Special Post: Key takeaway from Berkshire Hathaway AGM; Critical market update that you would not want to miss

Disclaimer: All information shared is solely for learning purpose and it does not constitute to a buy/sell call.

 

In today’s post, we have decided to share the key takeaway that we have gotten from Berkshire Hathaway’s AGM chair by Warren Buffett.  Do read on the below post for critical market update that would impact tomorrow morning’s opening of Asia market as well.

 

To watch the full AGM, do visit the below YouTube link by Yahoo Finance.

 

Key takeaway:

1. The range of economic impact due to COVID-19 are are wide and not certain yet.

2. From WB’s point of view, US has the greatest economy and company to be in. US has progressed massively in the past 221 years. He is in the view where market participants should not bet against US in the long run.

3. Discussed that 1929 great depression where Dow Jones had crashed 48% (vs current flash crash of 33%). Food for thought in case market participants thinks if the 33% is the bottom in current situation.

Noted that by 1932, the stock market has plummet down massively by 89% against the peak 2 years before.

After a long time, Stock market finally starts to recover in 1951 and finally move from 280 points to 400 points in 1 year (~1954).

4. WB has mentioned that he does not know where the market would be going in the next few weeks/months/year as anything can happen. We would need to be careful on what we bet. Quoted that in the past, market had gone down 22% in a day before.

5. In Jun 17 Jun 2015, there was a highlight that germs does not have border – we should not underestimate COVID-19.

6. BH does not specifically buy S&P 500 index, but prefers to buy specific businesses. I.e. either 6% to 7% of the shares or to own the business. He is sure stocks will go up during the next 20 years but wont know where it will go next week or day.

7. BH is holding 114bn of US treasuries Bills and a total 125bn liquid funds as on date.

8. BH has sold all airline shares that is worth 6.5bn in Apr 20 (United airlines, delta airlines, southwest airlines, american airlines, collectively accounted up to 80% of US passengers). Admitted that BH has made a mistake due to COVID19.  Industry would be changed in a bigger way in the future.

9. Business that are more uncertain in the next 2 to 3 years includes airline, theme park business, cruise business, tourism, hotels and related businesses)

10. While WB hoped it don’t happen, he did caution that doesn’t mean it wont happen. He has linked it to 2008 and 2009 where things may still happen on worst case. He advised that one should not buy stocks unless you are able to hold them psychologically and financially for long term even comfortable for it to go down more than 50%.

11. Nothing is attractive as yet for BH to lend money to companies in distress; WB has saluted Fed for pumping in liquidity.

12. Manufacturing business could be dramatically reduced depending on how virus play out. With regards to  precision manufacturing, defense contract is still healthy but not aircraft parts.

13. Other businesses to be impacted are: retail, newspaper, advertising, automobile, shopping centers where he would expect many tenants may not be able to pay rent.

14. Over supply of airlines and airplanes are there in the current situation; this would spill over to Boeing/Airbus future growth etc.

15. In BH insurance business, delaying of payments by their policy holders may be expected.

16. In the view where 2nd wave of COVID19 may come back. By then, we would need to see how each country reacts as there are still huge unknowns.

17. Low oil prices would affect businesses – I.e. bad debts from energy industry

18. Important: Noted that US is unlikely to default because debt is in USD itself. Other countries has defaulted as their loan is in USD.

19. Please do not get yourself into credit card debts as the high interest of 12% is a lot!

20. Paycheck protection plan – WB applauded lawmakers for their efforts to aid small businesses.

 

 

Important Market Updates:

As mentioned last week, we have automated the charts of key markets in a Single Page in the below link, the key is for you to use them and save your time.

https://www.investwhizz.com/covid-19-impact-standwithyousg/ 

 

As a summary, we have observed that world wide indices may have done a “Bull Trap” on 29th Apr and retraced quite a bit on 1st May while many countries are having market holiday. Such move would generally cause a panic gap down on Monday open which is not very healthy towards the Bulls.

From the MACD indicators, we can see that worldwide indices are now in a point where a crossover of MACD is imminent and would entice many more bears to come in and join the party to execute a “Wave C” impulsive down move. We would need to monitor closely in case the crossover happens.

 

I would caution everyone to trade with extreme caution as market would be extremely volatile during transitions. To receive regular updates on latest news affecting the market, please join us in our ever-growing Telegram group @ http://t.me/Investwhizz

 

 

Fundamentally, however forward looking Mr Market is, it does not make logical sense for stock market to be going up in a big way amidst uncertainty where immediate financials of 6-9 months (or longer) are expected to be impacted. The forward PE is just too high and “good ;)” to be true. It may be true that “unlimited QE” may be there, but this would lead to more and more debts in which organizations may be trapped for a long time to repay the Interest & loans instead of generating growth and profits for the shareholders.

In view of WB’s view of airline industry would be expected to be badly hit in the near future (people are not expected to travel that frequently), we should be able to extrapolate that all the associated industries would create a ripple effect where global economy would be effected as well.

The situation is kind of not helpful when amidst of all the chaos, there is a potential new wave of “Trade war” coming up.

Do Stay safe, Stay Saint & Stay healthy!!!

 

Regards,

Ernest Koh

InvestWhizz Founder
#covid19, #SG United, #standwithyouSG

 

To receive regular updates on latest news affecting the market, please join us in our ever-growing Telegram group @ http://t.me/Investwhizz

 

Latest screenshot from https://www.investwhizz.com/covid-19-impact-standwithyousg/ for easy reference

 

This slideshow requires JavaScript.