Predicting which businesses will do well and which will not is often a matter of common sense. Take cosmetic surgery. Obviously this is not the best bet in a depressed economic climate. New York plastic surgeon Pamela Lipkin is seeing the downside. Instead of doing liposuction on seven areas, her patients were doing only three or four, she complained.
One would expect to say the same for cinemas. Regal, America's largest movie house chain, last year closed 300 of its 4,500 screens and faced bankruptcy, because of declining attendance. A bad bet in a near-recession? Not necessarily. Cinema attendance is soaring, as it always does when the economy worsens, because it is cheaper than a night out at a restaurant, a ball game or the theatre.
It is this sort of astute calculation that has made Warren Buffet the icon of investors. More than 5,000 shareholders of his Berkshire Hathaway investment company crowded into the civic auditorium of his home town, Omaha, Nebraska on Saturday for what has become known as an annual Woodstock for capitalists.
There they feast on Buffett's favourite lunch, a slab of beef with ice cream and coke, and drink in the folksy advice he dispenses for hours like a corporate Fidel Castro and which has made most of them rich.
These investors share Buffett's taste for old-economy stocks, though last year some were a bit put out by his refusal to plump for tech firms which were riding high. On that occasion, the 70-year-old billionaire warned that very few Internet-based companies would generate real wealth over the long term, apart from windfalls "grabbed by promoters and Wall Street". Many new tech start-ups simply "monetised the hopes and dreams of millions of people", he said, and "lots of money was transferred from the gullible to the promoters".
This time there were no grumblers after a year when Buffett's advice triumphed. Berkshire's stock kept rising as Wall Street stumbled. Available at $12 in 1965, the shares were trading yesterday at $68,500 each.
The Sage of Omaha also cautioned the 5,000 shareholders that they would be "dreaming" if they expected large profit growth and returns in the near future from any major US company, as only two or three Fortune 500 firms would achieve growth of 15 per cent over an extended period.
This is borne out by a Business Week survey which shows the profit picture getting ugly across the US corporate landscape, due to a combination of the slowing economy, high energy costs and the strong dollar. Technology companies in particular recorded huge percentage falls in profit in the first quarter.
The worst is not yet over. Today most Wall Street gurus promote Buffet-favoured old-economy companies. Selecting profitable stocks, however, is such an inexact science that even the world's richest investors cannot get it right. Microsoft recently ran a charity stock-picking contest, inviting contestants to take on Bill Gates over several weeks in beating the markets. Of the 96,000 participants 24,354 did better than the company chairman, who lost 2.65 per cent.
Mr Gates's own fortune is in fact invested heavily in the old-economy stocks favoured by Warren Buffett like ship-building and railways. He also holds 13.7 per cent of Microsoft stock which has soared 57 per cent this year and was trading yesterday at around $69.
The spring recovery in the US stock markets made April the best month in a decade. The Wilshire indices, which measures the performance of all US-based equity securities, rose by 8.1 per cent, its steepest monthly rise since 1991. The Dow Jones Industrial Average recorded a monthly gain of 8.7 per cent, its strongest since April 1999. The tech-heavy Nasdaq rose 15 per cent in April, its best-ever month, compared to a drop of 16 per cent in April 2000, its worst month.
But don't look to the market for guidance, Warren Buffett warned. There was a "huge trap" for those who listened to voices saying the Nasdaq would rise again soon. The main beneficiary would only be Wall Street, which would sell investors anything.
