To say that Warren Buffett has been a successful investor over the past six-plus decades wouldn't be doing him justice. Since 1964, Berkshire Hathaway's (NYSE:BRK.A)(NYSE:BRK.B) stock has risen by an average of 20.3% per year, and 2,744,062% in aggregate, through the end of 2019. On average, Buffett is outperforming the market four out of every five years and has delivered double-digit returns in nearly two-thirds of the past 55 years.
With that being said, it should come as little surprise that Wall Street and investors wait on the edge of their seats for Buffett to speak at his company's annual meeting every year. Even though this meeting had a completely different vibe this year with no in-person attendance (thanks, COVID-19), it didn't dampen investors' quest to learn what the Oracle of Omaha has been up to in recent months, and what he foresees (if anything) happening from the coronavirus pandemic.
Berkshire Hathaway's Q1 report reveals a surprisingly minimal amount of buying activity
What we learned was somewhat surprising: Buffett hasn't been that much of a buyer.
During the first quarter — Berkshire's first-quarter operating results were released hours before the annual meeting began — Buffett and his team wound up buying $4 billion worth of equities and selling a little less than $2.2 billion. This worked out to a net purchase of around $1.8 billion. That's really a drop in the bucket considering that Berkshire Hathaway ended the first quarter with an all-time record $137.2 billion in cash, cash equivalents, and short-term investments.
Also surprising was a slide Buffett showed the video audience that $426 million in equity purchases were made in April, compared to $6.5 billion in equity sales. In other words, if you add up Buffett's investing activity since the beginning of the year, he and his team have been net sellers of equities to the tune of around $4.2 billion.
The Oracle of Omaha clearly opined in the shareholder meeting and subsequent question and answer session that he doesn't know what's going to happen in the near-term when it comes to the coronavirus. While Buffett doesn't succumb to investing fear, he certainly seemed to be more willing to hang onto the company's excess cash rather than put it to work in Q1.
This is the investment Buffett thinks you should make
However, just because Buffett wasn't an active buyer in the first quarter doesn't mean that you shouldn't be. In fact, Buffett's discussion prior to the Q&A session primarily revolved around one core thesis: Don't bet against America. In Buffett's view, the best way to take advantage of the “American economic miracle,” as he put it, is to buy a cross-section of the American economy and hold it for very long periods of time, if not just forget it about it altogether.
Here's Buffett's exact advice to the average investor, along with the investment he suggests people make:
“In my view, for most people, the best thing to do is to own the S&P 500 Index Fund… You're dealing with something fundamentally advantageous, in my view, in owning stocks. I will bet on America the rest of my life.”
Though it may not be the sexiest of investments, the S&P 500 (SNPINDEX:^GSPC) tracking index, the SPDR S&P 500 ETF (NYSEMKT:SPY), does collectively get the job done for investors over the long run. We're talking about an index that's returned an average of 7% annually, inclusive of dividend reinvestment, over the long run. Put in another context, it doubles, on average, once a decade.
What's more, the S&P 500 has undergone 38 official corrections of at least 10% (not rounded) since the beginning of 1950. With the exception of the current correction, each of the previous 37 moves lower in the stock market, no matter how swift or steep, were eventually put into the rearview mirror by a bull market rally. Organic growth at high-quality companies will continue to move the value of the S&P 500, and therefore its tracking index, the SPDR S&P 500 ETF, higher over the long run.
In other words, every single correction, and especially bear market declines, has proved an excellent time for investors to buy.
There are other ways to buy cross-sections of the American economy
But the SPDR S&P 500 ETF isn't the only way to buy cross-sections of the U.S. economy. There are seemingly countless exchange-traded funds (ETFs) that allow investors to pick and choose their level of risk, focus, and diversification.
One of my favorites to reference is the ProShares S&P 500 Dividend Aristocrats ETF (NYSEMKT:NOBL). A Dividend Aristocrat is an S&P 500 company that's increased its dividend for 25 or more consecutive years. This means Dividend Aristocrats are usually profitable, time-tested, brand-name businesses that have multinational and broad sector reach. Currently, the ProShares S&P 500 Dividend Aristocrats ETF has 58 members (IBM just joined) and is yielding 2.7% annually. Since these are mature companies, don't expect them to trounce the market. But the ProShares S&P 500 Dividend Aristocrats ETF certainly brings a level of consistency that can be tough to duplicate.
But you know what else offers investors an opportunity to invest in a cross-section of the American economy? Berkshire Hathaway stock.
Warren Buffett's company is best-known for its investment portfolio, which totaled 52 equities at the beginning of 2020, but has been whittled down to 48 holding as of late (Berkshire sold off all of its airline stocks in April). The Oracle of Omaha is a big fan of cyclical sectors, with banks, information technology, and consumer staples comprising the vast majority of total holdings.
But don't forget that Berkshire also owns around 60 companies outright. These companies operate in the finance, retail, and transportation industries, to name a few. And to boot, Berkshire Hathaway's stock has actually been 12% less volatile than the S&P 500 over the past five years. You won't get a dividend owning Berkshire's stock, but having Buffett has your portfolio manager certainly makes up for that.
Sean Williams has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares) and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), and short June 2020 $205 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.