Even the Oracle of Omaha has seen a few firsts with this Pandemic at bay. For starters, it was the first time Buffett went virtual to report the recent financial performance of Berkshire Hathaway, which typically is a week-long extravaganza- a treat in itself. He confessed never to have presented with the assistance of PowerPoint slides in his entire lifespan, but gave it a shot; another first which he wittily referred to as teaching an old pony a new trick.
Besides these, another first that the Berkshire Hathaway conglomerate witnessed was reports of a whopping $49.7 billion loss in the first quarter. More than 90 of their businesses are suffering the negative economic impact of the pandemic.
Buffet is known as the world’s finest investors; his advice is keenly followed and revered by investors across the globe. Here are some insightful investment lessons for us from his latest moves:
“Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.”
Buffet has always been optimistic and enthusiastic in encouraging investors to take advantage of market selloffs. But this time Berkshire has shied away from investing. Their cash reserves have hit a whopping $137.3 billion from $128 billion at the end of 2019; while they repurchased $1.7 billion of their own stocks.
“I don’t believe anyone knows what the market is going to do tomorrow, next week, next month, next year.” claimed Buffett. The uncertainty the pandemic has brought with it and the caution he raises for the future of the markets are clear signs we must be prepared for long-term volatility. The cash reserves according to him aren’t enough for the conglomerate to sustain in the worst-case scenario. His rationale is what we can follow in our equity investments by ensuring we adhere to our risk appetite while keeping liquid reserves aside and investing only surplus with long-term gains in mind.
“Never lose money. Stay rational and stick to your homework when researching businesses in which to invest.”
Buffett admitted to a mistake made in buying a 10% stake in the four largest U.S. airlines to the tune of approximately $8 billion and completely exited them in April 2020. What could have been a profitable investment has turned into a colossal loss due to a bleak future the travel industry faces ahead. Buffett has always advocated the need for investors to stay rational and invest in businesses with a future. He is known for following a few guidelines while investing and looks for business that he understands and can easily project its future. His move to quickly quit a bad investment proves that no one can predict the future, but that should not make us shy away from correcting the errors we make. If your foresight on an investment fails, make the right move even if it means quitting it. Additionally, that experience should not deter you from taking further chances on other good investments in future.
“Don’t bet against America”
Buffett is still bullish about investing in American markets with a view that they will rebound. But this time he seemed more cautious unlike in 2008 when he boldly stated “Buy American. I am.” History has proven that even through the worst crashes of 2001, 2008 or even prior, the markets have always rebound. Some have taken months while others may have taken years, but they always ricochet. Historical data can divulge much more about sectors and niches that have been successful in bouncing back to normalcy in the past. Your equities that underperformed today could be your most profitable investments of tomorrow. In other words, a forecast cannot provide the assurance that history clearly can. And, in the words of Buffett, “In the business world, the rearview mirror is always clearer than the windshield.”
Let’s continue to look ahead, albeit with caution and insight to guide us through these unprecedented times.