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A Buffet of Hope & Realism

"NEVER BET AGAINST AMERICA" !! Warren Buffet spent the first 45 minutes of the Annual Berkshire Hathaway Meeting last Saturday on May 2nd providing a summary historic analysis of the United States Economic growth story.  Since its inception around 1776, with a population that represented a tiny fraction of the global population, no one at that time could have foreseen what America was going to become in just 244 years. Using a crude calculation based on the 1815 sale of Louisianna to the USA for a mere $15million icluding mineral rights (3cents an acre) Buffet estimates the total worth of the US to have been $1billion in 1815. That total worth has mushroomed to over $150 Trillion in just 234 years. That is a staggering 150,000% growth. No wonder Buffet calls America "An Economic Miracle"!

During this time America has withstood a civil war, the 1918 flu pandemic, the great depression and two world wars. Take a look at this chart documenting major crisis and the stock markets growth. It is staggering to think what America has accomplished and it is on this factual basis that Buffet's opening takeaway was "Never, Never Bet Against America"! 

A strong opening statement that was followed by the reality that we are living in uncertain times with the Coronavirus Global Pandemic and that no-one really knows how this is going to unfold. Scientists have been warning for years that it was not "if" but "when" a global pandemic would hit. Berkshire Hathaway's philosophy is to be prepared. Always hold a lot of cash on hand, not only for potential business opportunities but also for weathering uncertain economic times. With 120 Billion cash on hand, Berkshire Hathaway is in a good position to withstand the current economic shock even with the significant losses its businesses are facing.

His sage advice for investors is this. When you invest in a business, look at it as if you were buying a business yourself. If you are looking at buying a business you will be assessing how good its prospects are for the next 20 years. How much capital will it require to get a return on investment. There will be some good, some bad and some excellent years over the course of that 20 year period. If the business you are looking to invest in is a fundamentally strong business with good management and has a solid financial base then you should ask yourself: "How much has changed for this businesses 20 year prospects in the time "pre-coronavirus" and now, in the post-coronavirus age"?

If you believe that the businesses 20 year prospects are still the same, then that should guide your decision making. The stock market provides a market for the shares of that business and values a business minute by minute and from day to day with interpretations and commentary on a daily basis. Buffet sais you should ignore much of the short term noise as long as you believe in the long term fundamentals of the businesses you invest in. If you believe in a businesses long term prospects and the fundamentals are unchanged yet the price of the business is 10-30% less, you have an opportunity. Many individuals he sais do not necessarily have the skills to evaluate an individual business and are better of investing in an index or basket of stocks.

So, when Buffet also announces that he sold all of Berkshire's stock in the four major airlines, you can bet that he thinks those industries have fundamentally changed and their prospects for the next 1-2 years are very uncertain. He did also say, they could return to full capacity at some point in the future, but he just did not know when.

Both good and bad investing decisions are simply part of an investors life. History is proof that Buffet's bad decisions are dwarfed by his good investment decisions.

If we had invested with Warren Buffet at the inception of Berkshire Hathaway, we would have little to worry about.








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Walnut Creek, CA 94596
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