Warren Buffett cautions new stock investors at his annual meeting
Warren Buffett on Saturday cautioned new investors rushing into markets.
He spoke at the start of Berkshire Hathaway’s annual shareholders’ meeting, according to him, the value of the top companies in the world (Apple worth more than $2 trillion) has increased significantly, but importantly there was not a single company on the list today that was there in 1989.
“We were just as sure of ourselves, and Wall Street was, in 1989 as we are today. But the world can change in very, very dramatic ways,” said Buffett.
While the tremendous increase in value of the top global companies (now worth trillions instead of billions) tells you some things about equality and inflation, it mainly tells you “that capitalism has worked incredibly well, especially for the capitalists,” said the investor.
His major lesson for new investors was that the change in the individual top stocks over time showed the importance of having a broad, well-diversified portfolio, such as through passive index funds.
“One thing it shows, incidentally, is it’s a great argument for index funds. The main thing to do is be aboard the ship,” he said.
Since the start of the Covid-19 pandemic, retail brokerages have reported surging user numbers, with some surveys showing that many of those users are first-time investors. The rise has been attributed in part to the stimulus checks, which boosted personal income in the U.S., and lack of entertainment options during the pandemic.
In the early months of 2021, this boom in growth has continued. Amid the GameStop trading surge and another round of fiscal stimulus checks, stock trading app Robinhood added more than 5.7 million clients in the first two months of the year, according to estimates from JMP Securities. Plus, legacy e-broker Charles Schwab added more accounts in the first quarter of 2021 than in all of 2020.
The billionaire also cautioned investors about the difficulty in identifying winners in new and growing industries. He pointed to the large number of companies that made automobiles in the early 1900s, most of which closed down or got out of the car business well before the industry had matured.
“There’s a lot more to stock picking than just figuring out what is going to be a wonderful industry in the future,” he said.