"Most People Have No Idea What Is Coming" — Warren Buffett's Last WARNING

[Music] I would like to uh just go over two items that I would like particularly new entrance 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 an a Very uh easy game so I would like to uh go to slide L1 so put that up and these on March 31st I ran off a list of the 20 largest companies in the world by stock market value those name good many of which you'll be familiar to they were

led by Apple it's over two 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 31st now if I had a little I 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 Prov technically impossible for but what I would like you to do is look at that list um 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 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 200 after the con tion 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 good short 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 a country that started with 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 31st what would you guess 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 we 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 name are familiar to you that uh we have uh General Electric we have Exxon we have IBM Corp I mean these are they're still around Merc 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 odd 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 2 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 high the 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 do you think you think it could be repeated now that 30 years from now

that you could take two trillion for Apple multiply any company and come up with 30 times that for the leader you know 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 is to be aboard the ship you know asip you know they were all going to a better Promised Land you just to know which one was the one they necessarily get on but you couldn't help but do well if you just had a diversified group of equities us equities it 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 spaxs you can people disregard sales numbers earnings numbers it's just you know it's the place to be so BR sure half away where was the place to be in 1903 when my uh

my dad was born in 1903 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 rort brought 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 United States you know everything about it and said well this is pretty easy it's going to be cars it's going to be Autos well we own a company called Maron 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 Maron and uh I don't know exactly why Jay and Bob decided to name it

Maron but they did own a company called Maron and the Maron which in 1911 had been the company whose car won the first Indianapolis 500 maybe that's why they called it Mar 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 riew here you don't want to emphasize too much but they uh the car that was entered in the Anapolis 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 rear viiew 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 have review M on cars and someday 290 million cars would be buzzing around the United States car or Autos or County trucks there and so I decided to look at the history and I thought i' put 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 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 stared with ma including our little our marman there in the middle column and uh which uh lasted for a while quite a while it was selling cars and 1930s 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 200 N there were three left two of which went bankrupt so there is a lot more to picking stocks than figuring out you what's going to be a wonderful industry in the future uh the mayag company put out a car all they put out a car do want put out a car I mean there was a Nebraska motor compan 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 for motor H before had a few partners and he really didn't like them so he figured 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 the Ford motor and of course general motor became the the dominant company uh finally went hry 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 we had an enormous economic recovery but the minds of people had been so scarred the memories parents told their children 1929 became a symbol in people's minds I mean if you said 1929 it was like saying 1776 or 1492 I mean everybody knew exactly what you were talking about in 1929 my dad who was 26 years of age then was employed as a security salesman

by a a local small Bank he sold stocks and bonds but he mostly sold stocks and when stocks fall 48% and you were selling them to people a few months ago you really don't feel like going out and facing those same people so I think my dad probably elected is they say now shelter in place which means stay at home and uh there really wasn't that much at our house we just had a small yard it was winter time anyway my dad wouldn't have been puttering on the yard anyway and it really wasn't you know

television wasn't there and he and my mother got along very well so under those conditions I was uh born about N9 months later so I didn't notice at the time that the market was closed but the stock market had actually recovered over 20% during that 9 and a half month period or there abouts people did not think in the fall of 1930 they did not think they were in the Great Depression they thought it was a recession very much like had occurred at least a dozen times although not always when stock markets were important but

then we'd had many recessions in the in the United States over the time and this did not look like it was something dramatically out of the ordinary actually for about 10 days after my birth the stock market actually managed to go up all of one or 2% there in those 10 days well from that point the uh stock market went from level of 240 to 241 which was a notable decline because uh if somebody had given me $1,000 on the day I was born and I bought stocks with it and bought the Dow average my

$1,000 would have become $170 in in less than two years that is something that none of us here ever experienced that uh may have had it with one stock occasionally but in terms of uh having a broad range of America marked down 83% in 2 years and marked down 89% of the peak was in September 3rd 1929 was extraordinary and in that intervening period less than one year after I was born just slightly less than one year my dad went to the bank where he worked and had his account and of course the bank had

a sign on it closed and uh so he had no job he had two kids at that point his father had a grocery store but Charlie and I both worked for my grandfather Charlie worked there in 1940 I worked there in 1941 so we didn't know each other but but my grandfather said to my father that don't worry about your groceries how he says I'll just let your bill run was my grandfather not exactly he cared about his family but it wasn't going to go crazy and uh one of the things as I look back

on that period And I don't think economists generally like to give it that much of a point of importance but if we'd had the FDIC the FDIC started on January 1st 1934 it was part of the sweeping legislation that took place when Ros well came in but if we'd had the FDIC we would have had a much much different experience I believe in the in the Great Depression people blame it on smooth hall here and I mean there's all kinds of things and the margin requirements in 29 and all of those things entered into creating

a recession but if you have over 4,000 banks failed that's 4,000 local experiences where people save and save and save and put their money away and then someday they reach Fort and it's gone and that happens you know in all 48 states and it happens to your neighbors and it happens to your relatives it has to have an effect on the psyche it's incredible so one very very very good thing that came out of the depression in my view is the FDIC and uh it would have been a somewhat different world I'm sure if the

bank failures hadn't just rolled across this country and with people that thought that they were Sabers found out that they had nothing uh when they went there and there was a sign that said closed so the Great Depression went on and lasted a very long time but it lasted a lot longer in the minds of people than it did actually in its effects World War II came along and on sort of an involuntary manner we adopted kinism we started running fiscal deficits of course that were absolutely huge and took our debt up to a percentage

of GDP which had never reached before and never reached since so we had an enormous economic recovery but the minds of people had been so scarred the memories parents told their children 1929 became a symbol and people's minds I mean if you said 1929 it was like saying 1776 or 1492 I mean everybody knew exactly what you were talking about and it affected stock prices in a rather remarkable way it was January 4th of 1951 that the kid who was born on August 30th in 1930 had finished College before the stock market got back to

where it was at that earlier time so take the years from 1920 or 1929 to 1951 and bear in mind that you know the country was only 140 years old when it started that's 20 years out of a this amazing 231 year lifetime of our country that was fled out a time of for a long time of no economic growth and no Feeling by people in terms about the wealth of the country the about what American economy was worth with all these corporations that were doing far far far better than they were long ago but

it took all of that time to restore in the market a price level that was equal to what it was when I was born 20 years earlier so if you think about the fact that we're enduring a few months and we'll endure some many more months and we don't know how it comes out and people in the 30s didn't know how it was going to come out but they endured persevered prospered and uh the American Miracle continued but it's interesting in that at the start of 1954 the stock market was the DOW was only at

about 280 and I remember 1954 because it was the best year I ever had in the stock market uh the Dow went from 280 or thereabouts at the start of the year to a little over 400 at the end of the year and soon as it went across 381 that famous figure from 1929 when it went to 400 everybody wondered is this 1929 all over again and that seems a little far-fetched because it was a different country in 1954 but that was the common question and it actually achieved such uh a level of worry about

whether we were about to jump off another Cliff just because the 381 of 1929 have been succeeded exceeded that Senator Fulbright Bill Fulbright of Arkansas who became very famous later in terms of the Foreign Relations Committee but he haded the Senate Banking Committee and he called for special investigation a he really was questioning whether we' buildt another house of cards again and his Committee in March of 1955 with the Dow at 405 assembled 20 of the best mines in the United States to testify as to whether we were going crazy again the doubt was at

400 and we'd gotten in this incredible trouble before but that was the mindset of the country it's incredible we didn't really believe America was what it was and my boss the reason I'm familiar with this was that I was working in New York for one of the 20 people that was called down to testify and I remember because Ben Graham was the one of the three smartest people I've met in my life and when he testified the Dow at 404 he had one line in there right toward the started and his written testimony and he

said the stock market is high looks High it is high but it's not as high as it looks and since that time we felt the American Tailwind at full force and the Dow when we made the slide it was about 24 4,000 so you're looking at a market today that has produced $100 for every dollar all you did was had to believe in America just buy a cross-section of America you didn't have to read The Wall Street Journal you didn't have to look up the price of your stock you didn't have to pay a lot

of money in fees to anybody you just had to believe that the amican miracle was intact but you'd had this testing period between 1929 and certainly 1950 four is indicated by what happened when it got back up to 380 they had this testing period and uh people really they lost faith to some degree they just didn't see the potential of what America could do and we found that uh nothing can stop America when you get right down to it it's been true all along it may have been interrupted with of the scariest of scenarios when

you had a war with one group of states fighting another group of states and it may have been tested again in the Great Depression and it may be tested now to some degree but in the end the answer is never been against America and uh I in my view is as true today as it was in 1789 and even was true at the during the Civil War and the depths of the depression