The Berkshire Hathaway Annual Meeting was a mixture of caution, wisdom and honesty. This was very refreshing after last year’s historical pep talk, which was void of any pep and was light on wisdom.

Caution

Buffett started out by showing the 20 largest capitalization companies in the world today. Then he showed the 20 largest in 1989. He asked how many remain among the largest today. The answer was zero. It was dominated by Japanese companies which were at the top of a mania. Beside Saudi Aramco, today’s list is loaded with U.S. technology giants and included Berkshire Hathaway (BRK.B). Buffett bought into Coca Cola (KO) in 1989, which wasn’t in the top 20 at that time.

The irony of this terrific exercise was the conclusion Buffett drew from it. Buffett used it to endorse ownership of the S&P 500 Index. History shows that the worst time to buy the index is when it is dominated by popular stocks. Imagine you bought the Nikkei Index in 1989 owning the largest Japanese stocks in the top five of the world list. Here is the Nikkei Index of the Tokyo stock market from 1989-2009. Who would be excited by the 20-years of losses in that index?

Sometimes we think that Buffett wants investors to be left with two choices for common stock investing, indexing or BRK.B. It seems a little out of line as we enter an era that is likely to reward a completely different set of investments than the prior era.

Warren and Charlie warned of “rampant speculation” as exhibited in SPACs and IPOs. He shared his favorite John Maynard Keynes quote:

“Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done.”

Trust Buffett and Munger, there will be torture in the stock market from this euphoria episode.

Buffett took a pretty good shot at today’s mega-popular growth stock managers emphasizing disruptive companies. There seems to be hundreds of disruptive companies out there and supply is only held back by an under-funded SEC. He used the auto industry as his poster child.

There were about 2,000 auto companies in U.S. history and the industry did truly change everything in society. In totality, investors took a massive bath in losses from 1929 through 1981 because picking winners in the auto industry was like finding a needle in a haystack. There have been two government bailouts of the industry in 1980 and 2008. Will today’s disruptive industries produce a much different result? History and Buffett argue, “No!”

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