For those of you who weren’t around for last week’s announcement, I just want to let you know that after 19 years of weekly shows I have decided to retire because, as the saying goes “I have the two essentials of retirement—much to live on and much to live for.”
Today’s program will be the second of the final three, with our last airing on May 24th. In the meantime, I will be keeping you up to date on the investment world during this crazy time as well as re-playing some of our favorite shows from over the years.
I will be keeping the website active with all the past episodes, so if you want to hear something again or get in touch, you can contact me there. Stevepomeranz.com
Before I get to today’s commentary, there are some people I want to thank.
First is Jerry Carr. Jerry was the station manager at WXEL until his retirement and absolutely the gatekeeper who enabled me to start airing way back in 2001. Without Jerry’s professionalism and foresight, I would not have had the great radio and investment career that I have had.
Assisting him were Wendy and Ross Cooper. The two of them were always encouraging me and always there to help smooth out any rough patches. By the way, after Wendy left WXEL, she worked as my assistant and radio show producer for a number of years, and she did a great job.
My wonderful program director at WXEL, Joanna-Marie Kaye, and my numerous engineers: Steve Cody, Caroline Breder-Watts, John Zuletta, Rochelle Frederick, and of course, Tissy, one of the sweetest most gracious persons I have ever met. Unfortunately, she passed away at way too young an age.
Needless to say, there were and are a lot of people to whom I owe a great debt.
Now to my commentary….
What’s Eating Warren Buffett: Part 2
Last week I pointed out the unusual behavior of our Oracle from Omaha, in as much as his public statements have been totally out of character. Normally, as I said last week, Buffett’s announcements are full of optimism and dedicated to the proposition that one should always be buying when others are fearful.
But this was not apparent during his hours spent delivering his talk at the Berkshire annual meeting last week nor was it on view during his interview with Andy Serwer from Yahoo Finance.
First and foremost, Buffett’s war chest, which was $125 billion at the end of the year, has not decreased at all. As a matter of fact, it has increased to $137 Billion.
Some of the increase we know about. He spoke at length about his sale of four major airlines and why he considered the purchases to be a mistake. He originally liked the idea that he could purchase about $7-8 billion dollars of airline stocks and earn $1 billion a year in return from earnings and dividends. All of that came to a screeching halt as travel disintegrated to zero, causing the companies to bleed billions of dollars and requiring them to borrow and issue new stock just to stay in the air.
He spent a lot of time talking about the economic history of our country, even to the tune of estimating what America was worth in the 1770s. He then moved on to the America that endured the devastations of the Civil War, the Great Depression, World Wars I & II, and up to the present.
He repeated the idea of the great American tailwind, in which American businesses benefit from our country’s work ethic, innovation, and expertise. This characteristically leads him to admonish us to Never Bet Against America.
But in my opinion, it’s what he didn’t say that was most important. He did not say that even though he believed in this country’s economic future that he was buying that future at today’s prices. Let me repeat that another way. He did not say that all things being normal, now was a time to buy. That even with the bright future from the American tailwind, he did not say you should be using today’s dollars to earn more dollars in the intermediate future. Long-term, definitely, yes, but short to intermediate-term, no.
Not Buying His Own Shares
This explains why he did not repurchase shares of Berkshire Hathaway which is something he loves to do under the right circumstances.
He said that even though there was a short period in March when Berkshire shares were down 30%, he didn’t think the price of Berkshire compared to its value had changed all that much. In other words, the intrinsic value of Berkshire had fallen in line with the price of the shares, so the shares were no more attractive now than they were three or six months ago. And it was stated that there were more interesting opportunities right now other than Berkshire stock.
This is very compelling in my view. Historically, Buffett said, “even though there were three times in his lifetime when Berkshire shares had declined 50%, there wasn’t anything wrong with Berkshire when those three times occurred”. So, if he’s not buying, is he saying that this time there is something wrong?
In no way do I think this is his way of saying that Berkshire is not a good investment. I think he is saying that this time there is an element of uncertainty that can’t be quantified. When you have an economy that stops in its tracks, no one knows what the ultimate short to intermediate-term future will bring. No one! This just hasn’t happened before in modern times.
You see, It’s the range of possibilities and future outcomes that make it particularly hard to make rational investment decisions right now. And that is what is so confounding.
He said, “We do not know exactly what happens when you voluntarily shut down a substantial portion of your society. This is quite an experiment and we may know the answer to most of the questions reasonably soon, but we may not know the answers to some very important questions for many years. So, he continued, “it still has this enormous range of possibilities. And we run Berkshire that way,” he said. “We run it so that we literally try to think of the worst case of not only just one thing going wrong, but other things going wrong at the same time”.
An example he referred to was his insurance companies which take on big, highly-calculated risks—they insure against hurricanes and earthquakes and the like. He said that not only do they calculate the prospect of the worst possible hurricane in history but they look at the worst type of earthquake happening shortly after. You see, these are probabilities you can measure and therefore price. You can’t do that yet with COVID-19, according to Mr. Buffett.
And finally, he said, “You can’t rule out the possibility, any more than in 1929 you could rule out the possibility that you would be waiting until 1955 to get even. Anything can happen and we want to be prepared for anything, but we also want to do big things.”
So, he says, “I think that the degree to which it’s disturbed the world and changed habits and endangered businesses in the last couple of months indicates that you better not be too sure of yourself about what it’ll do in the next six months or year or whatever.”
Clearly, Buffett’s message was one of uncertainty.
What Does This Mean To All Of Us?
So, what does this mean to all of us? First, it means that no one knows how this thing is going to turn out. No expert, no matter how experienced knows. If the greatest investor of this generation doesn’t know, who else would know? I mention this because a lot of people we listen to and read act like they do know and are very sure of themselves. My advice? Take in the key points in their arguments, but always remember—they really don’t know.
Also, in times of uncertainty, keep a portion of your assets in safe investments, just like Warren. This serves a triple purpose: 1) It protects you from a future dollar being worth less than a current dollar, 2) It gives you money to invest when the smoke starts to clear, and 3) And maybe most important, it may help you get through some of the scary and frustrating times ahead. We don’t know if there will be tough times ahead but having a cushion may help you keep your wits about you when all others are losing theirs.
As I mentioned earlier, I am moving on to other things. My plans for the future are many-fold. First, you might not know this—ˆ mentioned it last week— but I am also a musician with my own band, The Steve Pomeranz Band, which I invite you to follow on Facebook and Instagram plus at our website, www.stevepomeranzband.com. I plan to travel for long periods once it is safe. Italy is our preferred destination.
I also have a son and daughter who are in the arts as well. My son is a filmmaker in LA and some of his work can be found at RyanPom.com, and my daughter, who goes by the name Waltzer, can be found on Spotify and all the other important music platforms.
Please remember that our last show will be next week, May 24th, and we will keep the website active after that if you want to hear any segments or stay in touch.
Thanks, see you next week.
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