At the last Berkshire Hathaway annual shareholder meeting, Warren Buffett again warned against investing in individual stocks, as he did not think “the average person can pick stocks”.
“I would like particularly new entrants to the stock market to ponder just a bit before they try and do 30 or 40 trades a day in order to profit from what looks like a very easy game,” he went on to say.
To illustrate the difficulty of achieving success when stock picking, Buffett first shared a list of 20 stocks with the largest market capitalisation as at March this year — which included Apple, Saudi Aramco, Microsoft, Amazon, Alphabet and Facebook. He then asked the audience to predict which of those stocks they thought would still be around in 30 years.
Buffett then shared a list of the top 20 companies with the largest market cap in 1989. It included Exxon, General Electric, Merck and IBM. None of which remain in the top 20 today.
“I would guess that very few of you would have said zero [when it comes to predicting which of today’s large market capitalisations] would still be around in 30 years, and I don’t think it will be, but it’s a reminder of what extraordinary things can happen,” Buffett said. “We were just as sure of ourselves, and Wall Street was, in 1989 as we are today. But the world can change in very, very dramatic ways ... [when it comes] to figuring out what’s going to be a wonderful industry in the future.
“It’s a great argument for index funds,” Buffett said. “If you just had a diversified group of equities, US equities, that would be my preference, but to hold over a 30-year period.”
Charlie Munger on the other hand said he would prefer to stay invested in Berkshire Hathaway.
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