Warren Buffett said What?
I recently spoke with someone that had attended a free lunch offered by a financial advisor. This lunch was touted as an “educational” retirement seminar. I don’t want to knock all financial advisors who offer these free lunch seminars because not all of them are high pressure sales presentations that push unsuitable financial products. But I got a good laugh out of this one. This financial advisor was pushing annuities as a way to generate retirement income. He used Warren Buffett as an example of someone that would buy an annuity. The advisor said that Buffett has been selling stocks because he is holding $110 billion in cash. Buffett supposedly believes that markets are overvalued because the yield curve is inverted. When the short-end of the yield curve is higher than the long-end, it’s time to get defensive. Moreover, the stock market is at an all-time high and if Buffett is selling stocks you should buy an annuity to protect your capital.
Here is a consumer alert on annuity sales presentations – Annuity salespeople are trained to exploit your fears. To quote an instructor at an annuity training conference, “They thrive on fear, anger and greed … Show them their finances are all screwed up so that they think, ‘Oh no, I have done it all wrong.’ This will make you money.”
I learned something new reading through this consumer alert on annuities. The sales representatives will station spotters in the parking lot to take note of who arrives at the lunch driving expensive cars. Those people are marked as potential “clients” and frequently the sales representative will show up uninvited at their homes for a follow up consultation.
The person that I was speaking with had done a great job saving for retirement and was not fooled by this annuity salesperson. But they did believe what the financial advisor had said about Warren Buffett. It took me a few minutes to explain that Warren Buffett is holding $110 billion in cash because he is waiting for the right time to buy what he terms an elephant size takeover. He has come close a few times, but nobody wants to sell to him anymore because the terms of the deal will not be in their favor. He thrives more in times of illiquidity and panic when companies are desperate for a bailout. Buffett has been a buyer of equities recently and is on the record as saying markets are undervalued relative to low interest rates. This is the exact opposite of what was said at the free lunch seminar.
It’s always best to get a second opinion before purchasing an annuity. Do not make a significant financial investment without talking to different financial advisors and consulting with friends and family members you trust. The Massachusetts Securities Division shared a very good warning on the dangers of annuities that you can read here.
The funniest part of the annuity sales pitch was Buffett buying an annuity for himself or Berkshire Hathaway. I’m happy that I wasn’t in attendance, because I would have lost my lunch. 🙂
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