I was honored to present at the recent GuruFocus Value Conference in Omaha, and then to hear Warren Buffett and Charlie Munger at the CenturyTel Convention Center in Omaha on Saturday.
Warren Buffett and his partner Charlie Munger were in fine form, dispensing timeless investment wisdom, opining on current events, and even getting a bit feisty. Their observations are always valuable, not because they have been so successful, but rather because they make so much common sense. Here are some key takeaways.
Current State of the Markets: Stay the Course! Warren Buffett measures holding periods in terms of decades; he has little use for market timing. Buffett indicated that stocks today are somewhat overvalued but not in a bubble; stocks offer much better potential than bonds. While offering no economic forecast, he noted that current results from the Berkshire businesses show economic strength. Caveats were expressed: If bonds go to 7% no markets will fare well. Further, the fact that they are sitting on perhaps $100 billion to invest reflects their struggles to find decent investment opportunities. Buffett will stay patient, noting “we won't always be in a world of low interest rates or high private-market prices" for investments.
Stocks are the Best Long Term Investments: Buy and Hold! Buffett continues to be an unabashed cheerleader for the long term buy and hold approach. He cited his first investment, made in 1942, and used that as a hypothetical starting point. Had you put $10,000 into the stock market then, you’d be sitting on $51 million now. Should geopolitical developments cause you to rethink? Buffett held up copies of the New York Times from that year, making the point that despite daily gruesome war headlines an investor’s best course of action was simply to hold on. He even criticized himself for exiting his own first investment after making just a few dollars; those who trade after a small profit are doing a great disservice to their financial health.
We are Not Happy with the Current State of Politics But Don’t Let It Affect Your Investing Plans. Several asked how Buffett’s fundamental optimism squared with the current White House chaos. Buffett and Munger urged attendees to take the long view, basically suggesting we’ve been through worse or similar, and America, the economy, and stocks came through fine. Through their investment lifetimes, they’ve seen seven Democratic presidents, seven Republicans, the Cuban Missile Crisis, a president forced to resign, an assassination, etc. and through all this the economy and markets powered higher. Therefore, the current issues are something we will get through.
Cryptocurrencies: Avoid! These make no sense as an investment because they produce nothing. Munger and Buffett much prefer investing in businesses that produce profits, farms that produce crops, even bonds that generate income. People are buying the cryptos on the greater fool theory, that others will want to pay more later.
Bonds: Avoid! Buffett criticized bonds as poor investments. Today, with the low yields, they are “terrible.” Buffett noted that the Federal Reserve is targeting a 2% inflation rate so if the 10 year Treasury is less than 3%, after inflation and taxes there is little left. Warren did note a brief period in the early 1980s when yields approached 15%; locking those rates in then would have made sense.
Federal Reserve: It Does Not Affect Our Investment Plans. Per Munger, the Federal Reserve’s reduction of interest rates to near zero to combat the Great Recession wasn’t “fair to savers” and produced huge windfalls to stockholders. We are “undeserving” but hope it continues that way. In terms of the outlook on the Fed, interest rates, and inflation, Buffett said: I don’t know, and the Fed doesn’t know, either.” We agree that the Fed’s plans should not affect most investors’ long term strategy.
Trade: The Freer, the Better! Free trade is a positive, but problems can develop if one side tries too hard to win. Neither Munger nor Buffett seems to be making any adjustments to their investment strategy considering uncertainty over NAFTA and Chinese trade. Buffett is optimistic there won’t be an enduring end to trade, noting: “we have a lot of common interests and like any two big economic entities, there are times when there will be tensions, but it is a win-win situation when the world trades basically in China and the U.S….It’s just too big and too obvious—the benefits are huge, and the world’s dependent on it in a major way for its progress—for two intelligent countries to do something extremely foolish….So it is a win-win situation.”
Note: David G. Dietze, JD, CFA, CFP™ is President and Chief Investment Strategist of Point View Wealth Management, Inc., a registered investment advisor at 382 Springfield Avenue, Summit.
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