Warren Buffett Advice After Coronavirus Crash

Warren Buffett Sticks With This Investing Advice After Coronavirus Crash By Investors Business Daily

Financial calamities come and go, but Berkshire Hathaway (BRKB) Chief Executive Warren Buffett has kept two long-held pieces of investment advice the same, even as the coronavirus unleashes the worst economic downturn since the Great Depression.

The so-called “Oracle of Omaha” has long had faith in the American economy’s ability to rebound and enrich investors, while warning against trying to invest like he does.

In his first piece of advice, the investing legend continued to preach the value of buying low-cost S&P 500 index funds Saturday.

“In my view, for most people, the best thing is to do is owning the S&P 500 index fund,” Buffett said at Berkshire’s first virtual annual shareholders meeting. “There are huge amounts of money people pay for advice they really don’t need. If you bet on America and sustain that position for decades, you’d do far better than buying Treasury securities, or far better than following people who tell you” in what to invest.

Buffett Argues For Fund Investing

After the 2008 crash, Buffett similarly argued that socking money into an S&P 500 index fund would make you richer over a decade than investing in hedge funds. He even wagered $1 million against the hedge fund Protege Partners — and eventually won the bet.

And in his 2013 letter to Berkshire Hathaway shareholders, Buffett shared he has set up a simple investing plan in his will for his next of kin. It consists of 90% in an S&P 500 index fund and the rest in short-term government bonds. “I believe the trust’s long-term results from this policy will be superior to those attained by most investors — whether pension funds, institutions, or individuals — who employ high-fee managers,” he said.

Meanwhile, investors who ignore his advice and try to mimic his moves for Berkshire got a stern reminder of the downside.

After the coronavirus-hit Q1, the conglomerate offloaded its entire stake in Delta Air Lines (DAL), United Airlines (UAL), American Airlines (AAL) and Southwest Airlines (LUV) in April after they melted down in value due to coronavirus restrictions on travel and commerce.

Berkshire Hathaway stock lost 2.6% to 177.95 on the stock market today, following far weaker-than-expected earnings Saturday. American Airlines stock led sharp drops among airline stocks on the Buffett news, down nearly 8%.

Warren Buffett Sticks With The Other Advice

Buffett reiterated another cherished piece of investing advice Saturday. “When something like the current pandemic happens, it’s hard to factor that in. That’s why you never want to use borrowed money, at least in my view, into investments,” he said.

The Berkshire Hathaway chief has offered similar counsel for decades. In his 2017 annual letter to shareholders, Buffett advised investors not to use debt to buy stocks.

And in 1991, he told students at Notre Dame University: “You really don’t need leverage in this world much. If you’re smart, you’re going to make a lot of money without borrowing. I’ve never borrowed a significant amount of money in my life. Never. Never will.”

At that time, Buffett also argued “Donald Trump failed because of leverage.”