The Unstoppable Machine Mr. Buffett Delivers Pearls of Wisdom at the AGM

What do we seek for when our minds struggle to find answers to different questions popping up amidst a tough spot in life? A constructive advice! Yes, a piece of advice that places us in a stronger position to deal with the hardship. And if that advice comes from a greenhorn, nothing much is needed thereafter.

As the world continues to battle with novel coronavirus, one of the most successful investors, Mr Warren Buffett recently shared some words of wisdom at his Berkshire Hathaway annual shareholder meeting held in Omaha.

What’s different about this AGM is that it was held behind closed doors amid coronavirus, in the absence of shareholders’ physical presence. Although every year over 40,000 people used to queue up before AGM hall gates for this remarkable event which was accustomed to generate huge business for the city of Omaha, COVID-19 rebooted everything in a way Mr Buffett is beginning all over again.

Losing no time, let us quickly get a glimpse of sage advices delivered by Mr Buffett at the AGM:

Why Buffett Dumped Airline Stocks?

One of the most significant declarations Mr Buffett made in the AGM was that he is no longer investing in airline stocks. He notified that Berkshire Hathaway dumped entire stakes (roughly 10 per cent) in four largest carriers of the US - Delta Airlines, American Airlines, United Continental and Southwest Airlines – amid coronavirus crisis. He calls purchasing stakes in those airlines an understandable mistake, wherein he was turned out wrong about those businesses.

He made it clear that although he liked those airlines which were well-managed, the world has now changed for them as each of these companies will need to borrow about USD 10 to USD 12 billion in order to stay alive. Besides, he thinks these companies may also need to rely on selling stocks in some cases, which may carry away from their upside.

According to him, airlines is a very difficult business connected with millions of people, and in case something goes sideways for even 1 per cent of these people, they are displeased. Mr Buffett is not sure about the number of people flying via airlines two or three years from now, which makes the industry’s future less clear to him.

Why Berkshire Didn’t Invest in 2020 Stock Market Crash?

Several investors were seeking an answer to a key question prior to the AGM - “Why Berkshire didn’t invest its USD 137 billion cash pile into the 2020 market crash?” And their long wait ended when Mr Buffett made it clear that they are yet to find an appealing opportunity in the COVID-19 battered market.

Comparing the coronavirus crisis to the 2008 financial crisis, he added that the deals made during that crisis were the intelligent things to do amid little competition in the market. However, in this crisis as soon as virus panic began to freeze debt markets and assaulted equities in March 2020, the Fed beat him to the punch.

He notified that the hopes of blockbuster deals scrapped due to Fed’s proactive action of announcing an unprecedented set of emergency measures against coronavirus, which erased chances of any near-term deal. As a result, the companies seeking help from Berkshire turned to the central bank.

Why Refrain from Selling Stocks in Short-Term?

Mr Buffett advised that investors need to own equities for a long period of time if they intend to achieve a successful outcome. He expects equities to outperform the bonds and the Treasury bills over a long run.

According to him, people should not develop opinions on stocks every minute just because they are liquid and quoted each minute. He believes stocks have a huge inherent advantage of being bargained by people all the time; however, some turn it into a disadvantage.

In relation to COVID-19 scenario, he briefed that if an investor owns shares in a business he liked before the arrival of virus, and he still likes the management and business and is confident about its fundamental aspects, he should refrain from selling it out.

Why Buffett is not in Favor of Using Borrowed Money in Market Tailwinds?

Mr Buffett is not in favor of using borrowed money to buy investments whenever a situation like the current pandemic emerges.

He stated that they run Berkshire in the same way, considering not just a single thing going wrong but multiple things going wrong at the same time. He doesn’t see any rationale to utilize borrowed money to take part in the American tailwind.

In other words, he advises to stay away from leverage and not to put any money in equity which you may need in the short term. Basically, he believes people should hold money for the long run to build wealth as one cannot generate returns by buying stocks instantly.

Why Credit Cards Should Not be Treated as Piggy Banks?

At the time when the globe is struggling with job losses, salary cuts and delay in salaries amid coronavirus, legendary investor Mr Buffett advised people to not use credit cards as piggy banks to be assessed. He believes no person can get better off by paying a higher interest rate on credit cards, so one should pay the dues as soon as possible.

Besides, he mentioned that the interest rates on credit cards are driven by competition, which is considerably surging now-a-days. Agreeing with Mr Buffett’s view, the Vice Chairman in charge of all Berkshire operations except insurance, Mr Greg Abel, stated that the goal of a person using credit cards should be to repay as early as possible as they have incremental risks attached to them.

Investors may count on these priceless words of wisdom Mr Buffett delivered at the AGM, using them to attain their financial goals and advance their investing principles.