As Bob Dylan wrote, the times they are a-changin’.
Every year, around this time, we are blessed with some of the capitalists greatest minds sharing their thoughts, history, and even predictions of the future. Now both in their 90’s, Warren Buffett and Charlie Munger took to the stage once more at the Berkshire Hathaway’s annual shareholders meeting. Once again, these two brilliant minds didn’t fail to impress.
During the meeting, Buffett asks a simple question:
How many of the top 20 companies (by market capitalization) are the same now as they were 30 years ago?
Think of the biggest companies you know of today. Not just the Facebooks’ and Apples’ of the world, but also the oil and gas goliaths that seem to be unstoppable. How many companies have stood the test of time?
None. Zero. Zilch.
Of the 20 largest companies in 1989, none of those companies made it to the top 20 list in 2021.
And the top performers in today’s market? Some of those companies hadn’t even been imagined 30 years ago.
The Times They Are a-Changin’
What does this mean to you? Well, it means that the world doesn’t slow down. It means that your best bets today aren’t worth a grain of salt against the unstoppable momentum of time.
Of the top 20 companies in 1989, Japan held the trophy for the most companies on that list. Today? Not a single Japanese company breached the top 20.
Things that couldn’t possibly be conceived 30 years ago happened. The Japanese economy ground to a standstill, and their capital markets haven’t fully recovered even now. And in their place now stands a list of companies born into the changing world. Amazon, Apple, Alphabet, Facebook.
If there’s one thing the past teaches us, it's that predicting the future is impossible.
This is why Buffett’s messaging for new and experienced investors hasn’t changed. Don’t bet on a company. Even if you aren’t flat out wrong, that bet likely won’t stand up to the test of time.
Instead, bet on the market. Bet on the continued growth of companies, both new and old. Bet that industries will continue to evolve, and that evolution will bring new star players to the field.
Just as companies like Tesla and Rivian are disrupting the traditional gasoline powered motor vehicles industry, similar changes will be felt in every industry across the world, over time.
When planning for your future, especially a future that lasts 30 years or more, the only safe bet is to bet on the system. Taking a total market approach will help you benefit from the up and comers, and the growth of world economies.
This is why even Buffett himself has set up instructions for the management of his funds when he dies. His widow will be given a portfolio of a 90% S&P 500 ETF, and 10% Treasury Bonds.
You can argue all you want about the asset allocation choices that Buffett has made, but it goes to show that even one of the world's wealthiest persons drinks his own Kool-Aid.
Believe in capitalism. Believe in progress. Believe in your future. A total market fund, at least a fund with wide exposure (like the S&P 500) will serve your long term investing strategies now, as well as 30-years from now.