Warren Buffett: Why He Recommends the S&P 500 | Berkshire 2021

[Transcript]

BECKY QUICK: This question comes from a long-term shareholder who’s been here for more than 25 years. His name’s Ben Knoll. He’s from Minneapolis, Minnesota. And he says, “Mr. Munger and Mr. Buffett, after a 15-year period of market underperformance, you’re cautious about predicting Berkshire being able to outperform the market in the future.

“Given this, what do you see as the arguments for long-time shareholders to continue holding their stock versus diversifying their risk across an index?”

WARREN BUFFETT: Charlie, you want to answer that?

CHARLIE MUNGER: Well, sure.

Well, I personally prefer holding Berkshire to holding the market, so — I’m quite comfortable holding Berkshire. I think our businesses are better than the average in the market.

BECKY QUICK: Is it because you don’t think the market values it fairly?

CHARLIE MUNGER: Well, these are just accidents of history and things are fluctuating at all times. But on a composite basis, I’d bet on Berkshire over the market. And that’s assuming we’re all dead.

(Laughter)

WARREN BUFFETT: B, I recommend the S&P 500 index fund — and I have for a long, long time to people. And I’ve never recommended Berkshire to anybody. Because I don’t want people to buy it because they think — (Laughs) — I’m tipping them into something so I never. I mean, no matter what it was selling for.

And, you know — I’ve made it public, you know — on my death, there’s a fund for my then-widow, and 90% will go into an S&P 500 index fund and 10% in Treasury bills.

On the other hand, I'm very happy having my future contributions to a group of charities, that'll be spread over 12 years or so after my death, to stay in Berkshire.

I think the odds are — Berkshire is — you know, I like it, but I’m not — I do not think the average person can pick stocks.

We happen to have a large group of people that didn’t pick stocks, but they picked Charlie and me to manage money for them 50 or 60 years ago.

And so we have a very unusual group of shareholders, I think, who look at Berkshire as a lifetime savings vehicle, and one they don’t have to think about, and one that, you know, if they don’t look at it again for 10 or 20 years, that will have taken care of their money reasonably well.

But that — I wouldn’t argue that the S&P 500, over time — I would — I prefer — I like Berkshire. But I think that the — a person who doesn’t know anything about stocks at all and doesn’t have any special feelings about Berkshire, I think they ought to buy the S&P 500 index.

BECKY QUICK: As a follow-up to that, Gerald Silver writes in. He says, “The trustees of your estate — I believe you’ve directed the trustees of your estate to invest substantial assets into the index fund. Isn’t that a vote of no confidence to your managers?”

WARREN BUFFETT: Well, no, because we’re talking about way less than one percent of my estate.

(Laughs)

And one thing I’m going to do, incidentally — I mean all rich people get advised by their lawyers to set up trusts so that nobody can see your will and all that sort of thing. My will’s going to be public record.

And you can — you’ll be able to check at some point whether I’ve been telling you the truth — (Laughs) — about what is going to get done.

But 99.7%, roughly, of my estate will either go to philanthropies or to the federal government.

And before it does it, I think Berkshire is a very good thing to hold.

But for a given individual, particularly my wife, I just think that having a tiny fraction — which is all it takes for her to do very well for the rest of her life — I just think that the best thing to do is buy 90% in an S&P 500 index fund.

Now, the index fund people, naturally, have started — over time — they market more and more products that go to other indices and everything.

So, they’re really starting to say to the American public, they’re saying, well, you can pick what continent to invest in, or you can pick what industry — (Laughs) — and we’ll sell you something for that.

And when they just have gotten through telling them, you know, you really don’t know anything about stocks, just buy the whole index.

So, I name the 500 index as one.

But it’s a tiny portion, but it will be her livelihood, and she’ll have all the money she needs, and way beyond it, and that’s that.

And but I don’t mind having the 99.7% — a large portion of it — assuming the laws are the same as now — that go to philanthropy, to be kept in Berkshire until they finally are disposed of.

Source: https://buffett.cnbc.com/2021-berkshire-hathaway-annual-meeting/

 

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