Kevin Lamarque/Reuters
Warren Buffett discussed a range of topics at Berkshire Hathaway’s annual meeting on Saturday, famously described as “Woodstock for capitalists.”
The famed investor and Berkshire CEO, along with Greg Abel, vice chairman of non-insurance operations, hosted the virtual event and answers questioned posed by journalists. The event was livestreamed by Yahoo Finance.
The pair spoke hours after Berkshire released its first-quarter earnings. The company posted a record quarterly loss of about $50 billion, largely due to $55 billion in investment losses. It also grew its cash pile from $128 billion to $137 billion in the period, and sold about $6.1 billion in stock on a net basis in April, upending expectations that it would capitalize on the coronavirus sell-off and buy stocks on the cheap.
Here are the highlights from the Berkshire annual meeting:
“Charlie is in fine shape”
Buffett opened the meeting by lamenting the absence of Charlie Munger, Berkshire’s vice chairman and his longtime partner.
“Charlie is in fine shape, his mind is as good as ever, his voice is as strong as ever,” he said. It “just didn’t seem like a good idea” for the 96-year-old to fly from his California home to attend the meeting in Omaha, Nebraska.
“He’s added Zoom to his repertoire,” Buffett continued, referring to the video-conferencing app. “He’s just skipped right by me technologically. Like stepping over a peanut.”
“It’s been a flip of the switch”
Buffett tackled the topic of coronavirus early on in the meeting.
“It’s been a flip of the switch in a huge way in terms of national behavior, the national psyche, it’s dramatic,” he said.
“There was an extraordinarily wide variety of possibilities on both the health side and the economic side,” he continued. A few months on, it’s become clear that “we’re not getting a best case and we know we’re not getting a worst case.”
“The range of possibilities is still extraordinarily wide,” Buffett continued. “We do not know what exactly happens when you shut down a substantial portion of your society.”
Whereas the economic train fell off the tracks in the 2008 financial crisis, Buffett said, “This time we just pulled the train off the tracks and put it on its siding.”
“We are a very, very young country”
Buffett discussed America’s rapid progress since its creation.
“We are a very, very young country,” he said. “What we have accomplished is miraculous.”
Buffett shared some crude calculations of national wealth gain over the past 231 years. He estimated America’s wealth grew from about $1 billion in 1789 to well over $100 trillion in 2020, or at least $100,000 for each original dollar.
The investor highlighted the Civil War as an example of a massive disruption that the nation overcame.
“Nothing can stop America”
Buffett reflected on the Great Depression, pointing out that someone who invested on the day of his birth in August 1930 needed to wait more than 20 years to make back their money.
He also discussed the challenges that his father faced at that time, when he had no job and two children to fee and couldn’t access his savings as the bank was closed.
“Don’t worry about your groceries,” Buffett’s grandfather, who owned a grocery store, told his father. “I’ll let your bill run.”
“He cared about his family, but he wasn’t going to go crazy,” Buffett joked.
When the Dow Jones passed the 381 mark in the 1950s, he said, investors feared the market was overheated and it was going to be 1929 again. Buffett’s mentor and boss at the time, Benjamin Graham, was called to Washington along with a slew of other experts to assess whether the US economy was in trouble.
Now, the Dow is above 24,000. “You’re looking at a market today that has produced $100 for every $1,” he said. “Nothing can stop America when you get right down to it.”
Buffett put up a slide reading, “Never bet against America,” emphasizing that the country faces tough periods but always emerges stronger.
“We are now a better country as well as an incredibly more wealthy country than we were in 1789,” the next slide read. “We have gone dramatically in the right direction.”
“I hope I’ve convinced you to bet on America”
Buffett linked his optimism back to the current threat to the global economy. He also underlined his company’s commitment to funding its own operations, and warned against the dangers of debt.
“When something like the current pandemic happens it’s hard to factor that in and that’s why you never want to use borrowed money to buy into investments,” he said. “We run Berkshire that way.”
“There’s no reason to use borrowed money to participate in the American tailwind,” he added.
Buffett also trumpeted the merits of stocks.
Equities are an “enormously sound investment,” he said, that will outperform US Treasuries and the money people have stashed under their mattresses over time.
However, he sounded the familiar note that investors shouldn’t be constantly changing their minds about stocks.
“People bring the attitude to them too often,” he said, “that it’s important that you develop an opinion on them minute by minute. That’s really foolish.”
Buffett also discouraged people from selling stocks purely because their prices change.
“If you owned the businesses you liked prior to the virus arriving, it changed prices, but nobody’s forcing you to sell.”
Buffett also recommended “the best thing” for investors to bet on is the S&P 500 index, as it gives them a broad cross-section of American businesses.
“I will bet on America the rest of my life,” Buffett said. “I hope I’ve convinced you to bet on America.”
“It hurts some of our businesses a lot”
Buffett addressed the impact of coronavirus on Berkshire’s companies.
“For some period, certainly during the balance of year … our operating earnings will be considerably less than if the virus hadn’t come along,” he said. “It hurts some of our businesses a lot.
While Berkshire’s three biggest businesses — insurance, the BNSF railroad, and Berkshire Hathaway Energy — are in a “reasonably decent” position,” Buffett said, other businesses have been “effectively shut down.”
Buffett also defended the company’s growing cash reserves.
“We don’t want to be dependent on the kindness of friends even, Buffett said, let alone strangers. “There are times when money almost stops,” he added, pointing to the 2008 financial crisis and the liquidity crunch just over a month ago.
“Investment-grade companies were essentially going to be frozen out of the market” in late March, Buffett said, before the Federal Reserve “reacted in a huge way.”
“Fear is the most contagious disease you can imagine, makes the virus look like a piker,” he added, using a term for a gambler who only makes small bets.
“I was wrong”
Buffett also discussed Berkshire’s $1.7 billion in stock and sold $2.2 billion in the first quarter. “We did very little in the first quarter.”
“I want you to know what Berkshire’s actually doing now,” he said. He pointed to Berkshire’s sales of $6.1 billion in stocks on a net basis in April, and explained that reflected its sales of the airlines.
It turned out I was wrong,” Buffett said. He explained that the airline business has “changed in a very major way.” He questioned whether people would fly as much in the next two or three years, and pointed to the government loans that the airlines recently agreed to, which will have to be repaid out of its earnings.
Buffett also highlighted that even if 70% or 80% of the airline business returns, the airlines will be left lumped with “too many planes.”
“The future is much less clear to me,” he said.
This story is still developing….
