Image: Ankit Agrawal/Mint via Getty Images(DealBook) You could always count on the folksy and cheery optimism of Warren Buffett. But if you listened closely to Buffett over the weekend during Berkshire Hathaway’s shareholders’ meeting — his annual “Woodstock for Capitalists” was conducted virtually because of the coronavirus pandemic — his words often betrayed a deep sense of concern about the immediate future. That should be a warning to all investors and policymakers. While many of the headlines about the meeting were about Buffett’s positive aphorisms — “Nothing can basically stop America,” “You can bet on America” — underneath those long-term proclamations was a decidedly different message. Each year for the last decade, I sat onstage at this big meeting in Omaha, Nebraska, with Buffett and his best friend, Charlie Munger, as one of several journalists asking him questions sent in by the public. His positivity, even during difficult economic moments, always radiated with a clear sense of certainty. After all, he is known as the Oracle of Omaha. That’s why it was unsettling Saturday to hear him repeatedly say “I don’t know.” He was careful to say the markets would improve in the long term — though his time frame for certainty was decades, not months or not even necessarily years from now. About the current climate, he said, “You can bet on America, but you kind of have to be careful about how you bet.” He added “simply because markets can do anything.” At a time when the stock market has been buoyed by politicians pushing to reopen America and hopeful investors often willing to overlook the immediate economic carnage, Buffett sounded a note of realism about the challenges ahead. He talked about the possibility of a second wave of coronavirus infections. He acknowledged that the world might profoundly change for years to come. And he spent a notable portion of the meeting detailing the economy’s performance since 1789, with a particular focus on the years between 1929 and 1951, a period in which the stock market took 22 years to get back to its highs. More than his words, he spoke with his wallet. He usually relishes a down stock market to take advantage of lower prices. Not this time. He hadn’t made any purchases recently; he didn’t buy up stocks when they had fallen last month during what felt like a mini-panic: “We have not done anything, because we don’t see anything that attractive to do.” Juxtapose that with his actions in the midst of the financial crisis of 2008. Back then, he wrote an op-ed in The New York Times a month after Lehman Bros. filed for bankruptcy: “In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary. So … I’ve been buying American stocks.” This time, he is husbanding his capital. “Our position will be to stay a Fort Knox,” he said. In other words, he is hoping to protect the company if things get worse, and he is clearly worried enough that it might. He said the $137 billion he had on hand “isn’t all that huge when you think about worst-case possibilities.” Let that seep in. He added: “We don’t prepare ourselves for a single problem, we prepare ourselves for problems that sometimes create their own momentum.” That’s coming from the same man who once famously said, “Every decade or so, dark clouds will fill the economic skies, and they will briefly rain gold. When downpours of that sort occur, it’s imperative that we rush outdoors carrying washtubs, not teaspoons.” In this crisis, he has done the opposite: He sold his entire stake in the nation’s four major airlines. His rationale seemed to have larger economic implications for the globe and country than simply airlines’ financial challenges. “I don’t know whether two or three years from now that as many people will fly as many passenger miles as they did last year,” he said. “They may and they may not, but the future is much less clear to me.” A drop in travel, depending on its depth, would have a huge domino effect on the larger economy and employment: Fewer people traveling means fewer jobs in all sorts of industries. He also said the energy, real estate and retail industries are all facing problems that could reverberate throughout the economy, and into the banking system. With oil prices so low, loans to energy companies could squeeze banks’ balance sheets, he said, and “you can imagine what happens to the equity holders.” About real estate, he added, “If you’ve owned a shopping center, you’ve got a bunch of tenants that don’t want to pay you right now, and the supply and demand for retail space may change fairly significantly.” He described a worst-case cascade: Landlords not paying their mortgages could ultimately create problems for banks. Berkshire has investments in JPMorgan Chase and Bank of America. Still, he said the banks were much better prepared for challenges than in 2008. One statement might have offered his most immediate insight: “This is a very good time to borrow money, which means it may not be such a great time to lend money.” What is driving Buffett’s caution? In truth, he has always been cautious. He has always been more willing to lose out on an opportunity than to jump too soon. “I don’t worry about the things that I miss,” he often says. If there is a silver lining, it is that Buffett was not predicting doom and gloom, just that he wasn’t sure which way we are headed, though, of course, he is wishing for the best. If the right deal came along, he would jump, he said. “The American miracle, the American magic has always prevailed and it will do so again,” he said. At a time of such polarized political battles about reopening and seeming uncertainty among many business leaders and investors about what should happen next, Buffett’s humble approach is something we should all take to heart: “I don’t believe anyone knows what the market is going to do tomorrow, next week, next month, next year.”
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