The recent coronavirus-related volatility in the stock market was enough to rattle even the most confident market bull. However, beloved investing guru and Berkshire Hathaway (BRK/B) CEO Warren Buffett is always around to deliver his textbook calm, pragmatic advice and reassurance about the long-term outlook for the stock market. In his recent annual interview with CNBC during the Berkshire annual meeting in Omaha, Buffett shared his thoughts on a wide range of topics from stocks to interest rates to value in the market. Here are seven takeaways from the Buffett interview.
Coronavirus shaping the narrative
Stocks Buffett is buying and selling
Even during the worst week for stocks since 2008, Buffett said long-term investors shouldn’t be stressing out too much about news headlines. Buffett said he didn’t have specific thoughts on the virus itself, but investors should always remember that they are buying companies when they invest in stocks. “The real question is: Has the 10-year or 20-year outlook for American businesses changed in the last 24 hours or 48 hours?” Buffett says. Buffett said he has owned American Express Co. (AXP) for more than 20 years and Coca-Cola Co. (KO) for more than 40 years through plenty of negative headlines.
Don’t try to time the market
Many popular stocks have dropped more than 10% from recent highs thanks to the market volatility, but Buffett advised against trying to time the market and said investors should instead focus on the value of the companies they are buying. “I don’t think anybody knows what the market’s going to do. I think you … know whether you’re making an intelligent purchase at a given price,” he says. Buffett said investors shouldn’t worry about where a stock’s share price has been or where it is going and simply consider the current valuation of the company.
The legacy auto industry isn’t dead
Tesla (TSLA) has been one of the hottest stocks in the market in the past six months while legacy automaker General Motors (GM) has lagged. Buffett doesn’t own a single share of Tesla, but he has a $2.3 billion stake in GM. Buffett said there’s no question the auto market will slow down someday, but there’s still plenty of opportunity for investors at current valuations. “If you get your money’s worth in terms of future earning power over the next 10 or 20 or 30 years, you’re going to have made a good investment,” Buffett says.
Stocks are better investments than long-term Treasurys
Buffett said it’s not always true that stocks are better long-term investments than bonds, but it has been the case throughout most of American history. Buffett said 30-year Treasury bonds yield around 2% today, and they have no chance for earnings growth for three decades. He says few investors would jump at an opportunity to buy a stock trading at 50 times earnings with zero earnings growth potential. “People really have three basic alternatives, short-term cash, which is an option of doing something later, long-time bonds or long-term stocks. And stocks are cheaper than bonds,” he says.
Kraft Heinz should improve its balance sheet
Buffett is known for his winning investments, but his track record is far from perfect. One of his most disappointing large investments in recent years has been Kraft Heinz Co. (KHC), which is down 72.7% overall in the past three years. Buffett’s view is Kraft Heinz has too much debt and it should keep things simple by focusing on paying down debt and maintaining its 6.3% dividend. “The debt holders are going to get the interest, and the debt should come down by year-end. I think it will, and I think it can with the present dividend,” he says.
There is value in bank stocks
Five of Berkshire’s eight largest stock holdings are financial sector stocks, including banks such as Bank of America Corp. (BAC), Wells Fargo & Co. (WFC) and JPMorgan Chase & Co. (JPM). In that sense, it’s not surprising Buffett sees value in bank stocks, even in today’s low-interest-rate environment. “I feel very good about the banks we own. They’re very attractive compared to most other securities I see,” he says. Berkshire has been decreasing its stake in Wells Fargo while buying shares of Bank of America and others, but Buffett refused to reveal specifics about why he is selling Wells Fargo.
Stance on cryptocurrencies unchanged
Buffett has been one of the most vocal critics of cryptocurrencies like bitcoin, which he once famously called “rat poison squared.” He reiterates in the new CNBC interview that his bearish stance still has not changed. “Cryptocurrencies basically have no value,” Buffett says. He compared cryptocurrencies to stocks of companies that don’t produce anything. “It doesn’t reproduce,” he says. “It doesn’t deliver. It can’t mail you a check. It can’t do anything.” The only hope for a bitcoin investor is that someone will pay even more for it down the line, he says, and then it will be the buyer’s problem.
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