Berkshire’s operating divisions collectively recorded a 5.4% year-over-year increase in revenues, from $61.265 billion to $64.599 billion. Pretax income for its operating divisions was up by 23.8%, from $6.926 billion to $8.577 billion. Berkshire continues to hold a large reserve of cash, cash equivalents, and short-term investments in U.S. Treasury Bills. The combined figure as of March 31, 2021, was $142.211 billion, up from $135.014 billion on December 31, 2020, for an increase of 5.3% over the three months.
The Average Person Can’t Pick Stocks
Buffett reiterated his longstanding suggestion that the average investor is best served by investing in an S&P 500 index fund, and not by trying to pick stocks. By way of illustration, he presented lists of the top 20 largest companies in the world by market capitalization, both in 1989 and today. He pointed out that none of the top 20 in 1989 remains in the top 20 today. Moreover, the largest such company today, Apple Inc., with a market cap of over $2 trillion, is more than 20 times more valuable than the largest company in 1989. Buffett made an oblique comment implying that making “30 to 40 trades a day” is not a wise way to invest.
People Get Inordinately Attracted to Industries
Buffett advised new investors that they should choose a diversified index fund rather than try to pick stocks; he also noted that few investors have been able to pick the long-term winners. “There’s a lot more to picking stocks than figuring out what will be a wonderful industry,” he said. Using the auto industry as an example, he observed that there are more than 2,000 defunct companies in the U.S. alone. By 2009, there were just three U.S. automakers, of which two were in bankruptcy at the time. Munger added, “You can’t anticipate where the market bottom is.”
We’ve Had a Lot More People in the Casino
In addition to an explosion of gamblers in the market who engage in day trading and options trading in the past year, Buffett and Munger also see negative impacts from the rise of SPACs which are bidding up the price of potential acquisitions. Buffett called SPACs an “exaggerated version of gambling” for which investors “pay silly fees” and in which the managers often invest money to get a fee, not because the investments are good. In response to a later question about trading apps such as Robinhood, Buffett opined that they are adding to the gambling problem in the markets. He is eager to read the prospectus whenever Robinhood goes public, to see details on how they make money while not charging commissions.
It’s a Mistake to Be Anti-Capitalist
Munger said that Millennials will have a lot more difficulty getting rich than previous generations and it’s stupid for states to drive out wealthy people” who pay the majority of taxes and support philanthropic and civic institutions. Responding to a question about capitalism in communist China, Munger said, “It’s a remarkable shift that China saw what worked in Hong Kong…It’s worked like gangbusters, lifting 800 million people out of poverty fast.”
About cryptocurrencies, Munger said, “I don’t welcome a means for paying kidnappers and extortionists.” Buffett said that he didn’t want to alienate shareholders who hold such investments.