Warren Buffett: How to Invest in the Stock Market in 2021

There were at least 2,000 companies that entered the auto business because it clearly had this incredible future. And of course, you remember that in 2009, there were three left, two of which went bankrupt. So there is a lot more to picking stocks than figuring out what's going to be a wonderful industry in the future.

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Well, get excited everyone! On Saturday, May the 1st, 2021, Berkshire Hathaway held their annual shareholders meeting. And yes, this is first and foremost a shareholders meeting, but really it's treated like an annual occasion where Warren Buffett just sits down for about four hours and answers a whole heap of questions that shareholders send in for him. So it's really an awesome chance for us to learn what Buffett is thinking in regards to a variety of different topics.

Now, in recent years, he started the session with a bit of a lecture for investors, which I love. This year, he started with a lecture aimed at new investors, so people that have joined the market in the past year or so. And that's what we're going to be discussing in this video: Buffett's two key pieces of advice for new investors. So with that said, let's hear from the GOAT, and then we'll come back and discuss in a minute.

"I would like to just go over two items that I would like particularly new entrants to the stock market to ponder just a bit before they try and do 30 or 40 trades a day in order to profit from what looks like a very easy game. So on March 31st, I ran off a list of the 20 largest companies in the world by stock market value. Those names, many of which will be familiar to you, were led by Apple at slightly over 2 trillion, and it went down to the number 20th, which was worth 330-odd billion. But what I would like you to do is look at that list for a minute or two if you want to, and then make an estimate. Make your own guess: how many of those companies are going to be on the list 30 years from now? Here they are, these powerhouses. How many do you guys think are going to be on the list? Well, you know it's not going to be all 20. It may not even be all 20 today or tomorrow. This was March 31st, but what would you guess? So what would you guess 30 years from now, how many of these stocks will still be on the list? You know, probably Apple, right? Google, definitely. There's nothing like Google out there. Facebook? Nobody's overtaking Facebook with something like three billion monthly active users on their apps. And oh, Tesla is gonna own the whole world in 30 years, right, with their autonomous cars."

Well, check out this next clip and see what you think: after seeing this, would you put on five, eight, well, whatever it would be?

"I would now invite you to look at slide two or L2, which goes back a little more than 30 years, and look at the top 20 from 1989. If you look at the top 20 from 1989, there are two things that should grab your interest, at least two: none of the 20 from 30 years ago are on the present list. None. Zero. There were then six U.S. companies on the list and their names are familiar to you. But we have General Electric, we have Exxon, we have IBM Corp. I mean, they're still around. Merck is down there at number 10. None made it to the list 30 years later. Zero. So not a single company from that list 30 years ago still makes the list today."

And Buffett throws in this point just to show you that if you want to be a long-term investor, you know the most successful time frame for investing, then picking stocks is hard. It's not easy. You know, back 30 years ago, all the money managers would have been recommending you buy and hold these 10 Japanese companies and Exxon Mobil and GE and IBM. But not one, 30 years later. Not one of those businesses kept up.

So really what Buffett is saying here is that for most people trying to pick stocks to hold, it's really not the right thing to do. But investing your money is still definitely the right thing to do. So let's have a bit of a listen to this next clip:

"I would invite you to think about one other thing as you look at this list. 1989 was not the dark ages. I mean, we weren't just discovering capitalism or anything else. People thought they knew a lot about the stock market and the efficient market theory was in, and it was not a backward time. If you look, the top company at that time had a market value of 100 billion, 104 billion. So the largest company in the world, title, in just shade over 30 years, has gone from 100 billion to 2 trillion. At the bottom, the number 20 has gone from 34 billion to something a little over 10 times that. One thing it shows incidentally is that it's a great argument for index funds is that, you know, the main thing to do is to be aboard the ship. You know, a ship, you know, they were all going to a better promised land. You used to know which one was the one they'd necessarily get on, but you couldn't help but do well if you just had a diversified group of equities. The S&P equities would be my preference to hold over a 30-year period. But if you thought you knew a lot about which ones to pick, or the person that you had hiring you were paying a lot of money to had all these ideas, and they could tell you their best ideas, and 1989 did not necessarily do that well, although overall equities were absolutely the place to be. There you go. A stock picker in 1989, their ideas weren't really the best ideas, but stocks were still a fantastic place to put your money for the long term."

So the solution was obviously to diversify. You know, own an index fund that, like SPY, tracks the S&P 500. Then you're not betting on Exxon Mobil or IBM; you're basically betting on the continually updated list of the 500 largest companies in America. And just to hammer this point home, back in 1989, the S&P 500's average closing price was 323 points. Today, the S&P 500 sits at 4,192 points. So in 32 years, that's 8.34% annually. And you didn't have to know which stock to pick; you just had to get on the boat. That's it.

So that's the first lesson from Buffett: stock picking is hard, but making money from the stock market doesn't have to be. Now let's have a bit of a listen to his second point.

"Secondly, people get enormously attracted to various industries. I mean, they think if a company says it's in the XYZ industry, and that's a popular one, you can sell IPOs, you can sell SPACs; people disregard sales numbers, earnings numbers. It's just, you know, it's the place to be. So, Berkshire Hathaway, where was the place to be in 1903 when my dad was born in 1903? That wasn't really that big of news. But it wasn't big news that actually Henry Ford was starting the Ford Motor Company. He failed a couple of times before, but he was about to change the world. I mean, when you think about everything, let's just assume that you decided that autos were this incredible thing and someday there'd be an Indianapolis 500 and somebody ever reviewed mirrors on cars, and someday 290 million cars would be buzzing around the United States, or autos or on the county trucks there. And so, I decided to look at the history, and I thought I'd put up the list of auto companies from over the years. And I was originally going to put up just the ones that started with 'M' so I could get them on one slide. But when I went to the 'M's, it went on and on and on, so I just decided to put up the ones that started with 'M' and 'A.' As you can see, there were almost 40 companies that went into the auto business just starting with 'M' and 'A,' including our little Marmon there in the middle column, which lasted for a while, quite a while, but it was selling cars in the 1930s that were really quite special. But in any event, there were at least 2,000 companies that entered the auto business because it clearly had this incredible future. And of course, you remember that in 2009, there were three left, two of which went bankrupt. So there is a lot more to picking stocks than figuring out, you know, what's going to be a wonderful industry in the future."

So there you go. Over 2,000 American auto companies boiled down to three big ones in 2008 and then two went bust. So if you nailed it and picked Ford, then well done. But any of the others, eventually you're wiped out.

So that's Buffett's two lessons for new investors: to successfully pick stocks and hold them for the long term is really quite difficult, but the stock market is definitely the place to be in the long term. So his advice: diversify across the 500 largest American businesses and just enjoy the returns over time.

So with that said, I just wanted to finish the video with one last clip from a little later on in the meeting, which just shows how much Warren Buffett recommends this strategy.

"I recommend the S&P 500 index fund and have for a long, long time to people, and I've never recommended Berkshire to anybody."

There you go. He recommends an S&P 500 index fund before his own company. So there you go! If you're new to investing, I hope these two lessons help you. You know Buffett is the best investor the world has ever seen, so it's probably wise to at least have a listen to what he has to say.

And as I said before, this is all from the Berkshire Hathaway annual meeting. If you wanted to have a look at the full video, it was broadcast by Yahoo Finance. I'll leave a link to that down in the description below.

But that will just about do us for today, guys. Thank you very much for watching! If you did enjoy the video or if you found it useful, leave a like on the video. I really appreciate it, and it helps out the video heaps. So thank you very much! Be sure to subscribe if you're interested in seeing more videos similar to this. And if you're interested in how I go about my investing, whether it be active investing Warren Buffett style or passive investing just by owning an index fund, then check out Profitful. Links are down in the description below. That will take you over to my business, Profitful, which I started up. I've got two in-depth courses about investing over there, so if you're interested, you can check those out.

But guys, that will do us for today. Thank you very much for watching, and I'll see you all in the next video.

Hey guys, thanks for watching the video, and thanks to Hyper Charts for sponsoring this video. If you're a stock market investor and you are not using Hyper Charts, I would seriously recommend you check them out. Essentially, what Hyper Charts does is it takes all those nitty-gritty numbers out of the company's financial statements and it puts it into really nice, easy-to-understand charts. And they do that quarter after quarter after quarter, year after year after year. Now that's just for free, but if you wanted to upgrade to a premium subscription, you get a whole host of other features. For example, you can compare two companies on the same page, you get access to historical price charts, but interestingly, you also get any company you want, their earnings sent to your email address, and you can even sync your calendar with the earnings calendar. So lots of cool stuff going on with premium. If you did want to check it out, use the referral code NEW MONEY, that's all one word, or simply click the referral link down in the description for you to get 10% off of your first year. So definitely at least check it out; there's lots of stuff on there for free. It's a website I definitely think that all of us stock market investors should be using to identify trends in the companies we like. And thanks very much to Hyper Charts for reaching out and agreeing to sponsor some of this content.

So if you're interested, check it out. But that is it for today. Thanks very much for watching, and I'll see you guys next time.

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