"I'll have one or two very short lessons for perhaps the new investors who are not necessarily in Berkshire Hathaway, but people who have entered the stock market in the last year, and ... I think there has been a record number enter the stock market. I'll have a couple of little examples for them," Buffett said in his opening remarks.
A wave of new investors has flooded the stock market, with lockdowns, no-fee trading, and stimulus checks making it easier to open up a brokerage account and start trading.
The 90-year-old "Oracle of Omaha" told this generation of first-time investors: "it's not as easy as it sounds."
The famed investor shared two items for new entrants to the stock market “to ponder a bit before they try to do 30 or 40 trades a day to profit from what looks like a very easy game.”
To illustrate his point, Buffett showed a slide of the 20 largest companies by market capitalization as of March 31, 2021, which includes Apple (AAPL), Saudi Aramco, Microsoft (MSFT), Amazon (AMZN), Alphabet (GOOG, GOOGL), Facebook (FB), Tencent, Tesla (TSLA), Alibaba (BABA), and Berkshire Hathaway (BRK-A, BRK-B) in the top ten.
Highlighting that five of the top six companies are American, Buffett reiterated his bullish message on the U.S., noting it's "not an accident" and it's a system that's worked "unbelievably well."
Referencing the list, Buffett urged new investors to make their own guess as to "how many of those companies are going to be on the list 30 years from now?"
"What would you guess? Think about that yourself...Would you put on five, eight, whatever it might be?"
Buffett then juxtaposed a slide of the top 20 companies from 1989 from market cap, which only included six U.S. companies, which are noticeably absent from the 2021 list.
"It is a reminder of what extraordinary things can happen. Things that seem obvious to you," Buffett said, later adding, "The world can change, and very very dramatic ways."
Buffett said this is a "great argument for index funds," to own a diversified group of U.S. equities over a long period. Buffett has long argued that investors — both small and large — would be better off putting money in low-cost index funds, and thereby avoiding fees shelled out to active managers to pick "the place to be," from IPOs to SPACs these days.
"I could tell you their best ideas in 1989 did not necessarily do that well," Buffett said.
To further his point, Buffett shared that in 1903, the year his father was born, automobiles were the exciting industry. "Everybody started car companies just like everybody's starting something now that can be where you can get money from people."
"But in any event, there were at least 2,000 companies that entered the auto business, because it clearly had this incredible future. And of course, you remember that in 2009, there were three left, two of which went bankrupt. 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, adding that "very, very, very few people the picked the winner."
Buffett joined his long-time friend and partner Charlie Munger, 97, for a virtual shareholders meeting held in Los Angeles, instead of Omaha, Nebraska. Munger has lived in Southern California for nearly 60 years.
"So I just want to tell you," Buffett told new investors, "it's not as easy as it sounds."
Julia La Roche is a correspondent for Yahoo Finance. Follow her on Twitter.
Read more from the Daily Journal Meeting: