a $480 million settlement. That might be what Buffett likes, plus he can’t get out because that would destabilize the bank.
Healthcare Partnership With JPM & Amazon
This is a very important topic and one I will dedicate a special article to. Just a note here, they will have a CEO within a few months.
How Would You Invest $1 Billion – China Or U.S.?
Buffett is sticking to preferring to find smaller investments in U.S. which he just can’t do now due to the size of BRK. However, Munger still prefers investing in China and he has a much larger percent of his portfolio in China than Buffett does. Interesting how their exposure varies due to size and domestic preferences.
Long Term Bonds Are A Terrible Investment
Buffett doesn’t like long term bonds because the return is in line with inflation. All the money BRK has is in Treasury bills with an average maturity of 4 months.
From an investment perspective, when you add taxes, you don’t end up ahead with bonds so it’s better to own businesses. As the government’s goal is to have inflation around and above 2%, you know that you will have miserable returns. The only exception were the 1980s because of the high interest rates where you could have had a 14% compounded return over 30 years.
Moats & Elon Musk
Elon musk recently discussed how moats are lame and how it’s all about innovation. Buffett agrees that innovation is key and that it has become more difficult to keep a moat. However, it’s clear that there have been some tensions between the two guys and that Elon is on thin ice here.
The Good Buyback: Apple
I have been generally against buybacks and Munger too states that he is against some of them, but they like Apple’s use of cash. This means that if AAPL doesn’t see a good acquisition and they think the price of the stock is below the value of it, they should continue doing buybacks.
Buffett likes the ecosystem, the cash and you can read more about that here. Buffett says that he would love to see Apple go down in price.
Munger, in his style, says how some people do buybacks just to keep the stock up which is insane and immoral. Apart from that, it’s fine. So, it is up to us to see whether the buybacks of the stocks we own are fine or insane.
Tomorrow, I’ll have part two of this discussion on BRK’s annual shareholder meeting and will specifically write about the intrinsic value formula, cryptocurrencies, 401k plans, asset light companies, and missing out on Amazon.