Super Rich Guys Give Free Investment Advice

My daughter hates 80s music. Why? Because it plays at our house all the time. And I mean ALL the time.

The Remember the 80s music channel is always on at our house. So you’ll get a steady stream of songs like “Wake Me Up Before You Go Go” (Wham), “Take On Me” (A-ha), “Livin’ on a Prayer” (Bon Jovi), and “Papa Don’t Preach” (Madonna).

But I’m starting to see my daughter’s point.

After being stuck at home during this pandemic, hearing “Walk Like an Egyptian” (Bangles) loop every two hours is starting to get on my nerves, too.

Even so, 80s music will always be on my playlist. One of the songs in my list is called “Big in Japan” by Alphaville (released in 1984). I was reminded how big Japan was in the 1980s when I watched this year’s Berkshire Hathaway shareholders meeting.

My favorite playlist: Super rich guys giving free investment advice

For those of you unfamiliar, Berkshire Hathaway is a company run by Warren Buffett. Mr. Buffett is one of the most successful investors in history. He has a current net worth of $105 billion USD. (I looked that up just now. Wow!)

Buffett and his partner Charlie Munger (net worth $2.2 billion USD) host a meeting every spring. And for investors like me, the Berkshire Hathaway shareholders meeting is a big deal.

When two billionaires want to share free investment advice, I’m all ears.

It’s funny.

A 19 year-old recently asked if I’m invested in crypto currency. I said no. The 19 year-old replied, “No? You should. Bitcoin is up over 100% this year!”

Don’t get me wrong. I appreciate the teenager’s help. But I’ll stick with the old billionaires, thank you.

Buffett and Munger are definitely old school investors. Their methods might be dated, but their fundamentals are rock solid. They have a knack for providing a different perspective when investors need it the most. And this year was no different.

Here are the top three messages that I took from the 2021 Berkshire Hathaway shareholders meeting.

Big in Japan

Buffett started the meeting by showing a list of the 20 biggest companies in the world today. You probably know many of the names on the list. The top five are Apple, Saudi Aramco, Microsoft, Amazon and Alphabet.

Buffett then asked: How many of these companies will be on this list 30 years from now?

Of course Buffett can’t see the future, even though his nickname is the Oracle of Omaha. To help answer the question, Buffett looked at the same list from around 30 years ago.

So how many of today’s big companies were on the list in 1989? The answer is zero.

The 20 biggest companies in 1989 were mostly companies from Japan. Why? Because Japan was an economic powerhouse in the 1980s. And in 1989, investors were convinced that Japanese companies would continue to dominate the world.

But history would prove otherwise.

Japanese stocks were incredibly over priced in 1989. Japan also had a massive real estate bubble, too. At the height of the bubble, real estate in Tokyo sold for $139,000 a square foot. That price made the land under the Imperial Palace in Tokyo worth more than all the real estate in California. Crazy!

In the end, investors in Japan got crushed, and the country suffered through twenty years of stock market losses.

KEY POINT #1: Be suspicious when someone talks like the future is obvious. I hear a lot of investment “experts” talk about electric cars, crypto currencies, cloud computing etc. They map out the future like it’s a forgone conclusion. Just remember: Experts spoke the same way about Japanese companies in 1989. Boy were they wrong.

Everyone is starting a _______ company: Technology (2021). Automobile (1903).

I thought this topic was really interesting. Buffett looked at the history of the auto industry. The automobile was a new technology back in 1903. So it’s a good lesson on investing in new technologies today.

Today there are about 14 major car companies in the world. So Buffett wanted to know how many car companies entered the industry, but are now gone. He discovered the list was huge.

Buffett wanted to show a sample of these defunct car companies. So he chose companies that start with the letter “M”, to keep the list small enough to fit on one presentation slide. The list was still too long, so he chose companies that start with the letter “Ma.”

How many car companies that start with the letters “Ma” are now defunct? The answer is forty. That’s the “Ma” list alone!

In total, there were over 2000 companies that entered the auto manufacturing business that are now defunct. That’s a success rate of 0.70%

KEY POINT #2: Finding a successful industry is easy. Finding a successful company is hard. I’m pretty sure the tech industry is going to be big for decades to come. But predicting which companies are going to succeed is like finding a needle in a haystack. Many companies will come and go, so be careful. (Anyone remember Nortel?)

Hey Paul, Do You Invest in Bitcoin?

Buffett doesn’t own bitcoin, but he didn’t bash anyone who does. His basic point is that you don’t need to invest in absolutely everything.

If something is too hard to figure out, you should put it into your “too hard” pile and move on. Buffett made his fortune by investing in things he truly understands, something he calls his “core competency.”

Munger wasn’t as reserved on bitcoin, though. Here’s what he had to say:

“I hate the bitcoin success. I don’t welcome a currency that’s so useful to kidnappers and extortionists and so forth. Nor do I like just shuffling out billions of dollars to somebody who just invented a new financial product out of thin air.”

Yikes!

I hope Munger doesn’t run into any 19 year-old finance bloggers.

KEY POINT #3: Don’t invest in things you don’t understand. I don’t invest in bitcoin either. Like Buffett says, you don’t need to invest in everything to be successful. Crypto currency is definitely in my “too hard pile.” And that’s okay with me. This simple rule has served me well over the years.

Conclusion

I look forward to the Berkshire Hathaway shareholder meeting every year. Buffett and Munger are a fountain of knowledge. They might look like dinosaurs, but their investment fundamentals will never go extinct.

As for the music at our house, we’ve decided to mix things up. The music choice now: Jukebox Oldies.

Don’t ask me why, but we now listen to songs from Elvis Presley, Little Richard and The Supremes. And let me tell you, the songs from that era are fantastic.

Maybe I’m searching for the new in the old. Maybe that’s not a bad thing to do right now.