12 Predictions That Warren Buffet Made In the Past; Was He Accurate About Cryptocurrencies?
From Flat Earthers, Sears, Table Tennis, and Death – Twelve Predictions That Warren Buffet Made
- The legendary entrepreneur and investor – Warren Buffet – while steering clear of making solid predictions have actually made 12 really good guesses about things ranging from cryptocurrency, Table Tennis, Sears, and even his own death.
- Business Insider's recent post looks at the kind of predictions that he's made and check on just how accurate he was.
“We have no idea – and never have had – whether the market will go up, down, or trade sideways in the near, or even intermediate term future.” The quote is a paraphrased one from a letter that the legendary entrepreneur and investor – Warren Buffet – wrote in a letter to the shareholders of Berkshire Hathaway in 1986.
While the man has made a legendary reputation of himself, and a lesser-known one for his quite solid predictions and guesses. Right here, we have approximately twelve of his most insightful predictions that he's made over the years, while also taking a look at their accuracy. Here's how the wise man of Omaha did.
- 1 From Flat Earthers, Sears, Table Tennis, and Death – Twelve Predictions That Warren Buffet Made
- 2 1. Cryptocurrencies
- 3 2. Flat Earth
- 4 3. Berkshire Hathaway
- 5 4. Sears
- 6 5. ABC, Geico, and The Washington Post
- 7 6. Freddie Mac
- 8 7. Coca-Cola and Gillette
- 9 8. Death
- 10 9. Table Tennis
- 11 10. Housing
- 12 11. Index funds
- 13 12. S&P 500
“In terms of cryptocurrencies…I can say with almost certainty that they will come to a bad ending,” Buffet while forecasting a downwards slide for Bitcoin, stops short of where exactly it'll end.
“When it happens or how or anything else, I don't know.”
One of the astute observations he makes is the need, when investing in crypto, to play it for the long haul. “If I could buy a five-year put on every one of the cryptocurrencies, I'd be glad to do it but I would never short a dime's worth.”
As of right now, Buffett has been right on the money with the performance of cryptocurrencies thus far. Within the time of this prediction, is the start of 2018, Bitcoin had reached its high watermark valuation of $14,000. Fast forward to the end of the same year, and Bitcoin had, unfortunately, and brutally slid down to below its $4,000 [very] low support, and has only now begun to trade above that.
2. Flat Earth
There were a few things that Buffett could nail to his mast in terms of inevitability. But during a hosted speech at Columbia Business school back in May 1984, he made the following statement:
“Ships will sail around the world but the Flat Earth Society will flourish.” So, how did he do?
A ringing endorsement for the Flat Earth Society? Not exactly, it was more than Buffett was making a point regarding a market and, let's face it, societal trend on the subject of stubborn denialism which is also seen in the financial markets. But it turns out that this satirical analysis was right on the money as well – in the last few years, they have enjoyed a resurgence. With its members coming from all around the world. The irony is actually lost on them.
3. Berkshire Hathaway
In a speech made in the aftermath of finding that the conglomerate of Berkshire Hathaway had managed to increase its net worth by approximately 48.2 percent in 1985. Buffett went on to argue that he may never see it again in his lifetime.
“It is fitting that the visit of Halley's Comet coincided with this percentage gain: neither will be seen again in my lifetime.”
Along with this prediction, he also stated that the kind of compound growth that it had been experiencing (approximately 23.2 percent at that time) in the book value of its company shares would be yet “another percentage that will not be repeated.”
Pleasant surprises are the best kind to be on the receiving end of. It would take a total of 20 years for Buffett to finally be proven wrong on the count of 48.2 percent growth.
This finally happened back in 1998, when it would increase a further 48.3 percent. This wasn't for the same reason, however, largely because the growth came from the issuing of shares for acquisitions, as Buffett explained to investors.
“Normally, a gain of 48.3% would call for handsprings — but not this year.”
When it comes to his second prediction however, Buffett was pleasantly off the mark as the company had managed to see its book value per share price rise once again the very next year – 1986. Since about 1985, the company has successfully managed to grow by 23 percent in more than ten years from then.
During a speech hosted at the University of Kansas in May of 2005, Buffett let students in on the fact that the Chairman of Sears at that time – Eddie Lampert – would try, and subsequently struggle to find some way to revitalize the American department store chain. Buffett would go on to warn the students that the company faced a growing threat from rivals like Walmart and Costco, as they steadily worked to undercut and outperform it.
“Eddie is a very smart guy, but putting Kmart and Sears together is a tough hand,” Buffett said. “Turning around a retailer that has been slipping for a long time would be very difficult.”
Once again, Buffett was bang on with his prediction there – In October 2018, Sears officially filed for Bankruptcy, conceding to its rivals at the time. There is still hope for the company, however, as Lampert filed and went on to win approval from the court to purchase the 126-year-old retailer, bringing out of bankruptcy and avoiding financial liquidation.
5. ABC, Geico, and The Washington Post
The Sage of Omaha affirmed that the company would keep a firm grip on three companies, going so far as to attach a great deal of value to them, in spite of concerns.
In a letter to shareholders of Berkshire Hathaway back in 1986, he informed them of the following:
“We expect to keep permanently our three primary holdings, Capital Cities/ABC, Inc., Geico Corporation, and The Washington Post,” Buffett goes on to explain a little more about their valuation.
“Even if these securities were to appear significantly overpriced, we would not anticipate selling them, just as we would not sell See's [Candies] or Buffalo Evening News if someone were to offer us a price far above what we believe those businesses are worth,” he added.
Businessmen, entrepreneur and eagle-eyed investor, Buffett, often in spite of himself, can't resist a great offer when he catches one out. This paid off in droves as Hathaway would go on to sell its stakes in Capital Cities / ABC to the Walt Disney Company back in 1996. The sell itself involved a cash and stock deal valued at approximately $2.5 billion.
Along with this sale, Buffett also decided to sell off the companies 28 percent stake held in the US-based newspaper – The Washington Post – to Graham Holdings back in 2014, securing the company a further $1.1 billion, this was according to The Washington Post themselves. This news outlet had initially sold The Post over to Amazon under its CEO – Jeff Bezos back in 2013 at a total valuation of $250 million. Making the Berkshire Hathaway company a remarkable sum in the process.
As of right now, the company still operates as a major investor in Geico, including Buffalo Evening News and See's Candies.
6. Freddie Mac
In another one of his letters to the shareholders of Berkshire Hathaway, Buffett made them aware of some of the purchases made by the company. Buffett placed a great deal of value on the Federal Home loan Mortgage company Freddie Mac.
“In 1988 we made major purchases of Federal Home Loan Mortgage Pfd. (‘Freddie Mac'),” Buffett continues on to explain.
“We expect to hold these securities for a long time. In fact, when we own portions
of outstanding businesses with outstanding managements, our favorite holding period is forever.”
Fortunate for Buffett here, he had a change of heart some twelve years later. Berkshire Hathaway had reportedly sold off the entirety of its shares in both Freddie Mac and Fannie Mae as of 2000, resulting in its holdings plummeting from 8.6 percent in 1999 to just 0.3 percent the next year.
No good businessmen are the kind that can't change their mind, and Buffett illustrated this with a pivot on these companies, citing some serious concerns regarding conduct within the companies.
According to a statement that Buffett gave to the Financial Crisis Inquiry Commission back in 2010, a year after the financial collapse. He illustrated these concerns.
“They were trying to — and proclaiming that they could increase earnings per share in some low double-digit range or something of the sort,” he said. “And any time a large financial institution starts promising regular earnings increases, you're going to have trouble, you know?”
7. Coca-Cola and Gillette
“No sensible observer — not even these companies' most vigorous competitors, assuming they are assessing the matter honestly — questions that Coke and Gillette will dominate their fields worldwide for an investment lifetime,” Buffett went on to explain within a letter addressed to shareholders of Berkshire Hathaway back in 1996.
“Indeed, their dominance will probably strengthen. Both companies have significantly expanded their already huge shares of the market during the past ten years, and all signs point to their repeating that performance in the next decade.”
Buffett has been on a silent roll in terms of his predictions, especially with reference to both Coca-Cola and Gillette. Since this prediction, both companies have since carved out reputations as major players within their respective markets, with the latter coming under increasing pressure as of now, however.
When it comes to the enormous market that is the soft drinks market of the United States, Coca-cola made up approximately 41 percent of its share in 1991, this is compared to a distant 33 percent that was its rival – Pepsi. When it came to overseas markets, however, it managed to outperform its rival by selling four times the volume.
Since then, according to research by Statista, its share in the global soft drinks market has soared to nearly 49 percent as of 2015.
In stark contrast to Coca-Cola's stellar performance over the years, Gillette appears to be in trouble when we look at its performance this decade. From making up approximately 70 percent of the market for shaving in 2010, it has since fallen sharply to 54 percent as of 2016.
This is especially stark as it faces savage competition from the likes of dynamic start-up companies like Dollar Shave Club, which has since come under the ownership of Unilever, this is according to reports from Euromonitor, the data tracking and analytics company, and further cited by the Wall Street Journal.
“My expected lifespan of about 12 years (though, naturally, I'm aiming for more),” Buffett explained, somewhat pessimistically to the shareholders of Berkshire Hathaway back in 2006.
Pleasant surprises, as always, are the best kind, as Buffett demonstrates one of the predictions that didn't come to fruition for him. After 12 years of giving this prediction, he is reportedly alive, well and in very good health.
9. Table Tennis
Buffett places a great deal of support behind the junior table tennis player – Ariel Hsing, going so far as to endorse him as a good bet to make for the 2012 Olympics. In a letter to shareholders back in 2009, he made it very clear that he saw Hsing as a “good bet to win at the Olympics someday.
While the prediction didn't come to pass, the focus of the endorsement was to make use of him as a marketing campaign, having him attend the next annual meeting of Berkshire Hathaway.
Certainly, no disrespect to the junior competitor, as Hsing did go on to compete in the London 2012 Olympics to Li XiaoXia of China, the latter of which would go on to win the gold medal
While the financial crisis was a couple of years into the rearview mirror, Buffett was under no allusion that the housing market would be back in the future, as he re-affirmed with shareholders in a letter in 2011.
“Housing will come back — you can be sure of that,”
He would go on to explain the longer-term strategy of Hathaway as it relates to the housing market as well: “We will again build one million or more residential units annually. I believe pundits will be surprised at how far unemployment drops once that happens.”
It's easy to be pessimistic in a depressing economy like that which happened in 2008-2009. But Buffett was right once again in relation to the kind of recoveries which would happen within both the US housing market and employment statistics. As of February, housing in the United States was reliably tracking at an adjusted annual growth rate of approximately 1.2 million units, according to metrics provided by the United States Census Burea.
Along with the improving condition of the housing market, unemployment figures have . also been steadily decreasing from its near-peak of 8.9 percent back in 2011, to just below 3.8 percent as of this year. And according to the US Bureau of Labour Statistics, this represents an 18 years low in unemployment rates.
11. Index funds
“Over a ten-year period commencing on January 1, 2008, and ending on December 31, 2017, the S&P 500 will outperform a portfolio of funds of hedge funds — more than 200 of them — when performance is measured on a basis net of fees, costs, and expenses,” Buffett forecasted at the time.
This was actually one of the predictions that he wrote and posted through the website – Long Bets- which operates as an online platform for making long-term wagers while also nominating charities that would be beneficiaries if they won.
Operating as the Co-manager of Protégé Partners – Ted Seides has a great deal of involvement in managing investments for a series of hedge funds went on to agree to bet that a portfolio which consists of approximately five funds which would then be invested in over 200 other hedge funds, would prove more than capable of beating the S&P 500 index/
For a number of years, Buffett has made more than his fair share of arguments that index funds, over time, provide a far better range of returns for their investors than conventional stock picking. Reason being that they provide a far greater level of exposure to a wider range of stocks and the potential they represent, as well as charging lesser fees for investors.
Buffett once again successfully won this bet. Over the course of 2008 onward to 2017, the S&P 500 provided an average return of around 8.5 percent. In contrast with the five funds, which provided less than 3 percent.
After winning this bet, Buffett went on to donate the total payout of approximately $2.2 million to the Omaha-based company – Girls Incorporated.
12. S&P 500
“Let the good times roll” isn't exactly a phrase that Warren Buffett ascribes to as an individual. Being characteristically skeptical of good things going on indefinitely, he penned a letter to Berkshire Hathaway's shareholders back in 1999, that between him and his partner Charlie Munger, it was regarded to be a “virtual certainty” that the S&P 500 index would “do far less well in the next decade or two than it has done since 1982.”
Buffett proves right once again that the strong performing average total return from the S&P 500 ran from 1982 for 17 years until 1999 and wouldn't last. In total, the index had only managed to pull in an average of approximately 1.2 percent over the following ten years, according to the analytics platform – SlickCharts, managing to recover to an acceptable 12.2 percent over the course of 2010 and 2018.