As we would all know by now, when Warren Buffett has something to say, it's normally worth listening to. Warren Buffett is chair and CEO of Berkshire Hathaway Inc. (NYSE: BRK.A)(NYSE: BRK.B) — a conglomerate that has grown to become one of the world's largest companies under Buffett's near-60-year stewardship. As well as delivering some amazing returns over the past 60 years, Buffett is also well known for his pithy, folksy and highly-quotable wisdom.
So, here are 2 Warren Buffett quotes that I think are strikingly relevant to investors right now.
"A pin lies in wait for every bubble. And when the two eventually meet, a new wave of investors learns some very old lessons: First, many in Wall Street (a community in which quality control is not prized) will sell investors anything they will buy. Second, speculation is most dangerous when it looks easiest."
You might mistake this quote as a recent one, but in fact, this is from Buffett's 2000 letter to the shareholders of Berkshire Hathaway.
Back in 2000, global share markets were in what is now recognised as one of the biggest bubbles of all time. Buffett (of course) knew this was the case, but he was routinely dismissed as 'too old' and 'not able to understand the power of the internet' at the time. History looks back on his views far more kindly today.
I do think there are similarities between what was happening back in 2000 and today. Despite the ravages of the coronavirus pandemic, shares in the US are at all-time highs. And this, in my opinion, is indeed making speculation look pretty tempting for many.
Just look at the returns of some of the biggest companies in the world in 2020 so far. Apple Inc. (NASDAQ: AAPL) shares are up 66% year to date. Microsoft Corporation (NASDAQ: MSFT) is also up more than 42% and Amazon.com Inc. (NASDAQ: AMZN) up 79%. Easy money, right?
On the ASX, we have seen similar moves from popular hot stocks like Afterpay Ltd (ASX: APT) and Zip Co Ltd (ASX: Z1P). Are investors about to learn some 'old lessons'?
"At Berkshire, we make no attempt to pick the few winners that will emerge from an ocean of unproven enterprises. We're not smart enough to do that, and we know it."
This quote is a perfect sequel to the first. That's because Buffett made it in his 2001 letter to shareholders, just after the dot-com bubble started to burst. Buffett was criticised for not jumping on the 'tech train' back then, which proved prescient in hindsight. Yes, the early 2000s produced a few of the best internet companies that are around today, such as Amazon and Alphabet Inc. (NASDAQ: GOOG)(NASDAQ: GOOGL), but it also saw the decimation of thousands of others.
Investors who picked Alphabet and Amazon back then found the needle in the haystack — a game Buffett doesn't like playing. That's why he stays away from unfounded hype, which I think a few investors today would benefit from as well.
We are seeing some voracious buying pressure in a few areas of the share market, such as payments and buy now, pay later shares. Yes, there will be a winner or 2 from this struggle, but not a dozen. Yet it seems that any company with 'pay' in its name is a hot growth stock these days. Will it last forever? Probably not, if Buffett's wisdom is anything to go by.
