Legendary investor Warren Buffett and his partner Charlie Munger have just wrapped up the annual meeting of Berkshire Hathaway shareholders.
Mr. Buffett, whose net worth is about $113 billion, has an important message to every investor in 2023.
Stay calm and follow the trends that work.
That’s lesson one.
Let us explain…
Munger Confirms: Energy Transition Is Good
As he was answering questions from the audience, Mr. Munger shared his thoughts on the green transition.
In essence, he said that the energy transition makes sense even without global warming (which he didn’t deny.)
Mr. Munger said that it makes sense to shift to renewable energy “to conserve our hydrocarbons.”
Greg Abel, the Chairman and CEO of Berkshire Hathaway Energy, said that the energy subsidiary of Warren Buffett’s empire is investing in windmills and other clean energy generation. It also extends transmission lines to more renewable energy sources. “It’s a very, very good business opportunity for us,” Mr. Abel said.
The green transition is one of the largest trends in the world today. The US is competing against other major economies when it comes to green subsidies and investment, such as the EU.
Between the two of them, they have announced plans to invest over $600 billion in this trend.
Berkshire Hathaway is one of the “smartest money” asset managers in the world. If you needed a confirmation from Mr. Buffett’s associates, here you have it.
The energy transition is here, and Berkshire Hathaway is investing in it.
Buffett: the US Dollar Is Still the Best
Investors have started talking about “de-dollarization” recently, or the perceived move away from the US dollar as the world’s reserve currency.
Mr. Buffett suggests that there’s little reason to worry.
Put simply, there are no better alternative currencies in the world yet that could take on the greenback’s job.
This should send a powerful signal to investors thinking to diversify away from the US dollar… or, for that matter, from US debt.
Even though the debt ceiling discussion is in the news, and the amount of debt the country has accumulated is massive, there’s no need to panic.
As always, Mr. Buffett brings a rational and well-considered attitude toward managing money.
If you look past the noise, you will see it as well.
The world’s leading currencies, such as the US dollar and the euro, remain the most liquid ones, with markets based on a resilient set of rules and regulations.
There’s no need to “diversify” into emerging markets based on the fear that the US dollar will lose its value. Emerging-market companies could have a place in a portfolio, but not for this reason.
Don’t “Diversify” Into Bad Ideas
Following up on the previous point, Mr. Buffett offered this piece of advice.
Don’t spread your portfolio too thin.
Focus on the best ideas and the best trends. By doing that, you’ll be able to avoid “diworsification,” which is a problem a lot of investors have.
They buy and hold too many stocks, which makes them feel like they are well-diversified and their risk is under control.
It’s better, Mr. Buffett says, to focus on several ideas that you really like.
He said: “One of the inane things that’s taught in modern university education is that a vast diversification is absolutely mandatory in investing in common stocks,” he said. “That is an insane idea. It’s not that easy to have a vast plethora of good opportunities that are easily identified. And if you’ve only got three, I’d rather be in my best ideas instead of my worst.”
Having high-conviction ideas is critical. If you understand what you hold in your portfolio and why, you’ll be ahead of the game.
Here at the Financial Star, we will continue sharing our analysis of the most important investing ideas and trends that are taking place.
Thank you for your loyal readership,
The Financial Star team