Coronavirus is impacting the stock markets worldwide leaving investors worried as to what they should do with their portfolio. Plenty of analysts have already come up with strategies about how to trade during such a crisis. The best advice, however, came yesterday from none other than the Oracle of Omaha. Warren Buffett called the coronavirus “scary stuff” but advised investors not to sell stocks.
What should investors do?
Coronavirus fears have taken over investors globally as the number of cases of the deadly virus surge outside China, especially in Italy, South Korea and Iran. Global markets, including the Dow Jones Industrial Average, Italy’s FTSE, European stocks and more, have been under pressure over the past few weeks.
Amid all the uncertainty, it is always better to go with expert advice, more so, if it comes from the legendary investor himself. Speaking to CNBC, the billionaire chairman of Berkshire Hathaway referred to the outbreak as “scary stuff.” Talking of what to do during such uncertain times, Buffett said that investors must not sell stocks due to the threat of the outbreak.
At this year's SALT New York conference, Jean Hynes, the CEO of Wellington Management, took to the stage to discuss the role of active management in today's investment environment. Hynes succeeded Brendan Swords as the CEO of Wellington at the end of June after nearly 30 years at the firm. Wellington is one of the Read More
Also, Buffett asks investors not to take the daily headlines seriously, and that his company (Berkshire) would “be more inclined” to buy stocks that are down due to the outbreak.
“You’ll notice many of the businesses we partially own, American Express — those are businesses and you don’t buy or sell your business based on today’s headlines,” he said.
Further, he said that long-term investors, those with a 10- to 20-year time horizon and a focus on company’s earnings, will do well. Warren Buffett also told that the coronavirus had not changed his long-term outlook.
Last week, Berkshire reported its earnings for the last year. The company’s operating profit dropped by 3% in 2019 to $23.97 billion owing to losses from insurance underwriting. On the other hand, unrealized gains in Apple and other investments magnified the net income to a record $81.42 billion.
Berkshire oversees more than 90 operating businesses, such as Dairy Queen ice cream, BNSF railroad, and Geico auto insurer. And, according to Buffett, coronavirus has affected many of these businesses. For instance, about 1,000 Dairy Queens in China are closed, and those that are open are seeing very little business. Companies such as Johns Manville insulation and Shaw carpeting are also seeing disruptions in their supply chain.
“There’s always trouble coming,” Buffett said. “The real question is where are those businesses going to be in five or 10 years.”
Talking of Berkshire stock, the expert said it won’t beat the broader market like it did in the past, partly due to its size of about $558 billion market value. Further, he said that though the stock is unlikely to feature in the top 15% or bottom 30%, it would outperform in down markets.
Buffett also said that he discussed coronavirus’ impact and prevention with Microsoft co-founder Bill Gates, who is bullish on the long-term universal prevention of the outbreak. The Bill & Melinda Gates Foundation is actively working to fight the coronavirus. It is one of the biggest private foundations globally.
“Now what they hope to get is a universal flu vaccine, but that’s a long way off. It isn’t impossible. I mean I asked my own – my own science advisor is Bill Gates, so I talk to him, I call him,” Buffett said.
Talking of his other investments, Buffett called Apple “probably the best business I know in the world.” Apple is Berkshire Hathaway’s third-largest holding behind only to insurance and railroad companies. Further, he also said that he likes bank stocks, which form a big part of Berkshire Hathaway’s portfolio. He called banks as “very attractive compared to most other securities I see.”
Talking about the U.S. economy, Buffett said that though it is still strong, it had become a bit “softer” than what it was six months ago. Last year, the economy grew by 2.3%, but is witnessing a slowdown in consumer spending and industrial production.
In his annual investor letter, Buffett said that equities would perform better than bonds in the coming years. “If something close to current rates should prevail over the coming decades and if corporate tax rates also remain near the low level businesses now enjoy,” then there are good chances that equities will be performing better than that of fixed-rate debt instruments, he said.