You can always count on Warren Buffett’s folk and joyful optimism.
But if you listened carefully to Buffett over the weekend at the Berkshire Hathaway shareholders meeting – his annual “Woodstock for Capitalists” was conducted virtually because of the coronavirus pandemic – his words often betrayed a deep sense of concern for the immediate future. This should be a warning to all investors and decision makers.
Each year for the past decade, I have sat on stage at this meeting in Omaha with Mr. Buffett and his best friend, Charlie Munger, as one of many journalists asking questions from the audience. His positivity, even during difficult economic times, always radiated with a clear feeling of certainty. After all, he is known as the Oracle of Omaha.
This is why it was disturbing to hear him repeatedly say “I don’t know”. He was careful to say that the markets would improve in the long run – even if his lead time was several decades, not months or even necessarily years from now. Commenting on the current climate, he said, “You can bet on America, but you have to be careful how you bet. He added, “just because the markets can do it all.”
At a time when the stock market was supported by politicians pushing for the reopening of America and hopeful investors often ready to ignore the immediate economic carnage, Mr. Buffett sounded a note of realism regarding the challenges to come.
He spoke of the possibility of a second wave of coronavirus infections. He recognized that the world could change dramatically in the years to come. And he spent a notable part of the meeting detailing the performance of the stock market since 1789, with a particular focus on the years between 1929 and 1951, a period in which the market took 22 years to return to its highs. .
More than his words, he spoke with his wallet. He usually appreciates a drop in the stock market to take advantage of lower prices. Not this time. He hadn’t made any purchases recently; he didn’t buy stocks when they fell last month in what looked like a mini-panic: “We didn’t do anything, because we don’t see anything so attractive to do. “
Juxtapose that with his actions in the midst of the financial crisis of 2008. At the time, he wrote a an article published in the New York Times one month after Lehman Brothers filed for bankruptcy: “In the short term, unemployment will increase, business activity will weaken and headlines will continue to scare. So … I bought American stocks. ”
This time, he married his capital. “Our position will be to stay in Fort Knox,” he said.
In other words, he hopes to protect the business if things get worse, and he’s clearly worried enough to make it happen.
He said the $ 137 billion he had on hand “is not that big when you think about the worst-case scenario.”
Let it seep. He added: “We are not preparing for a single problem, we are preparing for problems which sometimes create their own momentum. “
It comes from the same man who once said, “About every decade or so, dark clouds will fill the economic sky and rain briefly in gold. When such showers do occur, it is imperative that we rush outside with sinks, not teaspoons. “
In this crisis, he did the opposite: he sold his entire stake in the country’s four main airlines. His rationale appears to have greater economic implications for the world and the country than the simple financial challenges of airlines.
“I don’t know if in two or three years, as many people will travel as many passenger-miles as last year,” he said. “They can and they cannot, but the future is much less clear to me.”
A drop in the number of trips, depending on its depth, would have a huge domino effect on the economy and jobs in general: fewer people traveling means fewer jobs in all kinds of industries.
He also said that the energy, real estate and retail sectors all face problems that could spill over into the entire economy and the banking system.
With oil prices so low, lending to energy companies could jeopardize banks’ balance sheets, he said, and “you can imagine what is happening to the owners of capital.”
Speaking of real estate, he added, “If you own a mall, you have a group of tenants who don’t want to pay you right now, and the supply and demand for retail space can change quite significantly. He described a worst-case cascade: homeowners not paying their mortgages could ultimately create problems for the banks. Berkshire has investments in JPMorgan Chase and Bank of America. However, he said that banks were much better prepared for the challenges than in 2008.
A statement could have offered his most immediate point of view: “This is a great time to borrow money, which means that it may not be the perfect time to lend money. “
What motivates Mr. Buffett to be cautious?
In truth, he was always careful. He has always been more willing to lose an opportunity than to jump too early. “I don’t worry about the things I miss,” he says often.
If there is a silver lining, it is that Mr. Buffett did not predict fate and sadness, just that he was not sure of the direction we were taking, although, of course, he wished it better. If the right deal came, it would jump, he said.
“The American miracle, American magic has always prevailed and it will do it again,” he said.
In an era of polarized political battles over reopening and an apparent uncertainty among many business leaders and investors about what should happen next, Mr. Buffett’s humble approach is something we must all take to heart: will do tomorrow, next week, next month, next year. ”