Berkshire Hathaway’s Warren Buffett warns investors not to gamble on stocks as ‘it’s not as easy as it sounds’
- Stock trading platforms that allow people to buy and sell stocks for free, such as Robinhood, are encouraging gambling, Buffett says
- Omaha, Nebraska-based Berkshire on Saturday reported first-quarter earnings of US$11.7 billion compared to a loss of US$49.7 billion a year earlier
Buffett said it can be tough to pick the long-term winners. He pointed out that in 1903 there were more than 2,000 car companies, and nearly all of them failed even though cars have transformed the country since then.
“There’s a lot more to picking stocks than figuring out what will be an incredible industry in the future,” said Buffett, who is known for his remarkably successful investing record. “I just want to tell you that it’s not as easy as it sounds.”
Buffett spent several hours answering questions on Saturday afternoon at an online version of Berkshire’s annual meeting alongside vice-chairmen Charlie Munger, Greg Abel and Ajit Jain. The executives opined on a variety of topics at the meeting including:
– Buffett said the policies of the Federal Reserve and the stimulus packages passed by Congress have done a tremendous job of propping up the economy and keeping interest rates low. He said the government clearly learned lessons from the Great Recession in 2009 and acted quickly in response to the pandemic, but it’s hard to predict the long-term consequences of those policies. “This economy right now – 85 per cent of it is running in a super high gear – and you’re seeing some inflation and all that. It has responded in an incredible way,” Buffett said.
Omaha, Nebraska-based Berkshire is sitting on US$145.4 billion in cash and short-term investments because Buffett has struggled to find major acquisitions for the company for several years.
Investor Cole Smead said he would love to see the company get more active the next time the market swoons.
“We do not question whether Buffett and Munger have patience. That’s obvious. The question is do they have any aggression. That’s not obvious,” Smead said.
Buffett said he wants to invest more of Berkshire’s cash, but the current competition he faces from private equity and other investment funds has made it difficult for Berkshire to find reasonably priced acquisitions. And the 90-year-old said that a year ago, it was hard to predict how the economy would respond to the pandemic and all the government stimulus.
This was the second year in a row that the annual meeting was held online because of the coronavirus pandemic. This year’s event was moved outside Omaha for the first time – to Los Angeles to be near where the 97-year-old Munger lives.
The meeting usually draws 40,000 to Omaha, filling a 18,300-seat arena and every nearby overflow room. No other company matches those crowds.
Author Bob Miles said he misses “mingling with like-minded and self-selected shareholders” and talking with executives who run Berkshire subsidiaries who routinely spend part of the meeting in their company’s booth in the huge exhibit hall that adjoins the arena. Berkshire companies like Geico insurance, See’s Candy and Fruit of the Loom sell their products to shareholders each year.
The fun of the meeting isn’t just for shareholders. Jim Weber, who runs Berkshire’s Brooks Running, said he longs for the chance to compare notes with fellow Berkshire managers at the one annual event that brings together the leaders of the decentralised conglomerate’s dozens of subsidiaries.
“We certainly miss that opportunity to connect with our peers,” said Weber.
On Saturday morning, Berkshire reported its first-quarter earnings and said it made US$11.7 billion as the paper value of its investment portfolio rebounded from the depths of the coronavirus pandemic. A year earlier, Berkshire reported losing US$49.7 billion.
The conglomerate said that besides the investment gains, profit also improved at all of its major divisions – including insurance, utility, railways, manufacturing and retail companies – as the economy continued to recover.
CFRA Research analyst Cathy Seifert said she was surprised that Berkshire’s many economically sensitive businesses did not improve more given how much the economy has recovered, but the company controlled costs well.
Buffett has long said Berkshire’s operating earnings offer a better view of quarterly performance because they exclude investments and derivatives, which can vary widely. By that measure, Berkshire’s operating earnings improved to US$7.01 billion, or US$4,577.10 per class A share. That’s up from US$5.87 billion, or US$3,617.62 per class A share a year ago.
The four analysts surveyed by FactSet expected Berkshire to report operating earnings of US$3,792.36 per class A share.
Berkshire continued its streak of major stock repurchases by investing US$6.6 billion in its own stock during the quarter. The company spent US$25 billion on repurchases last year. Seifert said investors will applaud the significant buy-backs.
Abel said during the meeting that Berkshire’s largest contributors to carbon dioxide emissions – its utilities and BNSF railroad – already publish annual reports on their efforts to reduce climate change and reduce their emissions over time.