Once again Warren Buffett leaves us with a lot to ruminate about
At a time when the world is rushing into equities at steep valuations, Buffett is on the sidelines. In his AGM speech, the Oracle of Omaha leaves investors with some incomparable pearls of wisdom.
Not putting cash to work
The big question was on not putting the $145 billion surplus cash of Berkshire to work. Does Buffett get a feeling of being left out of the rally? Buffett believes that in the midst of the uncertainty, he still prefers to put money in a business that he understands. Of course, he means Berkshire Hathaway via buybacks. They have bought back stock worth $25 bn in the last one year, almost giving free rewards to loyal shareholders. Buffett is comfortable underperforming other fund managers in this race; as he puts it.
Did he exit airlines too early
That was the billion-dollar question. A little over a year back, Buffett had put money heavily into airline stocks. But the pandemic changed all that as global travel almost came to a standstill. After Buffett exited airlines, the government announced a rescue package, which led to airline stocks rallying sharply. Was he too early to exit airline stocks? Buffett has an interesting perspective. His view is that had he stayed invested in airline stocks, the rescue package would never have come from the government since the airlines already had the backing of Berkshire. That surely sounds logical!
SPACs, Bitcoins, Robin Hoods
Neither Buffett, nor Charlie have been too charitable about new structures. Both are OK with innovations that make the existing markets more efficient. For example, Buffett thinks that SPACs are like holding fund managers at gun point and asking them to invest all the money in 2 years. Buffett also adds that Bitcoin may be a good concept but he refuses to support any currency that could be used for dubious funding purposes. Both Buffett and Charlie are less charitable about Robin Hood trading. They feel that any free trading platform is just a recipe for speculation and gambling.
Flagging management risk
Buffett loves to repeat ad nauseam that any investment is about management quality. You give a great business to a lousy management and it is bound to fail. An important piece of advice from Buffett is that in the midst of all this equity rush, people forget to closely look at the quality of the management. Buffett feels that when you plan to stay invested in a stock for the long term, the quality of the management matters the most. That was also, perhaps, a hint as to why he and Charlie were in no hurry to give up day-to-day operations at Berkshire. You can complain about holding too much cash and being too conservative. But this approach beat S&P by a huge margin over 55 years. That track record is hard to refute!