Warren Buffett answered a broad range of questions at the annual meeting of Berkshire Hathaway
Mixed Views On Markets
Buffett’s views on the markets were somewhat mixed. On the one hand he mentioned that he could perhaps see lower interest rates justifying high stock valuations. In addition, the fact that high government spending and low interest rates had not yet produced inflation, suggested many economic models might be wrong, and that may present an opportunity for investors too. However, Buffett’s view was more that we may be uncharted territory, rather than seeing a clear opportunity.
Sitting On Cash
However, Buffett stated that Berkshire had perhaps 10% to 15% more in cash than it strictly needed to. That works out to tens of billions of dollars, and is a sign that he isn’t finding bargains in the current market. However, has been repurchasing its own stock. Also, the surge in SPAC activity was hampering Berkshire’s efforts to do deals. He mentioned how SPACs needed to close deals over a limited time was bidding up prices, as was the current environment of low interest rates.
So Buffett wasn’t sounding the alarm on markets. This was interesting in itself, as on historical measures markets do appear expensive. However, his cash holdings and concern over SPAC activity, suggest he doesn’t view markets as cheap.
On Bitcoin and other crypto assets, Buffett was more measured than in past years. He elected not to speak out against the asset class, though his partner, Charlie Munger shared his negative views. Based on past statements, Buffett is not a fan either, but he chose to be more measured this year. Buffett is generally anti-gold as an investment as well, so to the extent Bitcoin is the new gold, that explains some of Buffett’s lack of enthusiasm.
As he often does, Buffett made a pitch for index funds. Upon his death, his wife is expected to be invested primarily in an S&P 500 tracking fund. Though Buffett can pick stocks, he is skeptical that many others can, and believes index funds are the way to go. He is also continually bullish on America, hence the choice of the S&P 500 as the index to track.
In fact, Buffett shared some evidence on the challenge of picking winners. He showed a chart of the top 20 largest stocks from 1989. They were all entirely different from today’s top twenty names. In part this was due to the surge in the Japanese stock market at the time, but it made the point that picking long-term winners is never easy. However, with a broadly diversified index fund you are almost guaranteed to own the names that are doing well.