The duo, Warren Buffett and Charlie Munger, need no introduction.
For those living under a rock, Buffett is widely considered the most successful investor of the 20th century and is the chairman and CEO of Berkshire Hathaway. Munger is the vice-chairman of the conglomerate.
Combine the pair and you have more than one and a half century of experience. So, when they say something, investors are all ears.
On 30 April 2022, Buffett and Munger spoke at 'Woodstock for Capitalists' - Berkshire Hathaway's first in-person annual meeting since 2019.
Berkshire's annual shareholder meeting is the most awaited business event of the year. The duo not only elaborate on their investment decisions and speak about market trends (or follies) but also impart wisdom as only they can.
This year was no different.
Buffett and Munger answered every tough question posed on them and shared pearls of wisdom.
Here are the 5 things they said that caught our attention which will change your thinking...
#1 Cash is king
'If you don't have cash, you don't get to play the next day. It is like oxygen, it is there all the time and if you don't have it for a few minutes, it is all over.'
Buffett and Munger have always been advocates of holding cash. In the 2021 annual report, Buffett reiterated their pristine decision of always holding $30 billion in cash.
At the end of 2021, Berkshire Hathaway had $144 billion in cash and treasury bills and for the March quarter it had come down after buying equities but it was still substantial at $103 billion.
During the financial crisis of 2008, good quality assets were being sold at frivolous prices due to the liquidity crunch.
Loads of research suggest that the worldwide economic crisis would have been less severe if markets had liquidity.
Buffett played a significant role during the great recession, providing capital to companies such as Bank of America and Goldman Sachs.
Do you know, during 2008 Berkshire bought $5 billion of preferred stock in Goldman Sachs which got redeemed in 2011, earning the company a profit of $3.7 billion. Talk about nearly doubling an investment in 3 years.
The pinch of liquidity risk was once again felt during the Covid pandemic which caused severe pain to businesses running low on cash.
Emphasising the importance of cash, Buffett held up a $20 note and said that is what counted as legal tender for all debts public and private.
#2 Investment is not gambling. In fact, gamblers help investors make money
'The market has been extraordinary. Sometimes it is quite investment-oriented, and other times it is almost totally a casino, a gambling parlour.'
Munger opined that there was nearly a 'mania of speculation' in the market currently, with algorithms trading against other algorithms, long-term investors get added into this crazy mix.
With all the good algo trading has done, there is no denying that it has its own backdrops.
Are you aware of the Hathaway effect: How Anne Hathaway, an American actress, gives Berkshire's stock a push to some extent?
According to blogger Dan Mirvish, when Anne Hathaway makes headlines, the stock of the conglomerate goes up. In his 2011 blog, he identified no less than 8 such instances.
He suggested that automated, robotic trading programmes were picking up the same chatter on the internet about 'Hathaway' and applying it to the stock market. Much debate has been done over the topic in the last decade.
Nonetheless, the point of heightened speculation came up when Buffett was asked why Berkshire made such huge purchases (nearly $40 billion) less than a month after writing to the shareholders that there weren't any exciting opportunities.
Buffett explained that the opportunities came up only after he had written the annual letter.
In all the market madness, "Occasionally Berkshire gets a chance to do something... It's not because we are smart... I think we're sane. And that is the main requirement in this business", Buffett said.
With their lifelong experience in investing and wealth creation, Buffett and Munger have been heavy promoters of value investing.
#3 Inflation is unavoidable and unpredictable. It swindles everyone
'Nobody knows how much inflation will be in the next 50 years or next month. The best thing you can do is to be exceptionally good at something.'
Since last year, inflation has been a major concern for investors around the globe. So it was only obvious that shareholders cited their concerns and tossed relating questions to the duo.
Answering a question on whether he continues to be of the view that inflation will eat into equity returns, Buffett responded that the damage from rising prices affects everybody including equity investors, bond investors, and even those who keep their cash under the mattress.
Meanwhile, he also repeated his long-held advice that one of the strongest protections against inflation is sharpening your skills and working to be at the top of your field.
Mentioning professionals like doctors and lawyers as examples, Buffett said that '[people] are going to give you some of what they produce in exchange for what you deliver.'
Buffett has always stated that skills, unlike currency, are inflation proof. If you possess in-demand skills, they will continue to be in demand no matter what the dollar is worth.
A person's abilities can't be taken away nor can be inflated away from them. The best investment is anything that develops oneself, and it's not taxed at all.
He also added that the second-best hedge could be, investing in a 'wonderful business' that sells products whose demands are unaffected by the performance of dollar.
He used the example of Coca-Cola, saying that it doesn't make any difference what happens to the price levels because people will still pay for the products they like.
It makes sense. Consumers pay triple if not more for the same coke at a restaurant or an event.
#4 Timing the market is a fool's game
'Take away the management fees and I'd bet on the monkey throwing darts at the board.'
'People are charging for their skill and delivering closet indexation.'
Citing 1987, 1999, 2000, and other years as examples, a New Jersey based shareholder asked how Berkshire has always done well with timing the markets.
Buffett insisted that Berkshire has never done well with timing the markets. The company is simply good at figuring out if a good company is going cheap.
Adding to that he said sometimes the team hopes the target companies stay cheap so that they can buy more of it.
Buffett feels the company was complimented for staying optimistic on equities in 2008 when everyone else was turning away from the asset.
This strategy offers opportunities in good companies that are mispriced because of the general sentiment.
According to Buffett, the company spent about $15-16 billion in three or four weeks, a good percentage of its net worth, at a 'very dumb time' (2008-09).
He also pointed out missed opportunities as he failed to make some big purchases in the early days of the pandemic.
In a single day in March 2020, the Dow Jones Industrial Average dropped 12.9%, its worst day since 1987.
But the conglomerate didn't spend much as they didn't know what was going to happen with the pandemic or with the economy.
The takeaway here is clear. Even the best investors are terrible timers of the market. Waiting for the stock market to bottom seldom works as no one knows where exactly the bottom is.
Timing is not possible. Timing the bottom leads to nowhere and in fact, could be counterproductive.
Which is why you should resort to pricing.
Be cautious or fearful when the broader market is expensive and turn greedy when the broader market becomes attractively valued.
#5 Still cryptic about cryptocurrency
'In my life, I try and avoid things that are stupid and evil and make me look bad in comparison to somebody else - and bitcoin does all three.'
Both Buffett and Munger have made hostile comments toward bitcoin in the past. Munger doubled down on that sentiment in the meeting.
Munger states crypto is stupid because it's still likely to go zero. It's evil because it undermines the Federal Reserve System and it makes Americans foolish compared to the Communist leader in China as he was smart enough to ban bitcoin in China.
According to Buffett, assets have to deliver something to somebody only then can it have value.
Buffett again held a $20 billion and said there's only one currency that's accepted. People can come up with all kinds of things, even a Berkshire coin per se but in the end, it is not money.
Adding to that he said, there's no reason in the world why the United States government is going to let Berkshire money replace theirs.
Buffett says he would instantly write a check of $25 billion for 1% ownership of farmland/apartments in America but won't shell $25 for all the bitcoins on earth.
The apartments are going to produce rent and the farms are going to produce food. But crypto can only be sold forward for a higher price and cannot really buy anyone anything in the general market.
The Oracle of Omaha and his closest partner follow a simple recipe for investing success - do your research, buy when others are fearful, buy stocks you understand, and most importantly invest, don't trade.
Advocating thinking like a business owner, they always look for companies with an edge or economic moat, as Buffett calls it.
They also strongly believe that no matter how good a business or its prospects are, it all boils down to the person running the show and how much you are willing to pay for it.
To end this article on a high note, here's one of Buffett's most oft-quoted and colourful phrase,
'No matter how great the talent or efforts, some things just take time. You can't produce a baby in one month by getting nine women pregnant.'
Be safe. Be smart.
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com
(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)