Warren Buffett’s annual shareholder meeting took place over the weekend and, as always, the Oracle of Omaha has offered investors precious pearls of wisdom. Buffett usually takes this opportunity to comment on his major deals and earnings forecast. However, this time he spent the meeting in a surprisingly pessimistic mood.
Here are the top three takeaways from Buffett’s meeting I believe long-term shareholders in Canada should heed.
Stocks are not cheap
Buffett’s cash pile was considered an indication that the market was overvalued last year. This year, however, when stocks plunged and businesses were pushed to the edge of bankruptcy, investors expected Buffett to swoop in and spend that cash. Instead, he seems to have accumulated more.
That’s a worrisome indicator for investors like me. Buffett spends the entirety of his day looking for great deals. The fact that he hasn’t found any seems to suggest the fundamentals of the global economy have deteriorated. In other words, companies are simply worth less than they were before the crisis erupted.
Indeed, the Buffett indicator seems to suggest both the U.S. stock markets is overvalued at the moment.
That’s not to say that the average Canadian investor can’t find a deal, however. Smaller companies like WPT Industrial REIT and TransAlta Renewables may not move the needle for Buffett, but they’re certainly attractive for the average (non-billionaire) investor.
It’s also worth noting that the Canadian Buffett Indicator suggests the TSX Index is undervalued. At the moment, the Canadian stock market is worth 96.5% of gross domestic product, which means the 2020 recession has been priced in and stocks in Canada are relatively “cheaper.”
Airlines face mortal danger
Buffett was aggressively accumulating airline stocks over the past few years. In fact, he held a sizable stake in each of the four largest American airlines at the end of 2019. At the shareholder meeting this weekend, he admitted he made a mistake and had sold them all.
A number of Canadian investors bet on Air Canada over the past few months following Buffett’s lead. Now, I believe these investors should refrain from valuations based on reported earnings and try to estimate the future chaos that awaits airlines. Readjusting valuations could save you money over the long run. The sector simply seems too treacherous at the moment.
A broader horizon
Although Buffett sounded hesitant and pessimistic about the near-term outlook for the economy, he reiterated his long-term optimism. In other words, the economy may have a few bad years ahead with plenty of pain, but over the next decade or more, stocks will certainly outperform cash and treasuries.
That’s good news for younger investors. If you’re in your 20s or 30s, a few years of suppressed stock prices could actually be the perfect opportunity. Lower valuations today could lead to better outcomes by the time you retire. In a decade, the pain and uncertainty of COVID-19 will be a distant memory.
Bottom line
Buffett isn’t infallible. He makes mistakes and has struggled to outperform his benchmarks over the past decade. However, his pragmatic perspective on the economy and decades of experience with stock valuations are as invaluable as ever.
I believe a cautious outlook for airlines, near-term concerns about valuations and a long-term preference for stocks are the three biggest takeaways from his recent shareholder meeting.
