Speaking of the US stock market crash of 1974, Warren Buffett reminded us the country didn’t disappear. “It’s just people behave in extreme ways in markets,” he said. “And over time, that’s very good for people that keep their heads.“
Faced with soaring inflation and an oil crisis, the S&P 500 lost nearly half its value in two years back then.
This time, the S&P 500 briefly dipped into official bear market territory with a fall of over 20%. We have the threat of inflation and pressure on all kinds of American companies thanks to President Trump’s trade wars. But at least oil is plentiful and cheap.
It wasn’t until the 2016 letter to Berkshire Hathaway shareholders that Buffett uttered what is possibly my favoutite of his quotes: “Every decade or so, dark clouds will fill the economic skies, and they will briefly rain gold. When downpours of that sort occur, it’s imperative that we rush outdoors carrying washtubs, not teaspoons.”
Learn from the past
It was old news even then. But recent events show how big investors still fail to learn the lessons of the past. And we still get these golden opportunities.
Buffett famously urged us “to be fearful when others are greedy and to be greedy only when others are fearful.” I’m not the first to suggest it could be greedy time right now.
At the end of December, Berkshire Hathaway’s cash pile stood at $334bn, the biggest it’s ever been. Buffett wasn’t buying highly-priced stocks hand-over-fist last year when everyone else was. I’m eager to hear what he does next.
The future for Apple
When Buffett’s favourite stocks are down, he’s famous for topping up. Might he add to Berkshire Hathaway’s holding of Apple (NASDAQ: AAPL), one of its top 10?
The slump in the aftermath of the first tariffs announcement has recovered a little. But Apple is still 25% down from December’s 52-week high. Perhaps ironically, top US tech stocks had been flying in the aftermath of Donald Trump’s election victory.
The big risk to Apple is those huge barriers to imports, particularly from China. That’s where a lot of iPhones and other Apple products and components are made.
One aim, apparently, is to persuade Apple to move manufacture to the US. But analysts suggest a made-in-USA iPhone could cost $3,500. And CEO Tim Cook has previously said the high-tech manufacturing capability just isn’t there.
No need to panic
We’ve had hints of tariff relief for phones and similar, though there are still huge near-term uncertainties facing Apple. But I have a prediction, based on a few key assumptions.
One is that, whatever President Trump thinks is the best way ahead for international trade, Apple won’t be left in the dust. High-tech companies are part of the lifeblood of the US economy. Some way will be found for Apple to keep on making and selling its products profitably.
And in years to come, investors who keep their heads could look back on this as a time to have been greedy. I definitely believe now is a great time for us to consider topping up on our favourite stocks.
