Warren Buffett is Worried About the Future
If you had invested broadly in the U.S. stock market on Aug. 30, 1930 — the day Warren Buffett was born — it would have taken 20 years to get your money back.
That gloomy anecdote was shared by Warren Buffett, the Oracle of Omaha himself, at the annual Berkshire Hathaway shareholder’s meeting on May 2.
Normally the annual Berkshire meeting is a huge shindig — it is nicknamed “Woodstock for Capitalists” — with investors, journalists, and Buffett and Munger superfans flying in from all over the world.
This time, the event was on video and live streamed by Yahoo Finance. Charlie Munger, Buffett’s long-time wingman, did not answer questions alongside Buffett as he usually does each year.
“Charlie is in fine shape,” Buffett assured his audience, but “it just didn’t seem like a good idea” for him to fly in from California. (Charlie Munger is 96 years old; Warren Buffett is 89.)
The notable thing about Buffett is his lack of bullishness these days. One might see him as worried and cautious, or even downright grim.
In the 2008 financial crisis, Warren Buffett was front-and-center as a patriotic stock market bull. On October 16 of that year, he published an editorial in the New York Times titled, “Buy American. I am.”
Here are the first two paragraphs:
The financial world is a mess, both in the United States and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher. In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary.
So … I’ve been buying American stocks. This is my personal account I’m talking about, in which I previously owned nothing but United States government bonds. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.) If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.
In 2020, the situation feels similar to 2008 (though in various ways, far worse).
As a result of this similarity, along with Buffett’s prominent past role as a champion of U.S. stocks, some investors and financial journalists have wondered aloud in recent weeks: “Where is Warren?”
Buffett is still here, but he isn’t bullish. He is worried about the future.
At various points in the live stream, Buffett delivered his usual mix of optimism and patriotism. “Nothing can basically stop America,” he said. “The American miracle, the American magic, has always prevailed and it will do so again.”
“I will bet on America the rest of my life,” Buffett also said. “I hope I’ve convinced you to bet on America.”
And yet, the optimism seemed perfunctory, a kind of going-through-the-motions. The signals that truly stood out were cautious and hesitant, at some points even dark.
Like the anecdote about buying stocks on Buffett’s birthday in 1930, for example, and needing 20 years to see a positive return on investment.
That is one of those little jokes that isn’t really a joke — more like a warning wrapped inside a chuckle.
At other points in the meeting, his answers sounded cautious to the point of raising eyebrows. When questioners pressed Buffett on how long it might take for markets to fully recover, he sounded like a farmer preparing for an epic drought.
“You can bet on America, but you kind of have to be careful about how you bet,” Buffett said, “simply because markets can do anything.”
If you read between the lines, that’s another warning.
Having advised his audience to “be careful about how you bet” because “markets can do anything,” one wonders if “anything” includes the August 1930 experience — 20 years of flat-to-negative returns.
(We should note there was still plenty of money to be made in the 1930s; it just wasn’t made via “buy and hold” across the broad U.S. market. Traders in the 1930s had a volatility roller coaster to take advantage of, and various niche industries, like gold stocks, delivered huge gains.)
If actions speak louder than words, Buffett’s actions were bearish also.
Known for his preferred holding period of “forever,” some were shocked to hear Berkshire Hathaway had sold off more than $6 billion worth of airline stocks.
All of Buffett’s airline plays — American, Delta, Southwest, and United — were closed out in April 2020.
“It turns out I was wrong,” he said. “The airline business — and I may be wrong and I hope I’m wrong — I think it has changed in a very major way.”
The Berkshire Hathaway cash pile also speaks volumes without saying a word.
Berkshire’s cash on hand grew from $128 billion to $137 billion — and Buffett displayed no sense of urgency at all in respect to putting that cash to work.
“We have not done anything, because we don’t see anything that attractive to do,” Buffett said. “Now that could change very quickly or it may not change.”
As if that weren’t enough, at one point, Buffett sounded downright apocalyptic.
“Our position will be to stay a Fort Knox,” he said, adding that a $137 billion cash pile “isn’t all that huge when you think about worst-case possibilities.”
We almost spit out our coffee on hearing that.
What kind of “worst-case possibilities” could Buffett be thinking of that would render a $137 billion cash pile anything other than huge?
Is he envisioning a Great Depression 2.0 scenario, filled with rolling pandemic shutdowns and riot control gear? If not that, what other “worst-case possibilities” could jeopardize $137 billion? Nuclear war? A tidal wave that takes out the Eastern seaboard?
Warren Buffett’s caution, his hesitance, and his grim undertones may come across as a mystery to some. Why does the Warren Buffett of 2020 sound so different, and so dark, in comparison to the cheerfully bullish Buffett of 2008?
To us it makes perfect sense. In 2008, there was a financial crisis that was quickly addressed via Wall Street bailouts and global stimulus from the world’s central banks. In 2020, we are dealing with something much different, and much worse.
You can’t solve a pandemic, heal a shattered real economy, or address unemployment and business failures approaching Great Depression levels, by whipping out a couple trillion in stimulus checks. Buffett can see that plain as day in our view — which is why the 2008-vintage Buffett is nowhere to be found. The 2020 situation, combining a real-economy crisis with an ongoing pandemic, is not like a standard-issue financial crisis at all — and the Oracle of Omaha knows it.