In the May 1st Annual General Meeting of Berkshire Hathaway Warren Buffett warned investors with little experience or sense of stock market history to be cautious. Investing in a way that allows you to out-perform is not as easy as it looks.
“I would like particularly new entrants to the stock market to ponder just a bit before they try and do 30 or 40 trades a day in order to profit from what looks like an easy game”
Buffett showed a slide of the current largest 20 companies as measured by market capitalisation with Apple, Saudi Aramco, Microsoft, etc., at the top (Berkshire is tenth) he then posed a question:
“How many are going to be in such a list in 30 years from now?” Obviously the question cannot be answered, but to make a point he showed a slide of the largest companies in 1989.
The top companies then were predominantly Japanese (whereas no Japanese were in the 2021 list) headed by Industrial Bank of Japan, Sumitomo and Fuji Bank. The important point is that none of the top 20 in 1989 were still in the top 20 in 2021...zero (out went companies such as Royal Dutch Shell, Toyota, IBM and Philip Morris.
Buffett said in 30 years from now some of the current top 20 will get onto the 2051 list, but the 1989 example “it is reminder that extraordinary things can happen…We were just as sure of ourselves as investors and Wall Street in 1989 as we are today. But the world can change in very dramatic ways”.
Are rising industries sure bets?
He offered another example to ponder: “People get enormously attracted to various industries. They think if the company says it’s in XYZ industry, and it's a popular one, it can sell IPOs, sell SPACs; you as an investor can [therefore] disregard sales numbers, earnings numbers because ‘it’s the place to be’”.
The place to be in 1903 was in the new technology of the internal combustion engine. So Buffett asks us to remember the that investment history when we are contemplating investing in the c
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