Warren Buffett made his reputation as the world’s greatest investor by buying stocks and whole companies to add to his Berkshire Hathaway conglomerate, now the tenth largest company in the world by market capitalization.

His investing techniques have been studied in dozens of books, and he hasn’t shied away from expounding on them, notably in his widely read annual letter to shareholders or during lengthy question-and-answer periods at Berkshire’s annual meeting.

However, considering how much attention his comments get, it’s puzzling how often his advice is ignored by ordinary investors. As author Larry Swedroe observes in his book Think, Act, and Invest Like Warren Buffett: “The sad truth is that, while Buffett is widely admired, the majority of investors not only fail to consider his advice but also tend to do exactly the opposite of what he recommends.”

At this year’s annual meeting earlier this month, Buffett once again offered some free advice. He specifically aimed his comments at the huge number of novice stock pickers rushing into today’s hot market.

He began by showing a list of the 20 biggest companies in the world by stock market value. The top six on the list, with the exception of oil giant Saudi Aramco, are all U.S. tech companies—Apple, Microsoft, Amazon, Alphabet (Google) and Facebook. Buffett asked his audience to guess how many of the names will still be on the list in 30 years from now.

To help them think about that question, he showed the top 20 largest companies in 1989, a little more than 30 years ago. How many were still on the 2021 list? Zero. Giant Japanese banks and the likes of General Electric, Exxon and IBM are no longer rated.


From this demonstration, Buffett drew two conclusions:

The first was how difficult it is to predict the future direction of the economy or the fortunes of individual companies—and thus pick winners in the stock market. “The world can change in very dramatic ways.”

The second is the amazing wealth created by the stock market over the last 30 years. In 1989, the largest company in the world, the Industrial Bank of Japan, had a market value of US$104 billion. On March 31 of this year, the largest company, Apple, was worth US$2 trillion. Even accounting for inflation, the appreciation of the top 20 companies points to the amazing gains equities have made during the period.

To reinforce his point about the difficulty of picking winners in the stock market, Buffett reviewed the evolution of the automobile industry.

Looking back to the dawn of the industry, it probably seemed like a sure bet for investors as million of cars were sold and highways built. However, at least 2,000 U.S. companies made cars over the years. By 2009, there were just three left of which two had to be bailed out by the government during the financial crisis. “So, there is a lot more to picking stocks than figuring out what’s going to be a wonderful industry in the future,” Buffett said.

The 90-year-old Buffett advised investors to be careful about trying to “profit from what looks like a very easy game” trading stocks. Instead, he recommended—as he has many times—to opt for index funds that passively track entire markets at a very low cost.

The tremendous growth of the top 20 largest companies over the last three decades shows that “the main thing to do is be aboard the ship,” he said. “You couldn’t help but do well if you just had a diversified group of equities…to hold over a 30-year period.”

He’s putting his money where his mouth is. In 2019, he said he’s instructed the trustee in charge of his estate to put 90% of his money into an S&P 500 index fund for his wife when he dies.

Buffett is widely considered to be a genius who often uses Berkshire’s financial might to cut favourable investment deals. For those who don’t have those advantages, it’s best to be one of the investors who actually takes his advice and be content with beating 90% of active fund managers by capturing the returns the markets are offering.