At the annual general meeting (AGM) of Berkshire Hathaway on Saturday at the Century Link Convention Centre in Omaha, Nebraska, CEO (Chief Executive Officer) and Chairman Warren Buffet along with Vice Chairman Charles Munger answered more than 80 questions from shareholders on investments.
Warren Buffet is the third richest man in the world as of February 2018 (Forbes Rich List). Considered as one of the most successful investors in the world, his investment advice is always heeded and eyed around the world. Along with Charles Munger, he started his diversified holding company " Berkshire Hathaway."
The company now owns a diverse range of businesses (mainly American) including encyclopedias, confectionery, retail, railroads, newspaper publishing, home furnishings, manufacturers of vacuum cleaners, jewelry sales, manufacture and distribution of uniforms, and several regional electric and gas utilities.
It is the third largest public company in the world according to the Forbes Global 2000 list and formula.
The meeting on Saturday (Nebraska time) saw a strong gathering of 42,000 and considered the biggest investing event of the year.
Here are some key takeaways from the Berkshire Hathaway AGM:
Comparing Gold with Stocks: An approach to investment
Warren Buffet is known to be a believer in investing in stocks and holding on to them for a long time.
In order to explain how one should pick a productive investment, he made a retrospective comparison of investments in gold and stocks in 1942 (when he started investing). Surrounded by the gloom of World War II, most investors sought resort in gold over stocks.
"All you had to do was figure that America was going to do well over time," he said. He added, "You basically had to make one investment decision."
Buffet said that if one invested $10,000 in an S&P 500 index fund in 1942 (as there weren't any other funds back then) it would be worth $51 million, whereas your gold investment would be approximately $400,000.
"In other words, for every dollar you could have made in American business, you'd have less than a penny of gain by buying into a store of value which people tell you to run to every time you get scared by the headlines," Buffett said.
"While the businesses were reinvesting in more plants and new inventions came along, you would ... look into your safety deposit box, and you've have your 300 ounces of gold. And you would look at it, and you could fondle it, I mean, whatever you wanted to do with it. But it didn't produce anything. It was never going to produce anything. And what would you have today? You would have 300 ounces of gold just like you had in March of 1942, and it would be worth approximately $400,000."
When asked about cryptocurrency as an investment option, Buffet said, "When you buy Bitcoin, you are just hoping that the next guy will pay more; it will not produce profit itself. That is not investing, that is a kind of game ... Anytime you're buying a non-productive asset, you are counting on somebody else to buy it at a higher price on a later date because that person thinks he would be able to sell it to someone else. Eventually, cryptocurrency will come to a bad ending. It has nothing to add value to it."
Focus on long term investments
"Nobody buys a farm based on whether they think it's going to rain next year. They buy it because they think it's a good investment over 10 or 20 years," Buffet said at the Berkshire AGM.
Keep investments simple and avoid formulas in valuations
On keeping investments simple Buffet said, "Index funds are the best form of equity investing. If you consistently stick with them over decades, they will do wonders. We have not invested our cash holding in ETFs because we would rather buy entire businesses."
While Munger spoke on why they avoid formulas: "I do not use a formulaic approach to valuing a company or stock like future cash flow etc. If the gap between value and price do not look attractive, I go to something else."
Investment in Capital Intensive Businesses
Buffet said, "We always prefer businesses that earn handsome returns on capital. AmEx has been earning terrific returns on capital for a long time. We have gone into capital-intensive businesses at decent prices, hoping for a decent return. It's probably the second best choice and not the best choice. We have not foregone any opportunity to buy businesses that earn high returns."