Uncle Warren, The Oracle of Omaha, America’s greatest investor has just sent all Americans an important message, writes Mike Larson.
Berkshire Hathaway (BRK.A) CEO Warren Buffett has been called or characterized as many things over the years. Why? After founding his insurance-dominated conglomerate back in the 1950s, he invested so skillfully over the years that he amassed a personal net worth of roughly $89 billion. That makes him the fourth-wealthiest person in the world.
But it’s not just Buffett’s riches that make institutional and individual investors pay so much attention to him. It’s his folksy style, his catchy phrases and sayings, and his annual gathering that attracts thousands of fervent followers to Nebraska. Dubbed “Woodstock for Capitalists,” it gives investors a chance to hear the Oracle opine on recent investments and the markets as a whole.
The Coronavirus outbreak naturally changed the plan this year. Instead of hosting legions of investors in person, Buffett held a virtual conference this past weekend. But that wasn’t the most shocking or out-of-the-ordinary thing he did. He also struck a much different, much more subdued message about stocks than he has in previous times when the markets are on the ropes.
During the 2007-2009 market meltdown, for instance, Buffett urged people to buy rather than sell. Most notably, he wrote an October 2008 op-ed in the New York Times headlined “Buy America. I am”. It explained that he was aggressively scooping up stocks – not despite the market panic at the time, but because of it.
But this time, Buffett said: “We haven’t seen anything attractive.” And he put his money where his mouth is. His firm spent Q1 raising cash rather than deploying it, with its cash pile ultimately hitting a record $137 billion. Then as the market recovered in April, Buffett kept on selling … unloading $6.1 billion in equities.
What’s even more interesting than the raw figures is the timing here. As a recent chart published by the Financial Times noted, Buffett built up cash near the peak of the Dot-Com Bubble even as many stock buyers were snapping up money-torching tech turkeys like crazy. Then those cash levels shrank during the bust as stocks became much cheaper and more attractive.
The same thing happened in the mid-2000s. Cash built up near the peak of the Housing Bubble, then fell sharply as stocks tanked and Buffett stepped up his buying.
Now, instead of dumping money into the markets in the wake of the virus-related sell off, the greatest investor in U.S. history is effectively sitting on his wallet. Keeping his money locked up tight.
Is there a message worth listening to here? Is there a lesson that individual investors can take away from this?
I sure think so, especially now that stocks look nowhere near as cheap as they did at the panic lows in March. You want to stay more defensive now than you did during the long, powerful, broad-based bull market that ran from 2009 through early 2018. Yes, still.
If you are going to bottom fish, my advice remains the same as it has been for the last two years. Focus on “Safe Money”-style stocks— higher-quality, recession-resistant and higher-yielding investments, or still-underappreciated sectors like precious metals miners.
They’re the right stocks at the right prices and the right point in the economic and credit cycles. The same can’t be said about most of the high-risk garbage stocks many on Wall Street are still pushing.
