Buffett: "Never bet against America," even during times of war, pandemic
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Buffett: “Never bet against America,” even during times of war, pandemic
In late February, geopolitical tensions were at the boiling point as Russian
president Vladimir Putin dispatched his army to the Ukrainian border for
“military exercises” and put his fighter jets along Russia’s western borders
on high alert. After publicly denying plans to invade Ukraine, Putin
ordered the invasion days later, characterizing it as a short-term,
peace-keeping mission “until the political-social situation in the country
is normalized.” He also vociferously denied any desire or plan to return to
“Mother Russia” any territory lost in the 1991 breakup of the Soviet Union.
This sounds eerily familiar to what happened a few short weeks
ago, but describes the first Russian invasion of Ukraine, which
coincidentally occurred almost exactly eight years ago. The 2014 invasion
resulted in Russia “annexing” Crimea, seizing it by force from Ukraine.
Western leaders protested loudly, but Putin largely “got away with it,”
which may be why we’re facing a similar crisis today (and why the world’s
response is significantly stronger this time).
Then, as now, investor fears ran rampant and markets were
roiled. Warren Buffett told CNBC in 2014 that Russia’s invasion of Ukraine
not only wouldn’t cause him to sell stocks, “if stocks are cheaper, I’ll be
more likely to be buying them,” even if the conflict escalated into a new
Cold War or World War III.
Stocks represent business ownership sliced into small pieces.
The owner of the business is entitled to the future cash flows generated by
the business. The intrinsic value of the business is simply the cumulative
amount of those future cash flows, discounted back to today (i.e., the
“present value” of the future cash flows).
Importantly, while stock prices can be extraordinarily volatile (like
recently), the intrinsic values of the underlying businesses are much less
so. “If you’re buying a business, and that’s what stocks are.you’re goanna
own it for 10- or 20- years,” he said in an interview on MSNBC following the
release of his annual letter to Berkshire-Hathaway shareholders in late
February of 2020 (just as the pandemic was causing the economy to shutdown).
“The real question is: ‘Has the 10-year or 20-year outlook for American
business changed in the last 24 hours or 48 hours?'”
Nobody knows how long and far Russia’s invasion of Ukraine
outbreak goes or how it ends. Just like the pandemic, the uncertainty is
scary. In a global economy, near-term cash flows will be negatively
impacted, but cash flows going out 10- or 20-years are unlikely to be
harmed. In other words, we’re confident this will prove to be a temporary
and not permanent impairment of intrinsic value and a better buying
opportunity.
The best way to combat fear is with facts and truth. That can help you have
a greater perspective on things and encourage wise decisions. Here are a
few facts:
1. The market will remain volatile and may go down more.
2. Energy prices will likely soar even further on supply constraints.
3. As a result, inflation may get worse before it gets better.
4. War is ugly and this may last longer than we are expecting/hoping.
Now that you have the facts, do you really need to tune into
the news to tell you this stuff over and over? This is a good time to
practice “strategic ignorance.” Not all information is beneficial.
Perhaps the greatest question you can ask yourself right now
is: Will this matter in five years?
In five years (and probably sooner), this crisis will have
passed. Do you want to look back and see yourself selling great companies
at low prices just because of the uncertainty and fear today? Or do we want
to learn from 2008/2009 financial crisis and 2020 COVID Crash and seek
opportunity to profit from others’ panic? Russia’s invasion of Ukraine may
not matter in five years, but the decisions you make this year will
absolutely matter.
Mark Twain said, “history doesn’t repeat itself, but it
rhymes.” From the first Russian invasion of Ukraine to the second (the
eight years from February 28, 2014-February 28, 2022), the S&P 500 had a
total return of 174.2% (13.4% average annual return).
Buffett reiterated his faith in America’s long-term prospects during
Berkshire’s 2020 meeting. “I was convinced of this in World War II. I was
convinced of it during the Cuban Missile Crisis, 9/11, the financial crisis
– that nothing can basically stop America,” he said, adding, “We faced
tougher problems, and the American miracle, the American magic, has always
prevailed, and it will do so again. Never bet against America.”
The opinions expressed in these articles are those of the author as of the
date the article was published. These opinions have not been updated or
supplemented and may not reflect the author’s views today. The information
provided in these articles does not provide information reasonably
sufficient upon which to base an investment decision and should not be
considered a recommendation to purchase or sell any particular stock or
other investment.