Transcription
I would like to, uh, 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, uh, easy game. So I would like to, uh, go to slide L1; so put that up.
And these, on March 1st, I ran off a list of the 20 largest companies in the world by stock market value. Those names—good many of which you'll be familiar with—they were led by Apple; it's over 2 trillion. And, uh, it went down to the number 20th; was worth 330-odd billion. But those are the 20 largest companies in the world by market value on March 1st.
Now, if I had a little—was hoping I could get a little, uh, quiz machine so I could have everybody weigh in on this answer and we could flash it up a little later—but provably technically impossible for—but what I would like you to do is look at that list. Um, you starts off with Apple. Saudi Aramco is a kind of a specialized country company; it's I don't know whether it's 95% owned by the government or what, but it's it's essentially a country that's for sale there in terms of that business. But the top, um, six companies—five of them are American. So when you hear people say that America hasn't—it's not working very well or something of the sort—you know, in the whole world of the six top companies in value, five of them are in the United States.
And if you think about it, you know, we talked a little about this last year, but in 1790 we had one-half of 1% of the world's population, and a little less; we had 4 million people, 3.9 million people; 600,000 of them were slaves. Ireland had more people than the United States had. Russia had five times as many people as the US did. Ukraine had twice as many people as the United States. So here we were, but what do we have? We had a map for the future, an aspirational map that, uh, somehow now only 20—not after the Constitution—232 years later leaves us with five of the top six companies in the world. You know, it's not an accident, and it's not because we were way smarter, uh, way stronger, you know, anything of the sort. We had good soil, decent climate, but so some of those other countries I named, uh, and, uh, the system has worked unbelievably well. Just imagine thinking of five of the top six companies in the world ending up with the country that started with a half of 1% of the population just a few hundred years ago.
But what I would like you to do is look at that list for a minute or two, if you want to, and 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, and how many would you guys—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 1st. What would you guess? Yes, and think about that yourself. Would you put on five? Eight? Well, whatever it would be.
I would now invite you to look at slide two, which goes back a little more than 30 years and look at the top 20 from 1989. And if you look at the top 20 from 1989, there's 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 US companies on the list, and their names are familiar to you. It, uh, we have, uh, General Electric; we have Exxon; we have IBM; Cor—I mean—these are—they're still around. Merck is down there at number—none made it to the list 30 years later—zero. And I would guess that very few of you, when I asked you to play the quiz a little—a few minutes ago—would have put down zero. And I don't think it will be zero, but it is a reminder of what extraordinary things can happen—things that seem obvious to you. Japan had had this wonderful bull market for a very long time, so you had a number of Japanese companies on the list; today there are none. And, uh, the United States had the six; now we have 13, but they aren't the same six.
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 there were—it was not a backward time. And 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 two trillion. At the bottom, the number 20 has gone from 34 billion to something a little over 10 times that. Well, that tells you something about what's happened with equality, which is a hot subject in this country. It tells you a little bit about inflation, but this was not a highly inflationary period as a whole. But it tells you that capitalism has worked incredibly well, especially for the capitalist, and, uh, it's a pretty astounding number. You think—you think it could be repeated now—that 30 years from now that you could take Apple, multiply any company, and come up with 30 times that for the leader. You know, it—it seems impossible, and maybe it is impossible, but I just—we were just as sure of ourselves as investors and Wall Street was in 1989 as we are today. But the world can change in very, very dramatic ways. And I'll just give you one other example you might ponder—this is when you start feeling too sure of yourself.
One thing it shows, incidentally, is that it's a great argument for index funds, is that, uh, you know, the main thing to do was to be aboard the ship—you know, a ship—you know, they were all going to a better Promised Land; you just—to know which one was the one—didn't necessarily get on, but you couldn't help but do well if you just had a diversified group of equities—US equities be my preference—but 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, uh, I could tell you their best ideas in 1989 did not necessarily do that well, although overall equities were absolutely the place to be.
Secondly, people get enormously attracted to various industries. I mean, they think if, you know, if a company says it's in the XYZ industry and that's a popular one, you can sell IPOs, you can—you can sell SPACs; you can—people disregard sales numbers, earnings numbers; it's just, you know, it's the place to be. So per sure halfway—where was the place to be in 1903 when my, uh, my dad was born? In 1903—free—but that wasn't really that big of news, but it wasn't big news that actually Henry Ford was starting the Ford Motor Company—failed a couple of times before—but he was about to change the world. I mean, the—the auto—when you think about everything, we've got a great auto insurance company; if there weren't any autos, we wouldn't have Geico, uh, but it—it transformed the country, and then Ford bought in the $5 daily wage, and that was a huge thing—assembly lines, everything. Autos came along.
So let's just assume that you had seen a quick glance back in 1903 of all the interstate highways, 290 million vehicles on the road in the United States, you know everything about it, said, well, this is pretty easy; it's going to be cars; it's going to be autos. Well, we own a company called Marmon; we bought it from the Pritzker family some years ago. Pritzkers had built this business from many, many, many companies that they had acquired, and the name of their company was Marmon. And, uh, I don't know exactly why Jay and Bob decided to name it Marmon, but they did own a company called Marmon. And the Marmon, which in 1911 had been the company whose car won the first Indianapolis 500—maybe that's why they called it Marmon—they were proud of the fact that the company in 1911 won the first Indianapolis 500. It also was the company that invented the rearview mirror. I'm not sure whether that was a big contribution to society, and certainly around your household—rearview—you don't want to emphasize too much, but they, uh, the car that was entered in the Indianapolis 500, the—the guy who normally sat next to the driver and looked backwards to tell what the competitors were doing, he was sick, so they—they invented the rearview mirror.
So let's just assume that you decided that autos were this incredible thing, and someday there'd be an Indianapolis 500, and someday every review mirror on cars, and someday 290 million cars would be buzzing around the United States—car or autos or penny 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 were the M's, 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 Ma, and as you can see, there were almost 40 companies that went into the auto business—just started with Ma—including our little—our Marmon there in the middle column, and, uh, which, uh, lasted for a while—quite a while—it was selling cars in the 1930s were really quite special. But in any event, there were at least 2,000 companies that entered the auto business because they 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. Uh, the Maytag company put out a car; Allis-Chalmers put out a car; DuPont put out a car. I mean, there was a Nebraska Motorcar; everybody started car companies, just like everybody starting something now that can be where you can get money from people, but there were very, very, very few people that picked the winner—got the opportunity at Ford Motor. Henry Ford had a few partners, and he really didn't like them, so he figured a way to buy them out; that was sort of the, uh, was sort of the beginning of the—the auto finance; that's a long story, but we won't get into that. But, uh, you couldn't buy into Ford Motor, and of course General Motors became the—the dominant company, uh, finally. Henry Ford did not really make the shift from the Model T to the Model A very—did not work very well.
So I just want to tell you—it's not as easy as it sounds. You mentioned that you guarantee you could make a 50% annual return if you had to start again with under $1 million. Good question; I'm glad you came. The answer would be, in my particular case, it would be going through the 20,000 pages. And since we were talking about railroads, you know, I went through the Moody's Transportation Manual a couple of times; that was 1,500 or 2,000 pages, or well, probably 1,500 pages, and I found all kinds of interesting things when I was 20 or 21. And I don't imagine there's anybody here that knows about the Green Bay and Western Railroad Company, but, uh, there were hundreds and hundreds of railroad companies, and I like to read about every one of them. The Green Bay and Western, in those days—everybody had a nickname for railroads; I mean, that was just what—Northern Pacific was the Nipper, and, you know, Phoebe Snow was one of them in the East that used to go up the Cornell, and, uh, the Green Bay and Western was known as Grab Baggage and Walk, and GBNW, and they had a bond that was actually the common stock, and they had a common stock that was actually a bond, and, you know, that could lead to unusual things, but they wouldn't lead to unusual things that would work for you with many millions of dollars. But if you collected a whole bunch of those, which I set out to do, and actually that's what impressed Charlie when I first met him, because I knew all the details of all these little companies on the West Coast that he thought I would never have heard of, but I knew about the Los Angeles Athletic Club or whatever it might be, and he thought he was the only one that knew about that, and that became an instant point of connection.
So to answer your question, I don't know what the equivalent of Moody's Manuals or anything would be now, but I would—I would try and know everything about everything small, and I would find something, and with a million dollars you could earn 50% a year, but you have to be in love with the subject; you can't just be in love with the money. You really got to just find it, you know, essentially like, you know, people find other things in other fields because they just love looking for it. A biologist looks for something because they want to find something, and it's built into—I don't know how the human brain works that much, and I don't think anybody—not understands too well how the human brain works, but there's different people that just find it exciting to expand their knowledge in a given area. We—you know, I know great bridge players; I know great chess players; actually, Buffett came to Omaha and met Mrs. Buffett. I've had the luck of meeting a lot of people that are unbelievably smart in their own arena and do some unbelievably dumb things in other areas. So all I know is the human brain is complicated, but it does its best when you find out what your brain is really suited for, and then you just, uh, pound the hell out from that point, and that's what I would be doing if I—I had a small amount of money and I wanted to make 50% a year, but I also wanted to just play the game, and you can't do it if you really—if you don't find the game of interest—whether it's bridge or whether, you know, whatever it may be—chess or in this case finding securities that are undervalued.
But it sounds to me like you're on the right track. I mean, anybody will come all the way to this annual meeting—got something in their mind other than bridge or chess, uh, so I'm glad you came, and come again next year. I think Berkshire is a very good thing to hold, but for a given individual—particularly my wife—I just think that having a—a tiny fraction—that which is all it takes for her to do very well for the rest of her life—I think that the best thing to—is buy 90% of an S&P 500 Index Fund. I personally prefer holding Berkshire to holding the market; I'm quite comfortable; I think our businesses are better than the average in the market. Well, these are just accidents of history, and things are fluctuating at all times, but on a composite basis I'd build on Berkshire over the market—that's assuming we're all dead. I recommend the S&P 500 Index Fund and have for a long, long time to people, and, uh, I've never recommended Berkshire to anybody because I don't want people to buy it because they think I'm tipping them into some—so never—I mean, no matter what I was selling for, and, uh, you—I've made it public—you—on my death there's a—there's a fund for my, uh, then widow, and 90% will go into an S&P 500 index fund, and 10% of Treasury bills.
How do you think tariffs will affect the economy? I mean, tariffs are actually—we've had a lot of experience with them; they're an act of war to some degree. How do you think tariffs will impact inflation over time? They are taxes on goods; I mean, you know, the Tooth Fairy doesn't pay them; I mean, and see, you always have to just—and then what you always have to ask that question in economics—always say, and then what? So is there an answer for that? When—when people say, you know, inflation persists; consumer prices keep going up; when's the end in sight? No; prices will be higher 10 years from now, and 20 years from now, and 30 years from now. And what do you think about what's happening in Washington right now about efforts? I think it's Washington, yeah; it's, you know, technology changes things—all kinds of things—but Washington was Washington. And the problem with politics is that you tend to have to make tiny compromises as you go along.