But Warren Buffett’s annual letter to Berkshire shareholders last week suggested no big acquisition plans. Neither was there any promise of one by the Oracle of Omaha, whose company was sitting on a cash pile of $138 billion at the end of 2020.
As Buffett says, “The difference between successful people and really successful people is that really successful people say no to almost everything.”
Buffett’s Berkshire Hathaway bought back another $9 billion worth of shares in the December quarter, taking its total buybacks for 2020 to $24.7 billion.
“In no way do we think Berkshire shares should be repurchased at simply any price. I emphasise that point, because American CEOs have an embarrassing record of devoting more company funds for repurchases when prices have risen than when they have tanked. Our approach is exactly the reverse,” Buffett said.
The cue? Invest in what you understand, and do so at marked down price.
On Dalal Street, 339 out of BSE500 stocks have rallied 100-2,500 per cent since their 52-week lows. Chances are, the majority of investors who had invested in the market at March lows would have been sitting on good profits now.
But does the latest surge in volatility make you worry?
Buffett says risk comes from not knowing what you’re doing. “Buy a stock the way you would buy a house. Understand and like it such that you’d be content to own it in the absence of any market,” says the Oracle of Omaha.
Diversify, buy and hold
Buffett in his annual letter said tens of millions of other investors and speculators in the United States and elsewhere have a wide variety of equity choices to ‘fit their tastes’.
“They will find CEOs and market gurus with enticing ideas. If they want price targets, managed earnings and ‘stories’, they will not lack suitors. (Market) Technicians will confidently instruct them as to what some wiggles on a chart portend for a stock’s next move. The calls for action will never stop,” he said.
Many of those investors will do quite well, Buffett said. “After all, ownership of stocks is very much a ‘positive-sum’ game. Indeed, a patient and level-headed monkey, who constructs a portfolio by throwing 50 darts at a board listing all of the S&P500 will – over time – enjoy dividends and capital gains, just as long as it never gets tempted to make changes in its original selection,” he says.
But as Buffett says, “The stock market is designed to transfer money from the active to the patient.”
Buffett says productive assets such as farms, real estate and business ownership will also produce wealth. “All that’s required is the passage of time, an inner calm, ample diversification and a minimisation of transactions and fees. Still, investors must never forget that their expenses are Wall Street’s income. And, unlike my monkey, Wall Streeters do not work for peanuts,” he said.
The investing great says people should not feel comfortable holding cash equivalents. “They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value,” he said.
“If you are not investing, you’re doing it wrong,” says Buffett.
He says people should not find comfort in cash equivalents. “If they do, they might have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value,” says he.