This is every investors nightmare isn’t it? You have just finally plucked up the courage after potentially years of other people telling you that they’ve been involved and have been getting results and then ‘boooommm’ – day one and markets fall 3-5%.
Is this actually an issue? According to Warren Buffett, arguably the most successful investor of all time, the simple answer is ‘no’. He is very clear that if you are taking a long term view then the small peaks and troughs of the normal trading environment matter very little. As can be seen in the below interview that he recently gave, when he buys a position he is doing so with a 20-30 year vision, and this is the most simple way to view the market.
As Buffett tells us below, equities will outperform any other asset class in the long term. Of that he is clear. So why do so many people get it so wrong?
In my experience this comes down to the mental positioning at the outset and the design of the portfolio that they are investing in to. If somebody is aggressive and looking for big returns, then they have to accept that they need to be willing to hold the assets for a long time, as Buffett says. The problem comes when people want the big returns in a short period of time – ‘well, the US market returned over 30% last year so I’m going to get myself involved in that to boost the house deposit that I have been saving up for and intend to lay down in one year’ – error. This person has now placed their house deposit at risk and it is highly unlikely that the US market will return 30% plus two years in a row. Further, the logic that it will do it again purely because it did so last year has absolutely no substance to it from a fundamental perspective.
Remember, in the long term, it is fundamental economics which impact the long term growth of equity markets. There will be positive days and there will be negative days throughout the duration of your investment horizon. If you are looking for a quick win then you need to get lucky or have real conviction in what you do and it needs to be done with a tiny percentage of your overall pot. If it was easy then there would be more people like Warren, however, there is only one – and his message is clear – do not change your strategy – do nothing or keep buying:
As stock futures dropped before Monday’s opening bell, Buffett said “that’s good for us.” “We’re a net buyer of stocks over time,” he said. “Most people are savers, they should want the market to go down. They should want to buy at a lower price.”
Warren Buffett interview highlights: ‘Good’ when stocks fall, likes Apple a lot, coronavirus impact
By Pippa Stevens
Warren Buffett joined CNBC’s Becky Quick with an exclusive three-hour interview on “Squawk Box” on Monday.
Below are all the highlights:
9:02 am: Long-term outlook ‘not changed’ because of the coronavirus
As the coronavirus outbreak sparks fears of a slowdown in global growth, Buffett closed the CNBC interview saying his long-term outlook remains unchanged.
“We’re buying businesses to own for 20 or 30 years. We buy them in whole, we buy them in parts … and we think the 20- and 30-year outlook is not changed by the coronavirus.”
8:59 am: Buffett says Kraft Heinz should pay down debt, maintain dividend
“I think Kraft Heinz should pay down its debt. Under present circumstances, it appears that it can pay the dividend and pay down debt at a reasonable rate,” Buffett said. “And it has too much debt, but it doesn’t have debt it can’t pay down. The debt holders are going to get the interest and the debt should come down by year-end. I think it will, and I think it can with the present dividend.”
8:57 am: Buffett says he talked to his ‘science advisor’ Bill Gates about the coronavirus
The Berkshire Chairman said he spoke to Microsoft founder Bill Gates about efforts to contain the spread and impact of the coronavirus. “Now what they hope to get is a universal flu vaccine, but that’s a long way off. It isn’t impossible. I mean I asked my own — my own science advisor is Bill Gates … I talked to him in the last few days about it and he’s bullish on the long-term outlook for a universal prevention of it.”
8:45 am: Cryptocurrency has basically ‘no value’
“Cryptocurrencies basically have no value,” Buffett said, noting that they don’t produce anything or mail investors checks. Instead, the value is derived from the belief that someone else will value the more highly in the future. “In terms of value, you know zero,” he said.
8:34 am: ‘Premium’ for buying businesses outright
As a conglomerate, Berkshire Hathaway is known for acquiring entire businesses. But recently, Berkshire has favored buying shares of companies, but not the entire entity. “There’s quite a premium,” Buffett said of buying an entire business. “Part of the premium is because you can borrow so much money so cheaply in buying those businesses.”
8:28 am: These are ‘very unusual conditions’
As the yield on the U.S. 10-year Treasury sank to its lowest level since July 2016, Buffett said there are “very unusual conditions.”
“It makes no sense to lend money at 1.4% to the U.S. government, when it’s government policy to have 2% per year inflation. The government is telling you we’re going to give you 1.4% and tax you on it, and on the other hand we’re going to presumably devalue that money at 2% per year. So these are very unusual conditions.”
8:15 am: Buffett says he got a smartphone
Despite owning a large position in Apple, Buffett famously never had a smartphone — until now. “My flip phone is permanently gone,” he said.
8:11 am: It is ‘harder’ for Berkshire to buy back shares than for other companies
Buffett said it’s difficult for Berkshire Hathaway to buy back large numbers of its shares. “It’s harder to buy back Berkshire Shares than say Bank of America buying back its stock … they can really do it without moving the market.” “Berkshire is held by people that really primarily keep it,” he said.
8:04 am: Apple is ‘probably the best business I know in the world’
Apple is Berkshire Hathaway’s third largest holding behind insurance and railroads, Buffett said. He called the company “probably the best business I know in the world.” Berkshire owns roughly 5.5% of the business, he said.
7:54 am: Would ‘certainly’ vote for Bloomberg
Buffett said he would “certainly” vote for Mike Bloomberg. “I don’t think another billionaire supporting him would be the best thing to announce. But sure, I would have no trouble voting for Mike Bloomberg.”
7:50 am: Buffett says he’s a ‘card-carrying capitalist,’ but not a ‘card-carrying Democrat’
Buffett said that while he’s a Democrat, he’s not a “card-carrying Democrat” and has voted for Republican candidates in the past. As Sen. Bernie Sanders surges in the polls, Buffett said, “we will see what happens” regarding the Democratic nominee. Buffett did say that he’s a “card-carrying capitalist.”
7:41 am: Buffett says Berkshire is worth the same with or without him
In recent years there have been questions about what happens at Berkshire Hathaway in the era after Buffett, who is 89. “Berkshire without me is worth essentially the same as Berkshire with me. My value added is not high, but I don’t think I’m subtracting value,” he said.
7:38 am: Buffett says bank stocks are ‘very attractive compared to most other securities’
“I feel very good about the banks we own. They’re very attractive compared to most other securities I see,” Buffett said. Banks are a big part of Berkshire Hathaway’s portfolio, which is worth more than $248 billion. Goldman Sachs, JPMorgan Chase, Bank of America, BNY Mellon, and U.S. Bancorp were all among Berkshire’s 15 largest stock holdings.
Correction: An earlier version misstated Buffett’s title. He is chairman and CEO of Berkshire Hathaway.
7:32 am: Wells Fargo shareholders would be ‘a lot better off’ had company addressed problems sooner
Berkshire has been selling its stake in Wells Fargo, and Buffett said the bank is a “classic in terms of one lesson,” which is that the company should have attacked its phony accounts scandal “immediately.” “They had an obviously very dumb incentive system,” Buffett said. “The big thing is they ignored it when they found out about it.” Buffett said shareholders would be “a lot better off” if the bad practices weren’t ignored, which was a “total disaster.”
7:20 am: ‘Would not be a profit’ if Berkshire were to be split up
While some have said that Berkshire Hathaway’s businesses could be more profitable if the conglomerate were to split, Buffett said that would actually be bad for business. “You can have spinoffs … you cannot dispose of the entire business without having very substantial tax liabilities,” he said. “It would not produce a gain. Having them together, however, produces very valuable synergies.”
“There would not be a profit if we were simply to announce that over the next 24 months you could come in and buy any business we had and we would sell to the highest bidder,” he added.
7:13 am: Coronavirus outbreak shouldn’t affect what investors do with stocks
Buffett said that while the coronavirus outbreak is daunting for the human race, it shouldn’t impact investors’ portfolio decisions. “It is scary stuff. I don’t think it should affect what you do with stocks, but in terms of the human race it’s scary stuff when you have a pandemic,” he said. Berkshire Hathaway’s annual meeting is May 2, which Buffett said the coronavirus could “very well” impact.
7:05 am: Buffett warns that ‘reaching for yield is really stupid’
The Berkshire Hathaway chief said that investors should not reach for yield beyond their risk-tolerance, even with interest rates so low and stocks seemingly like the only place to get a return. “Reaching for yield is really stupid. But it is very human,” he said, delivering sobering advice to folks near or in retirement. “People say, ’Well, I saved all my life and I can only get 1%, what to do I do? You learn to live on 1%, unfortunately.”
7:00 am: Berkshire’s cash pile stands at $128 billion, we’d ‘like to buy more’
Berkshire Hathaway’s cash balance now stands at $128 billion, leading some investors to question why the Oracle of Omaha hasn’t put the firm’s war chest to work. “We’d like to buy more,” he said, after being asked about his cash on hand.
6:55 am: Buffett says American public going ‘wild’ with enthusiasm for index funds
As passive investing becomes more and more popular, Buffett likened index funds to conglomerates, saying the American public is going “wild” with enthusiasm for passive investing. “You buy 500 businesses all put together, and I mean that’s the ultimate conglomerate.”
6:46 am: Buffett says economy is ‘strong,’ but a ‘little softer’ than 6 months ago
Buffett said that while the U.S. economy still looks healthy, it isn’t as robust as it was even half a year ago thanks to a combination of global headwinds. “It’s strong, but a little softer than it was six months ago, but that’s over a broad range,” he said. “Business is down but it’s down from a very good level,” he added.
6:39 am: Buffett won’t reveal why he sold Wells Fargo
Berkshire Hathaway sold some of its Wells Fargo position in the fourth quarter, filings revealed, but when Buffett was pressed for why the firm decreased its position he wouldn’t reveal why. “We’ve bought Bank of America and sold Wells Fargo,” he said.
6:25 am: ‘Very significant percentage of business’ impacted by coronavirus
As the coronavirus outbreak hits stocks, Buffett said, “a very significant percentage of our businesses one way are affected.” He added, however, that the businesses are being affected by a lot of other things, too, and he said the real question is where those businesses are going to be in five to 10 years. “They’ll have ups and downs,” he said.
Specifically, he pointed to Apple and Dairy Queen being hit, as well as carpet maker Shaw Industries.
6:19 am: Buffett says he’s bought stocks every year since he was 11
Buffett said that no matter what’s going on in the market, he’s always been an overall net buyer of stocks. “I’ve been a personal net buyer of stocks ever since I was 11, every year.”
“I haven’t bought stocks every day. There have been a few times where I thought stocks have been quite high, but that’s very seldom” he added.
6:11 am: Don’t buy or sell ‘based on today’s headlines’
As volatility in the market increases because of the coronavirus, Buffett said not to make investing decisions based on day-to-day moves. “You don’t buy or sell your business based on today’s headlines. If it gives you a chance to buy something you like and you can buy it even cheaper, you’re in good luck,” he said, adding that “you can’t predict the market by reading the daily newspaper.”
6:06 am: ‘That’s good for us,’ Buffett says of dropping stocks
As stock futures dropped before Monday’s opening bell, Buffett said “that’s good for us.” “We’re a net buyer of stocks over time,” he said. “Most people are savers, they should want the market to go down. They should want to buy at a lower price.”
CNBC’s Tom Franck, Michael Sheetz and Matthew Belvedere contributed reporting.
