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Warren Buffett on the evolution of the world's largest companies

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At the annual Berkshire Hathaway shareholders meeting live streamed on Yahoo Finance, Warren Buffett breaks down the evolution of the world's largest companies

Video Transcript

WARREN BUFFETT: I would like to go to slide L1, so put that up. And these-- on March 31, I ran off a list of the 20 largest companies in the world by stock market value. And those names-- good many of which will be familiar to you, but they were led by Apple, but slightly over $2 trillion. And it went down to the number 20th was worth $330-odd billion. But those were the 20 largest companies in the world by market value on March 31.

Now if I had a little-- I was hoping I could get a little quiz machine so I could have a way to weigh in on this answer and we could flash it up a little later. But it proved technically impossible for-- but what I would like you to do is look at that list, starts off with Apple. Saudi Aramco is a pretty kind of a specialized company. It's-- I don't know whether it's 95% owned by the government or what, but it's essentially a country that's for sale, in terms of that business.

But the top-- of the top six companies, five of them are American. So when you hear people say that America hasn't-- it's not working very well or something of the sort, you know, in the whole world, of the six top companies in value, five of them are in the United States. And if you think about it-- you know, we talked a little about this last year. But in 1790, we had one half of 1% of the world's population-- a little less. We had 4 million people, 3.9 million people. 600,000 of them were slaves.

Ireland had more people than the United States had. Russia had five times as many people as the US did. Ukraine had twice as many people as the United States.

So here we were. But what did we have? We had a map for the future, an aspirational map, that somehow, now only 200-- well, after the Constitution, 232 years later, leaves us with five of the top six companies in the world.

You know, that's not an accident. And it's not because we were way smarter, way stronger, you know, anything of the sort. We had good soil and a decent climate, but so did some of those other countries I named. And the system has worked unbelievably well. Just imagine thinking of five of the top six companies in the world ending up with a country that started with a half of 1% of the population just a few hundred years ago.

But what I would like you to do is look at that list for a minute or two, if you want to, and then make an estimate, make your own guess, how many of those companies are going to be on the list 30 years from now? Here they are, these powerhouses. And how many would you guess are going to be on the list?

Well, you know it's not going to be all 20. It may not even be all 20 today or tomorrow. This was March 31. But what would you guess?

And think about that yourself. Would you put on five? Eight? Well, whatever it would be.

I would now invite you to look at slide two, or L2, which goes back a little more than 30 years, and look at the top 20 from 1989. And if you look at the top 20 from 1989, there's two things that should grab your interest, at least two. None of the 20 from 30 years ago are on the present list. None. Zero.

There were then six US companies on the list, and their names are familiar to you. We have General Electric. We have Exxon. We have IBM Corp. And these are-- they're still around. Merck is down there at number-- none made it to the list 30 years later. Zero.

And I would guess that very few of you, when I asked you to play the quiz a little-- a few minutes ago, would have put down zero. And I don't think it will be zero. But it is a reminder of what extraordinary things are going to happen, things that seem obvious to you.

Japan had this wonderful bull market for a very long time. So we had a number of Japanese companies on the list. Today there are none. And the United States had the six. Now we have 13. But they aren't the same six.

I would invite you to think about one other thing as you look at this list. 1989 was not the dark ages. I mean, we weren't just discovering capitalism or anything else. And people thought they knew a lot about the stock market, and the efficient market theory was in, and they were like-- it was not-- it was not a backward time. And if you look, the top company at that time had a market value of $100 billion, $104 billion.

So the largest company in the world, [? of ?] [? title, ?] in just a shade over 30 years, has gone from $100 billion to $2 trillion. At the bottom, number 20 has gone from $34 billion to something a little over 10 times that.

Well, that tells you something about what's happened with equality, which is a hot subject in this country. It tells you a little bit about inflation, but this was not a highly inflationary period as a whole. But it tells you that capitalism has worked incredibly well, especially for the capitalists.

And it's a pretty astounding number. Do you think it could be repeated, now that-- that 30 years from now, that you could take $2 trillion for Apple and multiply any company and come up with 30 times that for the leader? You know, it seems impossible, and maybe it is impossible. But we were just as sure of ourselves as investors and Wall Street was in 1989 as we are today. But the world can change in very, very dramatic ways.

And I'll just give you one other example you might ponder. This is-- [? don't start ?] [? feeling ?] too sure of yourself. One thing it shows, incidentally, is that-- it's a great argument for index funds, is that, you know, the main thing to do was to be aboard the ship. You know, a ship. You know, they were all going to a better promised land. You just didn't know which one was the one to necessarily get on.

But you couldn't help but do well if you just had a diversified group of equities. US equities would be my preference. But-- to hold over a 30-year period. But if you thought you knew a lot about which ones to pick, or the person that you had hiring-- you were paying a lot of money to had all these ideas and they could tell you their best ideas, in 1989 did not necessarily do that well, although overall equities were absolutely the place to be.

Secondly, people get enormously attracted to various industries. I mean, you think if you know, if a company says it's in the xyz industry, and that's a popular one, you can sell IPOs, you can sell SPACs, you can-- people disregard sales numbers, earnings numbers, that just-- you know, it's the place to be.

So Berkshire Hathaway-- where was the place to be in 1903 when-- my dad was born in 1903. But that wasn't really that big of news. But-- and it wasn't big news that actually Henry Ford was starting the Ford Motor Company. It had failed a couple of times before.

But he was about to change the world. I mean, the auto, when you think about everything, we've got a great auto insurance company. If there weren't any autos, we wouldn't have GEICO. But it transformed the country. And Henry Ford brought in the $5 daily wage, and that was a huge thing, assembly lines, everything, autos came along.

So let's just assume that you had seen a quick glance back in 1903 of all the interstate highways, 290 million vehicles on the road in the United States, you know, everything about it. And you say, well, this is pretty easy. It's going to be cars. It's going to be autos.

Well, Berkshire-- let's see what we've got up there. Yeah, no, stay where you were. Go back. I don't want to change slides yet. The-- go back to the Ls.

Berkshire, by accident-- well, we own a company called Marmon. We bought it from the Pritzker family some years ago. Pritzkers had built this business from many, many, many companies that they had acquired. And the name of their company was Marmon.

And I don't know exactly why Jay and Bob decided to name it Marmon, but they did own a company called Marmon. And the Marmon company-- getting slightly ahead of me on the slides again, but that's OK.

We called it-- they owned this company Marmon, which in 1911 had been a-- the company whose car won the first Indianapolis 500. Maybe that's why they called it Marmon, because they were proud of the fact that the company in 1911 won the first Indianapolis 500. It also was the company that invented the rear view mirror.

I'm not sure whether that was a big contribution to society. Certainly around your household, rear view mirror, you don't want to emphasize too much. But they-- the car that was entered in the Indianapolis 500, the guy who normally sat next to the driver and looked backwards to tell what the competitors were doing, he was sick. So they invented the rear view mirror.

So let's just assume that you decided that autos were this incredible thing, and someday there'd be an Indianapolis 500, and someday they'd have rear view mirrors on cars, and someday 290 million cars would be buzzing around the United States, or autos, or I'm counting trucks there.

And so I decided to look at the history. And I thought I'd put up a list of auto companies from over the years. And I was originally going to put up just the ones that were the Ms, so I could get them on one slide. But when I went to the Ms, it went on and on and on. So I just decided to put up the ones that started with M-A. And as you can see, there were almost 40 companies that went into the auto business, just starting with M-A, including our little-- our Marmon there in the middle column, which lasted for a while, quite a while. It was selling cars in the 1930s, were really quite special.

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.

The Maytag company put out a car. Allstate put out a car. DuPont put out a car. I mean, there was a Nebraska motor company. Everybody started car companies, just like everybody's starting something now that can be-- where you can get money from people.

But there were very, very, very few people that picked the winner or got the opportunity. Ford Motor, Henry Ford had a few partners, and he really didn't like them. So he figured a way to buy them out. That was sort of the-- sort of the beginning of the auto finance. That's a long story. We won't get into that.

But you couldn't buy into Ford Motor, and of course General Motors became the dominant company finally, when Henry Ford did not really make the shift from the Model T to the Model A very-- did not work very well. So I just want to tell you it's not as easy as it sounds.