Buffett going quiet

Warren Buffett, in his annual message as CEO of Berkshire Hathaway to shareholders – a tradition dating back to 1965 – said that he will be “going quiet” after he steps down at the end of this year. But the 95-year-old is not going away just yet.

Buffett will no longer write the message atop the company’s annual report, but he will continue to deliver an annual Thanksgiving message, and he will “step up” his philanthropy, giving away the $149 billion in Berkshire Hathaway stock he continues to hold.

“The Oracle of Omaha” has become an investing icon, a billionaire who has cultivated a folksy image, particularly through his letters to shareholders. Although his market moves are closely followed by investors around the world, Buffett has also worked to present himself as a cheerleader for America and ordinary Americans – and for capitalism.

He is being replaced by Greg Abel next year. Abel, 63, is the vice chairman of non-insurance operations of Berkshire and was designated as Buffett’s successor in 2021.

Buffett once again praised his successor, writing that he “has more than met the high expectations I had for him when I first thought he should be Berkshire’s next CEO.”

Buffett also gave an update on his health, admitting that to his “surprise, I generally feel good. Though I move slowly and read with increasing difficulty, I am at the office five days a week where I work with wonderful people.”

But the nonagenarian isn’t getting any younger. Acknowledging the limited time he has left and the giant sum of money he wishes to give away, Buffett said he converted 1,800 shares, worth a combined $1.35 billion, into the company’s cheaper “B shares” and delivered them to four of his family’s foundations Monday.

“To improve the probability that they will dispose of what will essentially be my entire estate before alternate trustees replace them, I need to step up the pace of lifetime gifts to their three foundations,” he said.

Buffett says he has high – but realistic – expectations that the conglomerate he led for six decades will continue to thrive after he steps down as CEO. Berkshire Hathaway (BRK.B) shares have risen more than 10% this year, with the company sitting on a $1 trillion market cap.

“In aggregate, Berkshire’s businesses have moderately better-than-average prospects, led by a few non-correlated and sizable gems,” he wrote. “However, a decade or two from now, there will be many companies that have done better than Berkshire; our size takes its toll.”

The oracle and his ice cream

Buffett has managed to become a symbol of two seemingly disparate things over his decades in the spotlight: a relentless dealmaker and capitalist, wrapped up in an avuncular figure dispensing practical advice.

Berkshire Hathaway’s annual meetings are like those of no other company, dubbed Woodstock for capitalists, with an exhibit floor showing off many of conglomerate Berkshire Hathaway’s businesses.

Indeed, Buffett himself makes a point to appear on the floor and hype up those companies, from eating Dairy Queen ice cream to putting his face and name on limited-edition event merch, all while his security keeps back hordes of shareholding fans trying to take pictures or get a word in with the so-called Oracle of Omaha.

His investing strategy has turned on an incessant search for value, with Berkshire Hathaway often sitting on giant piles of cash until just the right deal comes through. Few other CEOs have earned that level of patience from investors in a market that more often turns on expectations for short-term returns.

Buffett expects the company to move on from him. But so much of Berkshire’s identity has become intertwined with its CEO. It’s hard to imagine the low-profile Greg Abel, for example, putting his face on a ketchup bottle to spur sales. Woodstock for capitalists might get just a little less festive from now on.

two-day plunges

After "Liberation Day" (April 2), in which President Donald Trump unveiled tariff rates far higher than virtually all investors suspected, the S&P 500 (SNPINDEX: ^GSPC) experienced a whopping 10.5% plunge.

That's the fourth-worst two-day plunge in the past 75 years. Not only that, the April downdraft came after the market had already been on a downward trajectory since mid-February.

The good news for investors? History suggests that this is likely a great time for long-term-oriented investors to buy.

According to Stansberry Research, the April 3-4 tumble is the fourth-worst two-day stretch in the market since 1950. Looking at the other top 10 two-day plunges, all occurred at the outset of genuine crises -- the 1987 "Black Monday" plunge, the Great Financial Crisis of 2008, and the outbreak of COVID-19 in 2020:

As you can see, following these two-day plunges, stocks exhibited mixed performance one, three, and even six months later, with positive average returns but also with a very wide skew. In fact, even after the two-day plunge that ended on Oct. 7, 2008, the market was 17.2% lower six months later.

However, when one looks out a year beyond these 10 other instances, the average return is a whopping 27.2%, with every single instance in the green and the biggest one-year recovery at 59.2%. Look two years out, and the average return is 40.4%, with gains as high as 69.5%.

Warren Buffett is famous for the quip, "Be fearful when others are greedy and be greedy when others are fearful." Certainly, if the history of nauseating two-day drops is any guide, Buffett has historically been right on all counts.

But it's not just Buffett who has long touted the virtues of buying when others are selling and selling when everyone wants to buy. Buffett peer and Oaktree Capital founder Howard Marks, also a storied value investor, summed up the case nicely in his recent investment memo titled Nobody Knows (Yet Again).

In that memo, Marks notes how Oaktree went ahead and bought into both the 2008 financial crisis and the COVID-19 crisis, despite being highly uncertain about the future, unsure whether there would be further downside, and having no idea how or when the crises would end. All he knew was that financial assets were now heavily discounted.

The reason Marks takes a price-and-valuation-based approach and not one based on trying to game out future events is that:

We can't confidently predict the end of the world; we'd have no idea what to do if we knew the world would end; the things we'd do to gird for the end of the world would be disastrous if it didn't end; and most of the time the world doesn't end.

Buffett and Marks are, of course, not the first to espouse contrarian investing. After all, the phrase "Buy when there is blood in the streets" is attributed to 18th-century British nobleman Baron Rothschild, who coined the term after he bought into the panic following the Battle of Waterloo, which ultimately yielded him a fortune.

But there's also a case against buying today

Certainly, a lot of history suggests that buying into this market, while perhaps risky in the near term, is nearly certain to pay off in the long term. However, there are a couple of counter-narratives investors should be aware of that could make this time different.

First, the market is more expensive today than it was after those prior crashes. After the 1987 crash and the 2008 crash, the S&P 500 price-to-earnings (P/E) ratio was in the low- to mid-teens. In March 2020, the valuation was higher, in the low 20s. Today, the S&P 500 is around 26.9 times earnings.

While it's true that the average valuation of the market has been pushed up by the rise of the highly valued and heavily weighted "Magnificent Seven" stocks in recent years, the higher valuation on a historical basis means investors might not enjoy such historically robust post-drop returns from here.

Second, the implementation of tariffs, unlike these other instances, risks pushing up inflation, which may tie the hands of the Federal Reserve. Remember, the Fed responded to Black Monday, the 2008 Financial Crisis, and the COVID crisis by lowering interest rates. The Fed even went so far as to cut the Federal Funds rate to zero in 2008 and 2020 while also purchasing longer-term U.S. Treasuries, which kept rates low to stimulate the economy.

In recent days, various Fed officials have stated publicly that since tariff policies could drive up inflation, the Federal Reserve may be more limited in its ability to provide monetary stimulus this time. And whereas the Federal government in 2008 and 2020 was doing everything it could to help the situation, today the problem has actually been caused by the government, at least the Executive branch, which is still in the beginning of its four-year term.

But don't be paralyzed; stick with your plans

So, for all these reasons, it's quite possible that the market could experience further downside from here. On the other hand, the current administration also has more ability to rectify the situation than the administrations during those other market downturns, since it's also the entity that ignited this particular market crash in the first place.

All in all, if you do have investable dollars and engage in regular stock buys or 401(k) or IRA contributions, there's no reason not to invest today as long as it's within your financial plan and risk tolerance. As history has shown, times of great uncertainty are often the very best times to purchase stocks.

That said, the differences between the current crisis and 1987, 2008, and 2020 keep this investor somewhat cautious. Therefore, investors may want to think twice before committing heavily to stock-buying and/or using leverage to do so.

Investing is hard

Have you ever noticed the contradictions in our “wisest” investment slogans?

Is it…

“Let your winners run” or “Little pigs get big, but big pigs get slaughtered”?

“Cut your losers short” or “Time in the market beats timing the market”?

“Be greedy when others are fearful” or “Never catch a falling knife”?

“Stick to your investment plan” or “When the facts change, I change my mind”?

There will always be an investment maxim that, in hindsight, will have been the “wise” path you should have taken (usually quoted to you by a 23-year-old, wet-behind-the-ears recent hire at a brokerage firm).

You know that stock you sold when it fell 20%, triggering your stop-loss?

When it reverses and turns into a 300% winner, you should have known that…

“The stock market is designed to transfer money from the active to the patient,” as Warren Buffett once said.

But when you hold onto that other 20% loser in your portfolio – only for it to collapse 85% and never recover – you should have known that…

“Selling your winners and holding your losers is like cutting the flowers and watering the weeds,” as Warren Buffett once wrote.

(Technically, this comes from Peter Lynch, but Buffett liked the quote so much that he included it in one of his year-end reports to shareholders.)

Bottom line: Investing is hard.

[email from InvestorPlace Digest]

more from the same article...

About a decade ago, the research shop Longboard studied the total lifetime returns for individual U.S. stocks from 1983 through 2006.

They found that the worst-performing 6,000 stocks – which represented 75% of the stock-universe in the study – collectively had a total return of… 0%.

The best-performing 2,000 stocks – the remaining 25% – accounted for all the gains.

Here’s Longboard on the takeaway:

The conclusion is that if an investor was somehow unlucky enough to miss the 25% most profitable stocks and instead invested in the other 75% his/her total gain from 1983 to 2006 would have been 0%.

In other words, a minority of stocks are responsible for the majority of the market’s gains.

[then they go into their salespitch of course]

are you wealthy?

15 signs that you're actually wealthy

1. You save money

With 61% of Americans living paycheck to paycheck, the ability to save a few bucks each week puts you ahead of most people.

2. You invest

Your money can work harder for you than you ever can for it. By investing, you're putting those dollars to work, gathering interest and appreciation. 

Deciding to start investing in stocks and bonds is how many millionaires achieve their wealth, though some invest in a business (their own or those of others) to generate income as well.

3. You live comfortably below your means

Ironically, contentment with your income and the ability to live within it is another sign of being well off. This liberates you from the constant need to earn and spend more. 

By spending less than you earn, you'll ensure your wealth is long-lasting and won't be threatened by the next economic downturn.

4.  You can buy the things you want, even if you have to save

The one-percenters have an easy time forking out for a boat or a vacation to Paris, no question about it. But if you can afford the same luxuries after a few years of mindful spending and careful saving, you're still enjoying the same level of luxury, if not as often.

5.  You can afford to retire on time

Sadly, one in five Americans believe they'll never be able to retire. If you're on track to retire in your 60s (or retire early), you're one of the lucky ones. The ability to stop working and enjoy your golden years is truly enviable.

[and more]