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- Warren Buffett cautioned new stock-pickers that investing isn't a cakewalk.
- The Berkshire Hathaway CEO said he was probably wrong to trim Apple and sell Costco.
- Here are the 7 key takeaways from Berkshire's annual meeting this year.
- See more stories on Insider's business page.
Warren Buffett cautioned newbie investors not to get cocky, admitted he was likely wrong to sell Apple and dump Costco, and defended "big tech" valuations at Berkshire Hathaway's virtual annual meeting on Saturday.
The billionaire investor and Berkshire CEO also clarified how much cash he's willing to spend, dashed hopes for an imminent acquisition, revealed he's bought stocks that he's not comfortable owning, and highlighted rising inflation and a booming US economy.
Here are the 7 key takeaways from Berkshire's annual meeting:
1. Investing isn't easy
Buffett pointed out that the world's biggest companies 30 years ago are totally different to those on that list today, and out of roughly 2,000 automakers in the 1930s, only three were still in business by 2009.
"There's a lot more to picking stocks than figuring out what's going to be a wonderful industry in the future," the Berkshire chief said. He suggested investing neophytes consider that "before they try and do 30 or 40 trades a day in order to profit from what looks like a very easy game."
Buffett also accused Robinhood of encouraging its users to gamble on stocks and engage in high-risk options trading. He repeated his famous warning to speculators: "Nobody tells you when the clock is going to strike 12, and it all turns to pumpkins and mice."
2. Selling Apple and Costco was a mistake
Berkshire was "probably wrong" to cash out $11 billion of Apple stock and exit its billion-dollar Costco stake in the fourth quarter of 2020, Buffett said.
The investor disclosed that Charlie Munger, his business partner and Berkshire's vice-chairman, told him not to make those trades.
"I can only get away with so many things with Charlie, and I kind of used them up between Costco and Apple," Buffett said. "My biggest lesson has been to listen more to Charlie."
3. "Big tech" stocks aren't expensive
"We don't think they're crazy," Buffett said about the current valuations of leading tech stocks such as Apple, Alphabet, and Microsoft.
The Berkshire chief explained that when interest rates are near zero and bond yields are so low - assuming they're not mispriced - then those companies are a "bargain." Given their exceptional cash generation, the top tech stocks are "very, very cheap," he added.
"We've always known that the dream business is the one that takes very little capital and grows a lot," Buffett said. "Apple and Google and Microsoft and Facebook are terrific examples of that."
Buffett's comments are notable because he's historically eschewed technology companies in favor of cheaper, more staid businesses that he understands. However, Berkshire's $35 billion bet on Apple and wagers on Snowflake and StoneCo in recent years suggest the company has evolved, and now a lack of better options has made "big tech" stocks even more attractive to Buffett and his team.
4. Buffett has bought "so-so" stocks
Perhaps Buffett's strangest admission of the day was that he's made investments with little conviction.
"We bought some stocks we really don't know that much about," he said. "I'm not really comfortable doing that."
"Charlie and I know the business generally, but we don't have any insights," Buffett continued. He added that their purchases are perfectly good companies, and probably a better investment than Treasury bills, but he's still not totally comfortable betting big on stocks that he's "kind of so-so about."
Buffett famously researches stocks intensively and seeks out companies where he's confident he has a competitive edge as an investor. It's notable that he's reaching beyond his comfort zone to find value in the current market.
Munger summed up the situation: "We're used to shooting fish in a barrel, but that's gotten harder."
5. Berkshire needs a bigger safety net
Buffett has previously pledged to never let Berkshire's cash reserves fall below $20 billion, as he never wants to depend on the kindness of strangers.
"We're going to raise that number," Buffett said at the meeting, citing Berkshire's increased size and importance. He suggested Berkshire could have deployed $50 billion or $75 billion when the market crashed last year, and now has $70 billion to $80 billion he would like to invest.
Given Berkshire has roughly $140 billion in cash, it seems Buffett won't let his dry powder dip below $60 billion going forward.
6. No acquisitions on the horizon
Buffett dashed hopes that he'll finally make an "elephant-sized acquisition" after promising one for years.
"We're not going to have much luck on acquisitions," he said, blaming intense competition for deals. He described the boom in special-purpose acquisition companies (SPACs), which go public with the explicit purpose of purchasing a private company as soon as possible, as "a killer."
"We won't get a chance to do it under these conditions," Buffett continued. While Berkshire has some potential tie-ups on its radar, they're unlikely to happen because rivals will pay more, he said.
"We do have people that would like to join us, but the market option they have is just too great for them,"Buffett said. "If they're publicly traded, they would have great difficulty making a deal with us, because somebody else would come along using other people's money."
Buffett gave the example of Canadian Pacific Railway, which has agreed to merge with Kansas City Southern in a $29 billion cash-and-stock deal. Berkshire looked at buying Canadian Pacific but wasn't willing to pay that much, he said.
"It's kind of play money to some degree," Buffett said. "When interest rates are this low."
7. The economy is booming but inflation is rising
The "red-hot" US economy may be roaring again, but prices are climbing, Buffett noted at the meeting.
"85% of the economy is running in super-high gear," he said. Meanwhile, Berkshire and its various suppliers are raising prices and the higher costs are being accepted, he continued.
"We're seeing very substantial inflation," he said. "The costs are just up, up, up," he said about Berkshire's sprawling homebuilding operations.
Buffett also touched on the loose monetary and fiscal policy that is galvanizing economic growth. It's likely to continue in "a very big way" if it doesn't cause harm, he predicted, as it boosts stock prices, helps businesses flourish, and keeps the electorate happy.
Munger was more bearish, saying the economy is in "uncharted territory," and spending too much for too long will end in disaster.