Here’s what Warren Buffett is saying about the market.
Berkshire Hathaway (ticker: BRK.A, BRK.B) held its annual shareholder meeting on May 1. This year, the event took place virtually in Los Angeles rather than in CEO Warren Buffett’s hometown of Omaha, Nebraska. In recent decades, Buffett critics have said his value investing style is antiquated as high-flying growth stocks have led the market rally. However, Berkshire is once again outperforming the overall S&P 500 in 2021 thanks in large part to big gains in bank stocks, such as Berkshire holding Bank of America (BAC). Here are eight things Buffett told Berkshire investors at this year’s meeting.
Berkshire seeing ‘substantial inflation.’
One of the great debates on Wall Street so far in 2021 is whether or not the U.S. government’s unprecedented $6 trillion in stimulus spending (since the start of 2020) will result in hyperinflation. Last month, Federal Reserve Chair Jerome Powell said U.S. inflation is still running at about 1.6%, below the Fed’s 2% target. Buffett, however, said Berkshire is witnessing “very substantial inflation” in Berkshire’s homebuilding and manufactured housing businesses, specifically when it comes to steel and lumber prices. “We are raising prices. People are raising prices to us, and it’s being accepted,” he said.
Buffett is still bearish on Bitcoin.
Many investors who are concerned about inflation have been piling into Bitcoin and other cryptocurrencies. Buffett has been extremely critical of Bitcoin in the past, calling the crypto “rat poison squared.” When asked about Bitcoin at the Berkshire meeting, Buffett opted to “dodge that question” rather than risk angering Berkshire investors who also own Bitcoin. “We’ve probably got hundreds of thousands of people watching this that own Bitcoin, and we’ve probably got two people who are short,” Buffett said. Berkshire vice chairman Charlie Munger certainly didn’t hold his tongue, calling Bitcoin’s success “disgusting and contrary to the interests of civilization.”
Greg Abel will succeed Buffett.
Berkshire investors finally got a concrete succession plan for Berkshire at this year’s shareholder meeting, seemingly by accident. When discussing Berkshire’s future, Munger told investors that “Greg will keep the culture” after he and Buffett are gone. Berkshire investors have long speculated that either Greg Abel or Ajit Jain would succeed Buffett as Berkshire CEO; Buffett confirmed to CNBC on the following Monday that Abel is the man for the job. “The directors are in agreement that if something were to happen to me tonight, it would be Greg who’d take over tomorrow morning,” Buffett said.
Buffett regrets trimming Apple stake.
Apple (AAPL) is by far Berkshire’s largest public stockholding. Since Berkshire first disclosed a nearly 10 million-share Apple stake back in 2016, the stock has generated a total return of more than 500%. Buffett sold $7.4 billion worth of Apple in the fourth quarter of 2020, causing some concern among Apple investors. “I sold some stock last year, although our shareholders still saw their shares go up because we repurchased shares,” Buffett said at the Berkshire meeting. “But that was probably a mistake.” As of the end of 2020, Berkshire still owned $120.2 billion of Apple stock.
Buffett doesn’t like SPACs.
One of the biggest trends in the market in the past couple of years has been the rise of special-purpose acquisition companies, or SPACs. SPACs are companies that go public without any underlying business and are designed specifically to acquire an existing company within a two-year time frame. Buffett said that type of time-sensitive, fee-supported structure encourages SPACs to be overaggressive just so they can complete a deal. “It’s an exaggerated version of what we’ve seen in kind of a gambling-type market,” Buffett said, adding that the SPAC craze on Wall Street in 2021 “won’t go on forever.”
Buffett recommends S&P 500 funds.
When it comes to the best investments, Buffett said most investors should start with an S&P 500 index fund, such as the SPDR S&P 500 ETF Trust (SPY), rather than constructing a portfolio of individual stocks. Buffett said he doesn’t typically recommend Berkshire stock to people because he doesn’t want anyone to believe he is tipping them off with inside information. Buffett’s plan for his own personal wealth may speak even louder than his words. “On my death there’s a fund for my then-widow, and 90% will go into an S&P 500 index fund,” Buffett said.
Buffett is still cautious on airlines.
Buffett exited stakes in United Airlines (UAL), Delta Air Lines (DAL), Southwest Airlines (LUV) and American Airlines (AAL) around the time the airline stocks hit multiyear lows in 2020. Since that time, airline stocks have skyrocketed as investors anticipate vaccines will soon get more people flying once again. At the shareholder meeting, Buffett said he is still skeptical of airlines, which lost a significant amount of money and earnings power in 2020. “I think the airline business has done better because we sold and I wish them well, but I still wouldn’t want to buy the airline business,” Buffett said.
Buffett defends Chevron.
As environmental, social and governance, or ESG, investing becomes more popular, fossil fuel companies like U.S. oil major Chevron (CVX) have fallen out of favor with some investors due to their contribution to climate change. However, Buffett defended Berkshire’s Chevron investment, telling investors the company will benefit society as the energy business becomes cleaner over time. “I would hate to have all hydrocarbons banned in three years. It wouldn’t work. And on the other hand, what’s happening will be adapted to over time,” he said. He also said all companies, like all people, are flawed in one way or another.
Berkshire Hathaway annual meeting takeaways:
— Berkshire seeing “substantial inflation.”
— Still bearish on Bitcoin.
— Greg Abel will succeed Buffett.
— Regrets trimming Apple stake.
— Buffett doesn’t like SPACs.
— Recommends S&P 500 funds.
— Cautious on airlines.
— Defends Chevron.
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8 Things Warren Buffett Said at Berkshire’s Annual Meeting originally appeared on usnews.com