Berkshire Hathaway CEO Warren Buffett plays bridge during the Berkshire annual meeting weekend in Omaha, Neb., in this file photo from May 3, 2015.Rick Wilking/Reuters
Most investors don’t have US$137-billion in cash lying around. Most investors don’t have control of a huge conglomerate.
But that doesn’t mean we can’t all learn from watching Warren Buffett in action.
The billionaire was in fine form during the annual general meeting of his flagship Berkshire Hathaway Inc. on Saturday.
Owing to concerns about the novel coronavirus, Mr. Buffett’s usual question-and-answer session became, for the first time, a virtual event, delivered through Yahoo.
There were other changes, too – notably the absence of Charlie Munger, Mr. Buffett’s long-time partner, who decided not to travel to Omaha, Neb., for the event, and the prominent presence of Greg Abel, the Canadian executive who may be in line to replace Mr. Buffett one day.
But the heart of the session remained the same. As always, it was Mr. Buffett.
He once again proved he is a medical marvel. How many 89-year-olds can talk, hour after hour, on subjects of enormous complexity, and do so with humour, precision and focus?
His answers demonstrated one of his favourite themes – that good investing is as much about emotional balance as it is about extraordinary intelligence. Three lessons in particular stood out.
The first is that it is okay to do nothing. When stock markets plummeted last month, Mr. Buffett did not go on a buying binge, despite his mountain of cash. “We have not done anything, because we don’t see anything that attractive to do,” he said.
Investors who have rushed back into the market may want to take note. Despite the slide in share prices since the start of the year, Mr. Buffett does not seem to see today’s reduced values as a particularly tempting bargain. He is also seeing few other opportunities to deploy his capital.
His attitude isn’t likely to change so long as the Federal Reserve and other central banks are slashing interest rates and flooding the economy with cash. The profusion of easy money means there are no desperate cash-strapped lenders out there, eager to pay a premium to tap into Berkshire’s hoard of dollars. Until such situations materialize, Mr. Buffett will sit tight.
“This is a very good time to borrow money, which means it may not be such a great time to lend money,” he said.
He declared he wants Berkshire to remain a “Fort Knox” of financial strength. Strikingly, he also said that US$137-billion in cash isn’t all that much “when you think about worst-case possibilities.” If anything, the man who likes to tell people you shouldn’t bet against the United States appears to be building a bulwark against the possibility that there will be tougher days ahead.
This brings up a second lesson: It is okay to say you don’t know.
Mr. Buffett stressed he has no idea what the market is going to do next week or next year. The free enterprise system will eventually thrive again, he asserted, but he made no claims to knowing how deep or how long this downturn will be. Investors must be cautious because “markets can do anything.”
Let us applaud this admission of ignorance. To a remarkable degree, Mr. Buffett is comfortable acknowledging all the things he doesn’t know. We should all be so humble.
We should also be so ready to admit mistakes. The third lesson to take away from Mr. Buffett is that it is okay to change your mind.
Mr. Buffett does so more often than you might think. After years of arguing that airlines were an unattractive business, he shifted his position in 2016 and took major positions in four large U.S. airlines. His argument was that the industry had fundamentally changed and was now capable of generating sustained profits.
Not so much, it turns out. He acknowledged on Saturday that Berkshire had sold its stakes in American Airlines Inc., Delta Air Lines Inc., Southwest Airlines Co. and United Airlines Inc. The massive downturn in passenger traffic because of the pandemic is likely to leave a surplus of plane seats on the market even if business does rebound over the next few years, he said.
Mr. Buffett’s willingness to change his mind when the facts change is unusual. It is a talent we should emulate as the pandemic economy continues to surprise us.
Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.