News
28 October 2024
Every year, shareholders of Berkshire Hathaway take the pilgrimage to Nebraska to hear the wisdom of its CEO and Chairman Warren Buffett. This year the meeting was streamed live as Buffett covered his thoughts on the company, the markets and the economy. Here are the key take-aways.
Every year, shareholders of Berkshire Hathaway take the pilgrimage to Nebraska to hear the wisdom of its CEO and Chairman Warren Buffett. This year the meeting was streamed live as Buffett covered his thoughts on the company, the markets and the economy. Here are the key take-aways.
1. ‘Never Bet Against America’
Buffett believes the COVID-19 crisis will have far-reaching consequences for the US economy and people’s psyche, but he remains optimistic about the future.
“We faced tougher problems and the American miracle has always prevailed,” Buffett said and mentioned the American Civil War as an example of such tough times. He advised his listeners to “Never bet against America.”
“This is an extraordinarily young country”, Buffett said, “but what we have accomplished is miraculous.”
Buffett doesn’t claim to be able to predict the future, but he does think America in 2020 is in better shape than ever before and that investors who invest for the long term will be rewarded.
2. “The world changed for airlines, and we wish them well”
Berkshire Hathaway sold a total of $6.5 billion in stock during April, including shares of United Airlines Holdings (NASDAQ:UAL), American Airlines Group (NASDAQ: AAL), Delta Air Lines (NYSE:DAL) and Southwest Airlines (NYSE: LUV).
When questioned about his decision, Buffett said that Berkshire Hathaway had sold off its entire positions in the four airlines. He explained that he “just decided I made a mistake.” He had initially thought an investment of $7 billion in the companies would give him about $1 billion in underlying earnings.
However, as Buffett said “It turned out I was wrong about the business.”
Buffett says that although he didn’t believe the airline CEOs did anything, he was no longer comfortable that airlines would ever be able to recover completely from the COVID-19 crisis. It’s likely people won’t be flying as much in the future.
“The world changed for airlines, and we wish them well,” Buffett said.
3. The Importance of the FDIC
The Federal Deposit Insurance Corporation (FDIC) is a “mutual insurance company of the banks backed by the federal government,” according to Buffett, and a great tool against crisis. He said that the Great Depression would have probably been less severe if the FDIC had existed at the time. Over 4,000 banks failed early on in the Depression, destroying people’s savings which “scarred their memories” for decades after.
4. ‘Anything Can Happen In Terms of Markets’
Buffett has a reputation of believing in buying companies you believe in and not trying to predict the market, a piece of advice he repeated at the 2020 meeting.
He said that “anything can happen in terms of markets,” and that “you don’t know what’s going to happen tomorrow.”
Even when the market seems to be predictable an unforeseen event such as 9/11 or COVID-19 can change everything. That is also why “you never want to use borrowed money” when investing.
5. “We owe the Fed a great thank you”
“I always had Paul Volcker on a pedestal in terms of Fed chairmen” Buffett said. “Current Fed Chairman Jay Powell, in my view, belongs with him on that pedestal. They acted with unprecedented speed and determination” to stimulate the economy during COVID-19.
The Fed launched various initiatives to prop up the US economy, including the Primary Market Corporate Credit Facility and Money Market Mutual Funding Facility. “We don’t know the consequences of doing that,” Buffet said, “but we do know the consequences of doing nothing, and we owe the Fed a great thank you.”
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