When Berkshire Hathaway‘s (NYSE: BRK.A)(NYSE: BRK.B) billionaire chief speaks, Wall Street wisely listens. That’s because Warren Buffett has vastly outperformed the benchmark S&P 500 (SNPINDEX: ^GSPC) in his 60 years as CEO. The aptly dubbed “Oracle of Omaha” has overseen a cumulative gain in Berkshire’s Class A shares (BRK.A) of 6,076,172%, as of the closing bell on Feb. 24.
Picking Buffett’s brain happens a number of ways. Quarterly filed Form 13Fs allow investors to see which stocks he and his top advisors, Todd Combs and Ted Weschler, have been buying and selling. Likewise, Berkshire’s quarterly operating results provide insight on whether Buffett and his team are net buyers or sellers of stocks.
But perhaps the most insight can be gained from the Oracle of Omaha’s annual shareholder letter. These letters often cover the basics, such as how Berkshire Hathaway performed in the latest year, as well as dive into the psyche of what characteristics Buffett looks for in his investments.
Although these shareholder letters are typically known for their unwavering optimism, Buffett’s newly released letter contains four of the most chilling words investors will ever witness.
To reiterate, Warren Buffett is, first and foremost, an optimist. On a number of occasions, he’s cautioned investors not to bet against America, and has previously suggested that owning an S&P 500 index fund is one of the best ways to gain exposure to great American businesses.
Berkshire’s chief takes this stance because he recognizes the nonlinearity of economic and stock market cycles. This is to say that Buffett realizes economic recessions and stock market corrections are both normal and inevitable. Rather than trying to time when they’ll occur, Berkshire’s brightest investment mind plays a simple numbers game.
Whereas recessions and bear markets are historically short-lived, periods of U.S. economic growth and bull markets last substantially longer. Statistically, it makes a lot more sense to be a long-term optimist.
Despite this unwavering optimism, the Oracle of Omaha is an exceptionally picky investor who wants a perceived value when he’s building a stake in a publicly traded company.
When discussing how he and his team invest Berkshire’s capital under the “Where Your Money Is” subhead from the company’s latest shareholder letter, Buffett bluntly notes, “Often, nothing looks compelling.” These four chilling words turn Buffett’s proverbial cards face-up for investors and plainly show that he’s struggling to find value in a historically pricey stock market.
