Warren Buffett at the Berkshire Hathaway Annual Meeting in Los Angeles, California. May 1, 2021.
Warren Buffett took a special moment at the start of the Berkshire Hathaway general meeting on Saturday to speak to the record number of new investors rushing into the markets.
The lesson was about the uncertainty surrounding individual stocks, comparing the top 20 stocks in the world by market value as of March 31 of this year, and comparing it to a similar list from 1989 that featured many Japanese companies Country with a hot market, stock exchanges were represented at the time, along with some US companies.
Top companies in 1989 included the Industrial Bank of Japan, valued at $ 104 billion, Sumitomo Bank, Exxon, General Electric, and IBM. The list today includes Apple, Saudi Aramco, Microsoft, and Amazon.
The billionaire noted that the value of the top companies in the world (Apple worth more than $ 2 trillion) has increased significantly, but most importantly, there wasn’t a single company on the list today that was there in 1989.
“We were just as sure about Wall Street in 1989 as we are now. But the world can change in very, very dramatic ways,” Buffett said.
While the tremendous increase in the value of the world’s leading corporations (now worth trillions instead of billions) tells you a few things about equality and inflation, it mainly tells you that “capitalism has worked incredibly well, especially for the capitalists,” the investor said.
Buffett’s main lesson for new investors was that the change in each of the top stocks over time demonstrated the importance of a broad, well-diversified portfolio, for example through passive index funds.
“One thing it shows by the way is that it’s a great argument for index funds. The main thing is to be on board the ship,” he said.
Retail brokers have reported an increase in user numbers since the Covid-19 pandemic began. Some surveys show that many of these users are first-time investors. The increase is partly due to the stimulus checks that increased personal income in the U.S. and the lack of entertainment options during the pandemic.
This growth boom continued into the first few months of 2021. JMP estimates that stock trading app Robinhood added securities to more than 5.7 million customers in the first two months of the year. In addition, old e-broker Charles Schwab added more accounts in the first quarter of 2021 than in all of 2020.
Buffett also cautioned investors about the difficulty of identifying winners in new and growing industries. He pointed to the large number of companies making automobiles in the early 20th century, most of which either closed or left the auto business long before the industry had matured.
“There is a lot more to stock picking than just figuring out what a wonderful industry will be in the future,” he said.
– CNBC’s Maggie Fitzgerald contributed to this report.
Become a smarter investor with CNBC Pro.
Get stock picks, analyst calls, exclusive interviews and access to CNBC TV.
Sign in to start a free trial today.