Warren Buffett is the most closely followed investor in the world, and every year, shareholders of Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) look forward to hearing what the Oracle of Omaha has to say. Because of the coronavirus pandemic, however, the tens of thousands of people who would ordinarily descend on Nebraska's largest city to see Berkshire's annual shareholder meeting have instead had to settle for a live-streamed remote event.
Despite not being able to invite shareholders to join him in person, Buffett nevertheless wanted to be sure to keep the lines of communication with investors open. Berkshire's chairman and CEO had plenty to say, answering questions compiled by well-known financial journalists and addressing some of the most important issues that Buffett's followers have had on their minds lately. Here are some of the most interesting things Buffett had to say at the May 2 shareholder meeting.
1. Buffett still believes in stocks -- for the long haul
Buffett has always believed in America, and nothing about the coronavirus pandemic has changed his views on that. He gave an extended history lesson about the nation, pointing to the challenges it's faced in the past and the way in which it has overcome them.
Buffett has no illusions that he can predict where stocks will be tomorrow, next week, next month, or even next year. But he thinks America in 2020 is in better shape than it's been at any other time in its history, and he believes that investors who put money in stocks for the long run now will be amply rewarded.
2. If you don't want to buy individual stocks, Buffett thinks an S&P 500 index fund is still fine
Buffett has famously said that he suggests that a perfectly good way for investors to participate in the gradual rise of the stock market over time is to invest in an S&P 500 index fund. With low expenses, index funds can give investors exposure to a wide swath of the businesses that have been responsible for America's economic success over the decades.
Indeed, investing in an index fund isn't just a bet on the success of America. With so many multinational companies in the S&P 500, index funds give you ownership in the companies that are finding success around the globe.
3. Buffett doesn't want you to pay for financial advice you don't need
On a related topic, one reason Buffett advises index funds is that they're inexpensive. Too many people pay large amounts of money for financial advice, and Buffett is critical of the performance that most financial advisors are able to achieve. Buffett believes that most salespeople in the financial industry aren't able to deliver superior results, despite the fact that those salespeople generally "believe their own baloney," in his words.
4. Buffett thinks bonds aren't as good an investment as stocks
Another reason Buffett likes stocks right now is that the alternatives aren't very good. U.S. Treasury bonds with 30-year maturities yield just 1.25%. Berkshire itself has taken advantage of low interest rates by borrowing money at zero interest rates.
Buffett thinks America's economic tailwinds will persist. But when all it takes to beat 30-year Treasuries is to match the rate of inflation, it's even more of a no-brainer in the Berkshire chief's views to invest in stocks instead.
5. Buffett admits a mistake with airline stocks
There's been a lot of speculation about the moves that Berkshire Hathaway has recently made with its airline stock holdings. In early April, Berkshire sold substantial amounts of its holdings in Delta Air Lines (NYSE:DAL) and Southwest Airlines (NYSE:LUV), with disclosures necessary because of Berkshire's having held more than 10% of the two airlines' outstanding shares. At the time, it seemed as though Buffett might simply be reducing its positions below 10% to avoid future complications.
However, Buffett reported selling a total of $6.5 billion in stock during April, far more than the Delta and Southwest sales that had been reported and also including shares of United Airlines Holdings (NASDAQ:UAL) and American Airlines Group (NASDAQ:AAL) as well. Questioned later, the Berkshire CEO said that the company sold off its entire positions in the four airlines. As he explained it, he "just decided I made a mistake." He had initially figured that investing $7 billion to $8 billion to buy 10% stakes in the four biggest U.S. airlines would give him about $1 billion in underlying earnings, which seemed like a reasonable value. However, Buffett said, "It turned out I was wrong about the business."
Buffett didn't blame airline CEOs, who managed their companies well and did a lot of things right. However, the Berkshire leader no longer feels comfortable that airlines will ever recover to their pre-coronavirus levels, and even two to three years from now, it's possible that not nearly as many people will be flying. Unfortunately, even if airlines recover 70% to 80% of their pre-crisis passenger loads, they'll still have far too many planes. With airlines selling stock to raise capital, upside is limited. Buffett concluded, "The world changed for airlines, and we wish them well."
Keep watching Warren
Buffett has an optimistic attitude that investors around the globe find compelling. Even with all the uncertainty related to the coronavirus pandemic, the Oracle of Omaha's general demeanor was positive.
For those who have been near panic as a result of the bear market in February and March, listening to Buffett can restore confidence in the stock market as a creator of long-term wealth. No matter what happens to the stock market in the months to come -- or to Berkshire's share price on Monday -- Buffett's words will provide reassurance and remind us how we've always managed to overcome difficult challenges in the past -- and will again this time.