Warren Buffett Just Sent a Powerful Warning

Warren Buffett just had the annual Berkshire Hathaway meeting on Saturday and the things he had to say really can't be ignored, including two major things. One, he is stepping down as CEO at the end of the year. And two, and the one that I loved the most was him saying that the recent bear market in the last hundred days was nothing, which is something we've been saying for a while. So let's start with this. The first quarter ended March 31st and it did show that Berkshire's cash pile expanded from the end of the last year, but the greatest market turmoil came in April. Martin Devine, a shareholder from Scotland who is attending the meeting today, wants to know, has the recent market volatility presented Berkshire with opportunities? And Martin just wrote in an addendum in the last 40 minutes or so, pointing out that you mentioned Berkshire almost invested $10 billion recently and wanting to know if you could talk more about that. Well then, I can give you a good answer to the second part, which is no. But $10 billion wouldn't have done that much, you know, that's the other side, another side of it. What has happened in the last 30, 45 days, 100 days, whatever you want to pick up, whatever this period has been, it's really nothing. There's been three times since we acquired Berkshire that Berkshire has gone down 50% in a fairly short period of time, three different times. Nothing was fundamentally wrong with the company at any time, but this is not a huge move. The Dow Jones average hit 381 in September of 1929, it got down to 42. So that's probably going from 100. This has not been a dramatic bear market or anything of the sort. Guys, one major thing you said there, Berkshire Hathaway has gone down 50% three times, but nothing fundamentally was different or wrong when that happened. And that's the big difference between stocks being a voting machine and stocks being a weighing machine, which is the fourth tenet of our principle-driven investing. It talks about the last 100 days, 30, 45, 100 days being nothing. Guys, to me, the last 30, 45, or 100 days, it was a lot for you. You're either not emotionally ready for being in the market, which is fine because you still can become emotionally ready. I was not emotionally ready when I first started investing. I remember seeing stocks fall and thinking like, oh my God, I'm wrong. And two, it probably shows you haven't been in the market a long time. Because for the last 15, 16 years, we've had nothing but an up market essentially. And the few times we've had bear markets, how long did they last? The COVID crash was one month. Then we went right back up to new highs and even further. The 2022 bear market was literally 10 months, if that. And this is part of our teaching process here, is we're not trying to be FUDsters. I got accused of being somebody who's trying to be a FUDster in the past. It's I react to market valuations. Now, are market valuations a good way to time? No, I learned that the hard way. But when it comes to long-term returns, the more you pay for something, the worse your returns are going to be and vice versa. And what he's just saying here is, listen, when the market does fall 50, 60%, whatever it's going to do, or stocks do individually, you have to be able to determine if it's something wrong fundamentally, or if it's people's perception, the voting machine taking over. Just like when you see a stock go up to 300% very quickly, did the fundamentals justify that two or 300% increase, or is it the voting machine taking over here? I don't get, I just, I don't get fearful by things that, that other people get, are afraid of in, in, in the financial, in a financial way that, you know, the idea that if Berkshire went, let's say Berkshire went down 50%, next week, I would regard that as a fantastic opportunity. And it wouldn't bother me in the least. You know, Warren Buffett talks here about not having emotions about stocks. Guys, it's very hard to be completely emotionless about stock prices. It absolutely is. There's no denying that. Even I, I get emotional about it. You know what I mean? And it's, and I don't consider myself anywhere close to that kind of emotional ability to sit there and say, I don't care where the stock price goes, but this is why I keep repeating the same tenets of principle-driven investing in myself. This is why I keep re-watching the basics of Warren Buffett, Charlie Munger, all these great investors. They have one thing in common. They don't look at market prices to determine if they're right or wrong. Just like Alibaba recently, when it skyrocketed, you know, people were saying, Paul, how does it feel to be right? And I'm like, I'm not right on it yet. The correct, being correct about an investment is seeing how it plays out over a long period of time. Did their earnings power, as he says in the video about Berkshire, get better and better and better? Because as it gets better, what's going to happen to the stock price? It is going to go up. Pick any company you want. Go look at the volatility on that individual company over any given year. It's tremendous. I always joke and say, oh, cool. When a stock drops 20% overnight, you're telling me the stock suddenly was worth 20% less. It was either justifiable and it was worth 20% less before the market didn't realize it, or it's an overreaction. It's one of those things, or it could be worse than 20%. But you've got to be able to sit there and detach your emotions from that stock price going up and down. Guys, you know what I do? When I log into my brokerage account on my computer, I block the balance. Because as the market's gone up lately, I don't want to get bogged down in me feeling like, oh, this feels good. I feel richer. No. Just like if stock goes down, I hear it all the time. In this bull market that's happened, countless friends who check their brokerage accounts every day and say to me, oh, I'll be fine if things fall. And then sure enough, when things have a bad route, hey, did you look at your brokerage account? Well, no, but it's only because of this. They have some excuses of why they didn't. You know what the real excuse is? Fear. And that's going to be a problem when stocks fall precipitously. And that's why we created this channel. It's not to sit there and only just say this is how you look at financials. That's a part of it. But a big part of it is to remember that a stock going up or down in the short run has zero meaning based on the long-term fundamentals of the business. If you can get that, you can be a great stock picker. That also means looking wrong because the short-term of the stock price goes up or down. Very occasionally, the long-term trend is up. Nobody knows. And I certainly don't know. Greg doesn't know. Ajit doesn't know. Nobody knows what the market is going to do tomorrow, next week, next month. And nobody knows what business is going to do tomorrow, next week, or next month. But they spend all their time talking about it because it's easy to talk about. But it has no value. I've never found anybody I want to listen to on the subject. On the other hand, I've found that leafing through things like that big Japanese book that I can't read anymore, that's a treasure hunt. And every now and then you find something. And occasionally, very occasionally, but it'll happen again. It could be next week. It could be five years off, but it won't be 50 years off. We will be bombarded with offerings that we'll be glad we have the cash for. And it'd be a lot more fun if it would happen tomorrow, but it's very unlikely to happen tomorrow. And as he says, like we always say, at some point in the future, there'll be great opportunities to buy. It doesn't mean you ignore. You don't have $350 billion sitting on the sidelines. His goal is to allocate his capital in a way that preserves the capital. He's an insurer. So he needs to make sure he has lots of capital sitting around. At some point, there'll be amazing opportunities for everyone in almost everything. We've said before, this is what I mean by we said before. We said there will be a time on this channel when people are looking at us saying, you say everything's a goodbye, but it's not going up like crazy. I know. Just like there was a time in this channel when I keep saying, boy, it's really hard to find good value out there unless something falls precipitously. That's where you're going to find that. That's where you're going to find the value. I think I found that a few companies over the last 18, 24 months, but to find it across the entire market doesn't happen very often, but when it does happen, it's a wonderful opportunity that you need to be prepared, prepared for emotionally. And the reason being is when you, when that does happen, your current stock portfolio will fall. Their stock portfolio will fall. And they don't look at that as a bad thing. They look at it as a good thing to be able to buy what they love at cheaper prices. If you were able to buy your favorite shirt at a certain price, $100 for the shirt, and you can find four other color variations, but the price suddenly fell to 20. Are you going to suddenly hate your $100 shirt for that? No, you're going to buy those other four shirts saying, oh, great. I love this shirt. And I have four different colors of it. I love it at 20 bucks. No different. But we treat investing, we treat stocks so different from that. You've got to change that way of viewing it. Now guys, here are some things that he commented on that had to do with things that he actually concerns him. And it's interesting because the things that concern him don't really align much, in my opinion, to his political views, There will be a, a push toward weaker currencies. And of course that is, I mentioned very briefly in the annual report that the fiscal policy is what scares me in the United States because it's, it's made the way it is. Warren, in a 2003 fortune article, you argued for imports of certificates to limit trade deficits and said these import certificates basically amounted to a tariff. But recently you called tariffs an act of economic war. Has your view on trade barriers changed or do you see import certificates as somehow distinct from tariffs? Yeah, the, well, the import certificates were distinct, but they, their goal was to balance imports against exports. And so that the trade deficit would not grow in an enormous way. In fact, it would have, and it had various other provisions in it to help third world countries. They were called, they had a, but basically they were designed to balance trade. And I think you can make some very good arguments for the fact that balanced trade is good for the world. And the more balanced trade there is, the better. It will continue to be better for cocoa to be raised in Ghana and coffee and Colombian, a few things. And, and over time, the American industry has gone from being an agricultural country. This was, this was nothing but an ag country. I mean, virtually, and that was only 250 years ago. And we have become a very industrial country and we did not want to make that a situation in my view, where we ran greater and greater deficits, building up greater and greater debts against the country. So I, I designed this import certificate thing, which Charlie thought was a little Rube, too much like Rube Goldberg. I don't know whether that is gimmicky, but it's certainly a lot better than anything I think than we're talking about now. And there's no question that trade, trade can be an act of war. And, uh, and I think it's led to bad things, just the attitudes it's brought out, uh, in the United States. I mean, we should be looking to trade with the rest of the world and we should do what we do best and they should do what they do best. And, uh, I don't think it, that's, that's what we did originally. I mean, we were good at producing tobacco and cotton. Well, again, as we've said many times in this channel, in many videos, a stronger world means a stronger U S I always hear people saying, Oh, China is becoming bigger and it's going to overtake us. Okay. Why is that a bad thing? You know, even with trade, I understand the theory behind the idea behind why we want trade surplus, but to Warren's point, if he's saying, let's focus on what we do best, not the world focused on what they do best. And then everybody starts cheering. Well, then naturally they're going to be trade imbalances along the way. At some point, I was idea of the trade certificate was basically, if I export that, I'm getting myself some sort of, I'm going to get myself a dollar for dollar certificate that I can sell to some other country or some company in other country to be able to, to export from themselves to us. And that naturally then balances trade out because as I've said, another video here, GDP is a big component. It's consumer spending investment, government spending, and then net exports imports minus exports. Okay. Now, when this is negative, when this is negative, sorry, plus when this is negative, it decreases GDP. If you saw the recent GDP report, it was all driven by tariffs. It was all driven by net exports being much lower. Pardon me. Delete that. It was all driven by a drop in that net export and import number. Now, does that mean where hell's going? I don't know. Like, you know, this is an area where I understand for a consumer, what tariffs do when he says it's an act of war. I can get that. I understand that completely. Like, yeah, you're basically telling other people like, Hey, go rogue. And we're going to sit there and tariff you. And if they have nothing to lose, they have nothing to lose. And I don't like that. Like he said, there's some unstable countries out there that might sit there and do terrible and stupid things. If they're, if they feel like their hand is forced to do that, guess what? When it comes to unstable leaders, they tend to think their hands are forced very, very easily. That's not necessarily the case. But what we have here is we're sitting here. We manufacture goods just like we used to be agricultural, basically a hundred percent, a hundred, 250 years ago. Then we became manufacturing. Now we're becoming very service oriented. There are people out there who believe that if we don't manufacture stuff, that's a terrible thing. No, it's not. People in this country make a lot of money. People in this country want to make more money. You cannot manufacture widgets and paying factory workers a hundred or $200,000 a year. It just doesn't work that way. You might sit there and say, Paul, we're not talking about 200,000 a year. Well, yeah, we kind of are. People want to make that kind of money. When we talk about higher minimum wage, it's us telling people they want to make more money. Great. But then you just can't make widgets that people in this country can afford as easily. We've got to be able to import. So when we put these tariffs on here, it kind of causes a problem. Do you think the net benefit of doge will be positive or negative for the long term health of the United States? Well, why don't you give me a hard one? I think that bureaucracy is something that is amazingly prevalent and contagious, even in our capital system. And that big corporations, you know, overwhelmingly, most of them look like it could be run better. I'm sure Berkshire does in many respects. And it, you know, and government is the ultimate. So it really doesn't have any checks on it. And that's why it scares you to some extent about what the future of the currency will be, because they can print currency. And, and if you have people that get elected by promising people things, and that doesn't mean that they aren't sincere about all kinds of items, but there's no politician that says to anybody that, at least if they have money, that, you know, I really think you have bad breath. And if you don't mind, would you step over away from me? It just doesn't happen. They, uh, and so I, I think the problem of how you control revenue and expenses and government is the one that is never fully solved and has really hurt dramatically certain many civilizations. And I don't think we're immune from it and we've come close to it. Uh, but if you tell me how in, in, in democracy, you go in and really change things, you know, we're, we're operating at a fiscal deficit now that is unsustainable over a very long period of time. We don't know whether that means two years or 20 years because there's never been a country like the United States, but, uh, you know, that if something can't go on forever, it will end to quote Herbert Stein, a famous, uh, economist. And, uh, we are doing something that is unsustainable and, and it has the, it has the aspect to it that it gets uncontrollable to a certain point. I mean, essentially you just give up on it. And, uh, Paul Volcker, you know, kept that from happening in the United States. Uh, but we came close, we've come close multiple times and, uh, you know, the, we've still had very substantial inflation in the United States, but it's never been run away yet. And, and that's not something that you want to try and experiment with because it feeds on itself. I find it interesting. He's talking about deficits because, I mean, listen, both parties do this. Both probably the other Republican party will sit there and say, Hey, we believe in smaller government. In fact, I'm now seeing Republican party people who don't even believe that smaller government's the right thing. And then the democratic party keeps, you know, keeps wanting to have bigger government. There's a solution for everything guys. The end of the day, what he says that I like about it, it's like, we don't know if it's going to happen in two years or 20 years. Cause there's never been a country like the United States, but we cannot continue on with this deficit spending. And there's a lot of people out there who believe in something called modern monetary theory, which is, it doesn't matter. Just print whatever you want. It's fine. Which is a great counter-argument that is a fine. Why charge taxes? And if there's no repercussions, just printing money because history has shown, we've printed a ton of money and we're still fine. But at some point we're not finding more. It's the boiling frog inside the pot. It's warm. It's warm. It's warm. And then time gets too hot. Guess what? It's too late at that point. And again, this isn't a Fuddster thing. This is just reality. If you have credit cards and you're paying your mortgage with your credit card every month and credit card companies keep giving you extensions and increases, cause they're making a lot of money. Eventually there'll be a point when there's a financial situation, whether it's with you, whether it's the country, whether it's with that company that they'll say we're done here. And all of a sudden your house of cards have fallen apart. I don't know if we're a house of cards. I don't know what's going to happen. We teach on this channel all the time though, that you cannot, the US government, you have to look at it like your personal life. If you just keep borrowing and borrowing and borrowing, eventually it's going to get to the point where you can't borrow anymore. And when you can't borrow anymore, your borrowing costs skyrocket. And when your borrowing costs skyrocket, interest payments go up. And when your interest payments go up and you have to borrow more money, there's only one thing left to do. One of two things or a combination, cut spending, increase taxes or both. And that's going to be at some point what's happening. Look at Argentina. They're going through this now and they're doing a lot of cutting of spending and hopefully it works out for them and really curtailing that runaway inflation that Warren Buffett talks about guys. So the Berkshire Hathaway meeting is done. This was on Twitter. I posted the other day. I'm glad the Berkshire in Omaha has done only a few more days of watching people post on social media, but all the things they've learned from Warren Buffett and then proceeded by NVIDIA nosebleed valuations or by a cryptocurrency. And then quote Warren Buffett about fear and greed as a justification. Many years ago, I was on a board. I was on a panel talking about real estate and a guy there, the most ******* obnoxious person ever. He quoted Warren Buffett ad nauseam like crazy. And then you heard about his real estate deals. And I actually raised my hand and said, okay, where's this guy investing? I've heard New York city, Miami and Atlanta, which one of those are not sexy markets. And I sat there and everybody got a chuckle. I said, who here wants to buy in Iowa? And the room was 250 people. So who here wants to buy apartment buildings in Iowa? Nobody raised their hand. I was like, okay, I do. Which one is actually doing what Warren Buffett talks about? Everyone quotes Warren Buffett and then nobody does it. Everyone claps, but then no one does these things. We all think that we're different thinkers about things. When Warren Buffett says something I don't agree with, you know what the first thing I think about is, okay, well then how am I wrong on this? Not saying that I am wrong. There are things that Warren Buffett says I don't agree with, mostly on the political front. And I look at these things, even when it involves some sort of dead ideas. I don't necessarily agree with him on that one. I look at these events and I'm like, man, all these people are going to sit there and they're going to talk about moats. They're going to talk about this. Guys, we want you to put your money where your mouth is. We really truly believe that the ideas of value investing work. You have to apply them in your own way. But if you go by, and somebody else coming in here said, Paul, Nvidia is not expensive. It's selling for 32 times next year's earnings. And I'm like, that statement alone told me how overpriced Nvidia is. The fact that we're quoting next year's earnings and 32 times, by the way, I appreciate the guy even commenting. So it's not an attack on him. The point of it was, that's expensive. That ain't cheap for the second or third largest market cap company in the world to be selling for 32 times next year's earnings. That's not cheap. It's overvalued. Now, could they have another event where all of a sudden their earnings pop like it did two years ago? Sure, maybe so, but it's not expected. You can't bank on the unexpected. You've got to sit there and invest on the expected. Value investing is about combining the past and the future. Yes, there is speculation involved with all investing because we don't know the future and we're humans and we make mistakes. But the big thing is we're investors, not speculators. That is the first tenet of principle-driven investing. We are investors, not speculators. That means we're not going on the hope. We're not going on the pipe dream that if I pay this price today, somebody else will pay me more in the future. We buy things based on fundamentals and if the market went away for those items, the fundamentals got better and better and better. And if 10 years from now, the market reopened, we'd have a higher selling asset, a more valuable asset. Now guys, as part of my process is something I'm doing that's a little bit different than Warren Buffett, but Warren Buffett did back in the day. Now, I also believe that Warren Buffett can't do it now due to his size. There's a way in which you can take the stocks you own and basically rent them out to people and generate income. We call it the retirement accelerator because it allows you to sell covered calls on the stocks that are in your account. Now, this is a different way of thinking, but it's an important way of thinking and if done properly, can make a significant difference in your retirement. How much? We're talking about two or three times more money in your retirement than you would have had. That could lead to either more money or retiring much earlier or a combination of both. It's something that I've been doing for the last five years and I've been doing it quite well. Now, of course, you know me, I'm probably doing it a little more conservatively than other people, but that's okay. So if you're interested in learning more about our retirement accelerator process, we have a great, great class on May 15th and you want to learn more about it, click the link below. It can really change your retirement. Imagine instead of having two or $3 million, you could have four, six, $7 million in your retirement. That is possible if you have enough runway and if you're controlled and smart about this. Remember, nothing is a free lunch, but we're going to show here something I've been doing for 60 months that I've had three down months on. It's worked out very well for me and hopefully it can work out very well for you if you apply the same and very similar process. Thank you very much for your time. I'll see you on May 15th.