When Warren Buffett Speaks the World Listens!

It’s been 50 years since Warren Buffett and Charlie Munger took control of Berkshire Hathaway and around 40,000 shareholders made the trip to this year’s annual meeting. The Oracle of Omaha sat on stage with his panel of experts to answer questions.

If you are a fan of the Mr. Buffett, you can find some interesting video interviews on Monday’s “Squawk Box” which are on the CNBC web site. I took some time yesterday to listen to Mr. Buffett’s views and here is what I found thought-provoking.

Stocks are cheaper than bonds, which are “very” overvalued,” he said. “If I had an easy way, and a non-risk way, of shorting a lot of 20-year or 30-year bonds, I would do it. But that’s not my game. It can’t be done in the quantity that would make sense for us.”

Buffett said he has no idea when the Fed might move. “They’ve fooled me so far. So I’ve been wrong,” he said. “I would have thought by now you would have seen much higher rates than we have now, which is essentially nothing.” “If you have negative rates in Europe, I think there a lot of consequences to raising rates significantly here,” Buffett said

He added that the Fed should stay low as “Europe keeps following the present policies.”

I found some of his comments very entertaining regarding the negative European bond yields. “We have never seen this movie before” Plus “We are not in Kansas anymore”  referring to Poland which issue bonds with a negative yield.

The billionaire Buffett said the stock market would be viewed as “cheap” now if interest rates continued to remain low, (the next 5 to 10 years) but not necessarily if rates normalize. He admitted, there have been only two times that he found the stock market to be very cheap, 1973-74 and 2008-09 and extremely over valued during 1999-2000! Going forward, he has no idea regarding future stock market valuations.

When it comes to investing, Mr. Buffett breaks some common investing rules followed by Wall Street advisors who recommend using diversification and asset allocation to reduce risk. Berkshire Hathaway has 60% of its holdings in four stocks.

• IBM
• American Express
• Coca-Cola
• Wells Fargo

It’s hard to argue with success, Berkshire Hathaway class A share has handily beaten the S&P 500 returns as illustrated by the chart below.

 

Some Warren Buffett Quotes on Investing:

• “Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well.”
• “Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
• “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
• “Investors making purchases in an overheated market need to recognize that it may often take an extended period for the value of even an outstanding company to catch up with the price they paid.”
• “If a business does well, the stock eventually follows.”
• “Price is what you pay. Value is what you get.”
• “Time is the friend of the wonderful company, the enemy of the mediocre.”

Warren Buffett is a businessman who is also an investor. I have often read that Buffett evaluates stocks as if he is buying the whole business.

I am not confident enough to invest 60% of my funds in only 4 stocks but there have been times (like right now) when I have disregarded both asset allocation and diversification strategies.