Buy Right Sit Tight - 2020


Takeaways from the 2020 Berkshire Hathaway Annual Meeting

By Amit Rupani

Usually more than 40,000 people from all over the world come to the city of Omaha, Nebraska, to attend Berkshire Hathaway's annual general meeting (AGM), otherwise known as the Woodstock of Capitalism. But this year due to the COVID-19 pandemic, the AGM was conducted virtually on May 2, 2020 and was live streamed by Yahoo Finance. Warren Buffett decided to not allow shareholders to physically attend the general meeting. Even his 96 year old partner, Berkshire Hathaway's Vice President, Charlie Munger did not accompany Buffett on the center stage as Buffett thought it would not be worthwhile to have Munger travel to Omaha from his hometown Los Angeles during the ongoing pandemic.

Buffett still kept the meeting going by answering questions compiled by well-known financial journalists and addressing some of the most important issues that Buffett's followers have had on their minds lately. Below are three key takeaways from the AGM.

'Never Bet Against America'

Buffett has been an eternal bull on the US as a nation. He gave an extended history lesson about the US, right from its birth as a country in 1776. He said that America has faced greater problems than coronavirus in the past but American Miracles, American Magic has always prevailed, and it will do so again. Among many examples, he shared the Civil War, during which 6 percent of the prime workforce, males aged 18 to 60, died, a mortality rate much higher than ongoing pandemic.

Buffett said that the range of possibilities on the economic side is still very wide regarding the impact of the COVID-19 coronavirus pandemic on the US. He doesn't know anything that general people don't already know. He is also trying to understand the magnitude of COVID-19 impact by talking with other experts. It may take many years for the full impact to play out, including its effect on people's psyches. However, he remains very bullish about the US as a country and its economic prospects.

If one could pick a time and place to be born, Buffett believes that the best choice would be in America today. “This is an extraordinarily young country" at 231 years (since the 1789 inauguration of George Washington as president), Buffett stated, “but what we have accomplished is miraculous." He later asserted, “Never bet against America."

Buffett has no illusions that he can predict where stocks will be tomorrow, next week, next month, or even next year. But he thinks America in 2020 is in better shape than it's been at any other time in its history, and he believes that investors who put money in stocks for the long run now will be amply rewarded.

'Equities will outperform Treasuries'

Another reason Buffett likes stocks right now is that the alternatives aren't very good. U.S. Treasury bonds with 30-year maturities yield just 1.25 percent. Berkshire itself has taken advantage of low interest rates by borrowing money at zero interest rates.

Buffett thinks America's economic tailwinds will persist. But when all it takes to beat 30-year Treasuries is to match the rate of inflation, it's even more of a no-brainer in the Berkshire chief's views to invest in stocks instead.

“If you own equities over a long period of time, the idea that equities produce better results than the 30-year treasury bond which yields one and a quarter percent now. It's taxable income," Buffett said.

“Equities are going to outperform ... they're going to outperform treasury bills. They're gonna outperform that money you've stuck under your mattress I mean they're an enormously sound investment. As long as they're an investment, and they're not a gambling device or something that you think you can safely buy on margin," he added.

'S&P 500 Index Best Way to Invest'

In response to several questions from shareholders, Buffett advised the average investor to buy index funds that hold the S&P 500. He noted that “it's very unusual" for a money manager to beat the market and that “the money is in selling" people on these slim hopes.

Buffett has famously said that he suggests that a perfectly good way for investors to participate in the gradual rise of the stock market over time is to invest in an S&P 500 index fund. With low expenses, index funds can give investors exposure to a wide swath of the businesses that have been responsible for America's economic success over the decades.

Indeed, investing in an index fund isn't just a bet on the success of America. With so many multinational companies in the S&P 500, index funds give you ownership in the companies that are finding success around the globe.

According to Warren, the overriding question for an equities investor should be “how are American businesses going to do over your investing lifetime?" One can ask this same question for any country that is being considered for equities investment. But if one puts money in consistently over the years (systematic investment like 401k) in an index fund here in the US, there is just no comparison with owning something that doesn't produce anything. And there is no comparison with trying to jump in and out of the stocks and pay hefty transaction costs. America has been an investor's haven and you can't really fail at it unless you buy the wrong stock or get excited at the wrong time.

Happy Investing!

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Amit Rupani, CFA is an Independent Investor, practices Value Investing principles, manages money for long-term wealth creation through Equities asset class. Email: rupaniamit@yahoo.com