'Only real cloud on the horizon'
Warren Buffett's not a doom-and-gloom type of investor. He’s not shy about expressing his seemingly endless optimism over the U.S. economy.
But if there’s one threat that keeps the investing legend up at night, it’s most certainly the threat of nuclear war.
“[It's] the ultimate problem of mankind,” as Buffett described it during his company Berkshire Hathaway’s annual shareholders meeting in 2006.
He explained how weapons have evolved over history: “We've always had people who wish evil on others. Thousands of years ago, if you were psychotic or a religious fanatic or a malcontent, and you wished evil on your neighbor, you picked up a rock and threw it at them, and that was about the damage you could do,” he said.
“We went on to bows and arrows and cannons. But since 1945, the potential for inflicting enormous harm on incredible numbers of people has increased at a geometric pace.”
In 2002, Buffet joined the Nuclear Threat Initiative as an adviser to its board, stating, “I believe that the greatest danger facing our nation and the world is the global threat from nuclear, biological and chemical weapons.”
Buffett expressed a similar sentiment in 2017.
“I've been concerned since 1945 when the first atomic bomb was used,” he said in an interview with CNBC.
“We have developed over these 72 years, since August of 1945, the ability around the world to almost destroy civilization. It's the only real cloud on the horizon.”
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What to own in times of crisis
Given the ongoing conflicts around the world and other uncertainties looming in the distance — like a still-hawkish Fed — it might be tempting to hide out in cash. After all, the stock market took a beating in 2022.
Buffett doesn’t exactly believe in stashing your savings under the mattress.
“The one thing you can be quite sure of is if we went into some very major war, the value of money would go down,” he told CNBC in 2014. “That's happened in virtually every war that I'm aware of. So the last thing you'd want to do is hold money during a war.”
Consumers have learned first-hand the risk of holding money over the past few years. With rampant inflation, the purchasing power of cash savings can deteriorate rapidly.
What should investors own instead?
Buffett has always believed in productive assets, and he stands by that even in times of crisis.
“You might want to own a farm, you might want to own an apartment house, you might want to own securities,” he said.
It’s easy to see the appeal of farmland. Whether boom or bust, people still need to eat. These days, it’s also easy to invest in farmland even if you know nothing about farming.
Real estate could offer another hedge against inflation and uncertainty.
Sure, real estate has its cycles, but no matter how much economic growth slows down, people need a place to live. And with real estate prices rising to unaffordable levels in many parts of the country, renting has become the only option for many people.
The segment is also becoming increasingly accessible to retail investors.
As for securities, Berkshire discloses its holdings every quarter so you can see which stocks the Oracle of Omaha favors.
According to the latest 13F filing, Buffett’s top five holdings were Apple (AAPL), Bank of America (BAC), American Express (AXP), Coca-Cola (KO) and Chevron (CVX) at the end of the third quarter of 2023.
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