This is the special lesson Warren Buffett gave to new equity investors at his annual meeting.

This is the special lesson Warren Buffett gave to new equity investors at his annual meeting.


Warren Buffett at the Berkshire Hathaway Annual Meeting in Los Angeles, California. May 1, 2021.

Gerard Miller

Warren Buffett took a special moment at the start of Berkshire HathawayThe annual meeting of shareholders on Saturday to talk about the record number of new investors rushing to the markets.

The lesson focused on the uncertainty surrounding individual stocks, comparing the top 20 stocks in the world in terms of market value as of March 31 of this year and comparing it to a similar list from 1989, which included many companies from Japan, a countries with a stock market at the time, as well as some American companies.

Major companies in 1989 included the $ 104 billion Industrial Bank of Japan, 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 world’s best companies (Apple worth over $ 2 trillion) has increased dramatically, but it’s important to note that there wasn’t a single company on the list today that was there in 1989.

“We were as sure of ourselves, and Wall Street was, in 1989 as we are today. But the world can change in very, very dramatic ways,” said Buffett.

While the huge increase in the value of the world’s leading companies (now worth trillions instead of billions) tells you things about equality and inflation, it mainly tells you “that capitalism has worked incredibly well, in especially for capitalists, ”said the investor.

Buffett’s main lesson for new investors was that the evolution of major individual stocks over time showed the importance of having a large and 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 to do is to be on the ship,” he said.

Retail brokers have reported an increase in the number of users since the start of the Covid-19 pandemic, with some investigations showing that many of these users are novice investors. The rise was attributed in part to stimulus checks, which increased personal income in the United States, and the lack of entertainment options during the pandemic.

This growth boom continued into the first few months of 2021. Amid the surge in GameStop trading and another round of fiscal stimulus checks, the Robinhood stock trading app added more 5.7 million customers in the first two months of the year, according to JMP Titres estimates. Additionally, former online broker Charles Schwab added more accounts in the first quarter of 2021 than in 2020 as a whole.

Buffett also cautioned investors about the difficulty of identifying winners in new and growing industries. He pointed to the large number of companies that made automobiles in the early 1900s, most of which closed or withdrew from the auto industry long before the industry matured.

“Stock selection is about more than determining what will be a great industry in the future,” he said.

– CNBC’s Maggie Fitzgerald contributed to this report.

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