If you measure the total value of Warren Buffett’s net worth, the billions he’s made in his lifetime make him the most successful broad-based investor of all time. Although he’s also leveraged his returns along the way using Partnerships and his conglomerate Berkshire Hathaway.
Nevertheless, Buffett has been consistent in his approach to investing and has achieved solid returns over a very long period. He’s now 89 years old and still investing. And, over the years, he’s broadcast similar messages to those eager to listen. But this time, the messages are different.
Buffett is being cautious
We’re used to Buffett jumping right into stocks when markets crash and the outlook is stormy. But I read an interesting article in the New York Times (NYT) arguing that this time he’s being more cautious. At the recent Berkshire Hathaway annual meeting, Buffett made several comments suggesting he’s more worried about the immediate economic future now than he has been before.
For example, Buffett went out following the credit crunch in the noughties and bought many stocks. But so far in this crisis, he’s bought very little. And he sounded cautious during the meeting. Buffett, like all of us, doesn’t know what will happen next, but he talked about the possibility of a second wave of coronavirus infections.
And he reckons the world may be different from how it was before the Covid-19 pandemic, for years to come. Meanwhile, such changes may affect the overall performance of the stock market ahead. Buffett spent a fair while talking about the years between 1929 and 1951 – when the stock market took 22 years to get back to its highs. To me, that suggests he sees the possibility of a similar performance following this crisis.
A changing world
We already know Buffett dumped his holdings in the airlines. At the meeting, he said: “I don’t know whether two or three years from now that as many people will fly as many passenger miles as they did last year.” And, as Andrew Ross Sorkin pointed out in the NYT article, the phrase “I don’t know” came up a lot in his utterances. And that strikes me as a big change from the confidence he’s always displayed during previous economic set-backs.
Buffett expressed his concerns that a drop in travel could affect the wider economy and employment. He pointed to vulnerable sectors such as energy, real estate, retailing, and banking. He reckons it’s possible that a domino effect could cause many sectors to struggle in the years ahead.
Naturally, Buffett is as bullish as ever for the long-term. But, for now, and perhaps for years, my read is that we find ourselves in a stock-picker’s market perhaps more than ever before. So, to follow Buffett and get rich beginning with this stock market recovery, I’d be cautious and choose shares carefully. I’d also buy shares with a long-term holding horizon in mind.
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Kevin Godbold has no position in any share mentioned. The Motley Fool UK owns shares of and has recommended Berkshire Hathaway (B shares) and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), and short June 2020 $205 calls on Berkshire Hathaway (B shares). Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.