Behavioural biases that damage your investments!
In matters of investment, the sooner you acknowledge your mistakes, the sooner you'll find help in getting out of the soup. To break free from biases, the first step should be to identify those biases, says, Balwant Jain, Tax and Investment Expert.
Warren Buffett hosted the annual general meeting of Berkshire Hathaway on May 1. Buffett and his long-time business partner Charlie Munger fielded questions on his company’s business and investment decisions and also offered advise to first time investors. Apart from the performance of the holding company and the plans on buybacks and growth outlook, there were many takeaways for the investor community.
Here are five key takeaways from the AGM:
Buffet’s advice to first-time investors
Buffett offered some simple tips to millions of new investors who have entered the stock markets globally. He cautioned them not to think investing is an easy way to make a fortune. He said, “It’s not as easy as it sounds”.
He also said that it could be tough to pick the long-term winners. He said, “There’s a lot more to picking stocks than figuring out what will be an incredible industry in the future”.
Buffett has said that most people will fare better by owning an S&P 500 index fund instead of betting on individual stocks.
Robinhood, Gamestop
Buffett addressed concerns on apps like Robinhood have contributed to the “casino aspect” of the stock market as of late. He said, stock trading platforms that allow people to buy and sell stocks for free, such as Robinhood, were only encouraging a “gambling impulse” thus exploiting individuals’ inclinations to gamble.
He said many of the novice investors who jumped into the market recently and drove up the value of video game retailer GameStop are essentially gambling.
“There is nothing illegal to it, there’s nothing immoral, but I don’t think you build a society around people doing it,” he said.
Bitcoin and other cryptocurrencies
While Warren Buffett declined to directly offer an opinion in response to a question on bitcoin and indirectly spoke of his non-inclination, Munger, however, issued a more direct attack by saying, “I don’t welcome a currency that’s so useful kidnappers and extortionists. Nor do I like shoveling out a few extra billions and billions and billions of dollars to somebody who just invented a new financial product out of thin air. So I think I should say modestly that the whole damn development is disgusting and contrary to the interest of civilization.”
Optimism about economy
Buffett said that the the policies of the Federal Reserve and the stimulus packages passed by Congress have done a good job of propping up the economy and keeping interest rates low.
He said the US economy is performing far better than predicted after the pandemic and is helping lift Berkshire Hathaway.
Mistakes
Warren Buffett made a few admissions to Berkshire Hathaway Inc. shareholders, including regrets over Apple Inc. stock sales, circumstances surrounding its airline share dump and a failed healthcare venture.
On the conglomerate’s decision to sell some of the iPhone maker’s stock last year, Buffett said, “That was probably a mistake”
The conglomerate had also used the first weeks of the U.S. shutdowns last year to dump its airlines. After the initial fall, these stocks had then rallied more than 45% after the end of May through the rest of 2020. On this, Buffett said, “I do not consider it a great moment in Berkshire’s history.”