The Q&A session at Berkshire Hathaway’s 2023 annual shareholders’ meeting ended early on Saturday, after back-to-back three-hour sessions of questioning for the conglomerate’s management.
CEO Warren Buffett and vice chairmen Charlie Munger, Ajit Jain, and Greg Abel addressed queries from shareholders about Berkshire’s business performance, their thoughts on macroeconomic issues and the recent banking turmoil
Buffett, 92, and Munger, 99, sprinkled in genial anecdotes and grandfatherly advice for Berkshire’s younger shareholders. Attendance was high at this year’s so-called “Woodstock for Capitalists,” after a relatively muted 2022 confab following two year of virtual meetings during the Covid-19 pandemic.
Berkshire’s first-quarter results were released earlier on Saturday morning, showing a 12.6% rise in operating profit, to $8.1 billion, and a faster pace of buybacks compared with the fourth quarter of 2022.
Berkshire Won’t Be Investing In Automakers, Buffett Says
Berkshire Hathaway (ticker: BRK.A, BRK.B) isn’t likely to invest in shares of automakers like General Motors (GM) or Ford Motor (F), CEO Warren Buffett said at the company’s annual shareholders’ meeting on Saturday.
“Charlie [Munger] and I have long felt that the auto business is just too tough,” Buffett said, adding an anecdote about Henry Ford’s challenges in the industry in the early 1900s.
Buffett said that there are too many global competitors for the automaking business to generate attractive returns. It’s also in the midst of a transition to electric vehicles, which imposes huge capital costs and risks in the near term before it becomes clear which companies will be successful and which won’t.
Berkshire prefers the auto dealership business, where it owns 78 dealerships across the U.S. Those generate more than $8 billion in annual revenue, making Berkshire among the largest dealership groups in the U.S.
Buffett Says Berkshire Remains On the Hunt for an ‘Elephant-Sized’ Acquisition
Berkshire Hathaway (ticker: BRK.A, BRK.B) has nearly $130 billion in cash and Treasury bills on its balance sheet. There’s ongoing speculation about what the company might do with all that dry powder.
At Berkshire’s annual shareholders’ meeting on Saturday, CEO Warren Buffett said that he would rather do a deal for a large company than sit on the cash, earning interest, but that it all depends on the prices available. Things are generally expensive these days.
“If we could buy a company for $15 billion, $75 billion, $100 billion, we could do it,” Buffett said. He noted that it’s more complex to buy a publicly traded company due to the longer timeline, shareholder vote, and other rules. But there just aren’t that many private companies of that scale available.
Buffett spoke about opportunities that emerged during the global financial crisis in 2008, including deals to buy shares in several troubled banks at attractive prices, and said that he expects Berkshire to get similar calls in the future.
“There’s no one else quite like us who can [do a deal] under the right circumstances,” Buffett said.
In the meantime, Berkshire is earning close to 5% on its T-bills. It has also been buying stock in recent years.
Cash Is Not Trash, Buffett Says
Buffett is watching currency in circulation, calling it "one of the most interesting figures" to consider and calling out those who previously said "cash is trash" back in 2007 and 2008.
"The Federal Reserve balance sheet has gone from $800 billion to $2.2 trillion and most of that's in $100 bills overwhelmingly. … I would really like to know where all of that is," he said.
"Anyone who thinks cash is trash ought to look at the Federal Reserve balance sheet," he added. "It is just astounding the way $100 bills have spread. … Believe me, cash is not trash."
Buffett knocks down speculation Berkshire would take full control of Occidental
Buffett said Saturday that Berkshire Hathaway won't take full control of Occidental Petroleum, the energy stock where it has amassed a stake above 20%.
"There's speculation about us buying control, we're not going to buy control. … We wouldn't know what to do with it," he said.
Buffett says he’ll stick with Bank of America
Buffett says he’s keeping his Bank of America holdings — but that he doesn’t know what’s in store.
“We do remain with one bank holding ... , but we originated that deal, with Bank of America. I like Bank of America, I liked the management and I proposed the deal for them. So I stick with it,” said Buffett.
He said that the recent crises in the banking sector have reaffirmed his belief that the American public and lawmakers fail to understand the banking sector.
“But do I know how to project out what’s going to happen from here? The answer is I don’t, because I’ve seen so many things in the last few months, which really weren’t that unexpected to me to see. But which reconfirmed my belief that the American public doesn’t understand our banking system.”
It’s a joke to think of ‘tokens’ as the world’s reserve currency, Buffett says
People may be losing faith in the dollar, but that doesn’t make it bitcoin’s moment to shine, Buffett said.
“Forget about all the toys – it’s a joke to think of any tokens, that’s madness,” when it comes to the reserve currency of the world, he said. “But it’s also madness to just keep printing money.”
Buffett was responding to a question about the current dedollarization trend and warned about the extent to which the U.S. has been printing money.
“It’s easy for America to do a lot, but if we do too much it’s very hard to see how you recover once you’ve let the genie out of the bottle,” he said. “People lose faith in the currency and they behave in an entirely different manner than they do when they feel … they’re going to have something with roughly equal purchasing power. It changes the economy.”
Munger criticized it more sharply, saying “at some point printing money to buy boats will become counterproductive.”
Still, Buffett stood by the dollar: “We are the reserve currency, I see no option for any other currency to be the reserve currency,” he said.
Bitcoin gained popularity among investors in 2021 because of its potential to act as an inflation hedge, after the U.S. printed trillions of dollars in Covid-19 stimulus. Many have let go of that narrative after bitcoin dropped more than 60% in 2022 amid persistently high inflation.
Buffett Says Streaming Remains a Challenging Business, Sticks With Paramount
CEO Warren Buffett addressed Berkshire Hathaway’s (ticker: BRK.A, BRK.B) investment in Paramount Global (PARA) at the company’s annual shareholders’ meeting in Omaha on Saturday. The media company is in the midst of an expensive transition from legacy businesses in cable TV and movies to a streaming future.
Paramount shares dropped 28% on May 5 following a disastrous quarterly earnings report that included a large loss and a slash to the company’s dividend.
“It’s not good news when any company cuts its dividend dramatically,” Buffett said.
He noted that the streaming business remains challenging, with numerous competitors keeping prices low. It’s easy to cancel a streaming subscription and hop to a competing service.
“There are a bunch of companies who don’t want to quit,” Buffett said. “Who knows what will happen with pricing.”
Berkshire became the largest holder of Paramount stock last year, with a stake of around 15%. Shares are down by about half since Berkshire began buying in the first quarter of 2022.
Buffett Faults Bank Risk Taking, Calls for More Active FDIC
Berkshire Hathaway (ticker: BRK.A, BRK.B) CEO Warren Buffett sees excessive risk taking at banks as the root of the 2023 banking turmoil. He called for more conservative banking practices and better communication from regulators at Berkshire’s 2023 annual shareholders’ meeting.
“The situation in banking is what it always was,” Buffett said. “Fear is contagious. Sometimes the fear is justified, sometimes it isn’t.” Buffett recalled that his father, Howard Buffett, lost his job during a bank run in the Great Depression.
Buffett praised the Federal Deposit Insurance Corp. for the greater stability of the banking system offered by the regulators’ deposit insurance, but said that it needed to better communicate with the American public to prevent further potential bank runs and potentially consider guaranteeing 100% of deposits until the current turmoil has passed. That’s especially relevant today, when digital banking makes deposits less “sticky,” he said.
Buffett faulted management at First Republic Bank—which was shut down by the Federal Deposit Insurance Corp. last month before its takeover by JPMorgan Chase (JPM)—for concentrating its balance sheet in low-yielding assets that lost value as interest rates rose over the past year.
Buffett placed signs reading “Available for Sale” and “Held-to-Maturity” on the table in front of him and Charlie Munger, Berkshire’s vice chairman, to laughs from the audience. Those are terms that refer to the accounting treatment of securities on a bank’s balance sheet.
“I’m old fashioned,” Munger said. “I liked it when banks didn’t do investment banking…I think having a lot of investment bankers trying to get rich isn’t a good thing. I think bankers should be more like engineers, thinking about what could go wrong.”
Abel Says He’ll Continue Buffett’s Approach to Share Buybacks
Berkshire Hathaway’s (ticker: BRK.A, BRK.B) vice chairman Greg Abel, Warren Buffett’s appointed successor as CEO, will continue to buy back stock when it appears cheap and the best use of the conglomerate’s cash.
Berkshire bought back $4.4 billion of stock in the first three months of 2023, up from $2.6 billion in the fourth quarter of 2022.
“Greg understands capital allocation as well as I do…and I expect he’ll make those decisions under the same framework that Charlie and I do,” Buffett said.
Buffett is all about intrinsic value, and seeks to buy back Berkshire stock when its price falls below that estimate. He has praised companies like Apple (AAPL) for using excess capital to repurchase shares. He has also criticized management teams for buying back their company’s stock at inflated prices in the past.
“When the opportunity presents itself, we’ll want to be an active purchaser of Berkshire shares,” Abel said. “It’s great for our shareholders to be able to own a larger share in all of Berkshire’s businesses.”
Insurance Profits Are Up at Berkshire, But Jain Worries About a Florida Hurricane
Pricing is strong and improving in catastrophe insurance after a tough decade and a half for the category, Berkshire Hathaway’s (ticker: BRK.A, BRK.B) vice chairman in charge of insurance operations Ajit Jain said at the company’s annual shareholders’ meeting on Saturday. Those are policies that insure homes and businesses against natural disasters including earthquakes and hurricanes.
That has helped to drive better underwriting profits at Berkshire’s reinsurance businesses.
Jain warned that the company’s exposure was “unbalanced,” however, with particularly large concentration in Florida. Across all of Berkshire’s insurance operations, the conglomerate could see a loss of up to $15 billion if there’s a majorly destructive hurricane in Florida this year—if there isn’t, it could mean a profit of up to $7 billion, Jain estimated.
Jain said that the recently acquired insurer Alleghany, which Berkshire bought last year for about $11.6 billion, would continue doing business as it had before the deal.
“We treat our operating units independent of each other,” Jain said. “Alleghany will keep doing what they’re doing and they’ve been very successful at it.”
Berkshire Hathaway Is Taking Part In the Energy Transition
Berkshire Hathaway (ticker: BRK.A, BRK.B) CEO Warren Buffett and vice chairman Greg Abel addressed the conglomerate’s efforts to boost its participation in renewable energy generation at the conglomerate’s 2023 annual shareholders’ meeting in Omaha on Saturday.
“There’s no question there’s an energy transition going on,” said Abel, who oversees Berkshire’s non-insurance businesses, including Berkshire Hathaway Energy. He said the utility company is working to reduce its carbon footprint by 50% in 2030 relative to 2005 levels.
Berkshire Hathaway Energy is investing in windmills and other clean energy generation, plus extending transmission lines to more renewable energy sources, which by their nature are more distributed than traditional power plants.
“It’s a very, very good business opportunity for us,” Abel added.
Buffett said that the United States’ approach to renewable energy is overly fragmented, with different rules and regulations state by state and no society-wide organized effort. He drew a comparison to the World War II-era coordination between the federal government and American businesses to reorient the nation’s industrial economy to support the war effort.
“The capital is there, the people are there, the objective is obvious, we just don’t seem to be able to do it in peacetime,” Buffett said.
Buffett and Munger Disagree on the Future of Value Investing
Legendary value investors Warren Buffett and Charlie Munger see divergent paths for value investors in the coming years. The Berkshire Hathaway (ticker: BRK.A, BRK.B) managers were responding to shareholders’ questions at the company’s annual meeting in Omaha on Saturday.
“I think value investors are going to have a harder time now that there are so many of them competing for a diminished set of opportunities,” Munger said. “My advice to value investors is to get used to making less.”
“Charlie has been telling me the same thing the whole time we’ve known each other,” Buffett said. The two first met over dinner in 1959.
Buffett sees more opportunities than his long-time partner. “What gives you opportunities is other people doing dumb things,” he said. “...And there’s been a great increase in people doing dumb things.”
The 92-year-old value investor noted that Berkshire’s current scale can be both an advantage and a disadvantage, with many potential opportunities too small to move the needle for the $719 billion conglomerate.
A long-term investing horizon is still key to realizing value in investing, Buffett said. “I’d love to be born today, start out with not too much money, and turn it into a lot of money,” he said. “I’m sure Charlie would too.”
“I’d like my big pile [of money] to stay just the way it is,” Munger quipped, to laughs from the crowd. He has a net worth of approximately $2.4 billion, according to Forbes.
Buffett, 92, and Munger, 99 Aren’t Particularly Bullish on AI, Robotics
A shareholder asked Berkshire Hathaway's Warren Buffett and Charlie Munger to share their thoughts on artificial intelligence and robotics and which businesses stood to be disrupted most. “I thank you for asking Charlie that question,” Buffett, 92, demurred.
Munger, 99, noted that he was impressed by the level of automation at BYD (ticker: BYDDY) factories in Asia. But, “I think regular old intelligence works just fine,” Munger added.
“There won’t be any AI that will replace Ajit [Jain, Berkshire vice chairman],” Buffett quipped. He went on to warn about the potential risks of AI technologies, drawing a parallel to the development of the atomic bomb.
Buffett’s Vice Chairmen Discuss Berkshire’s Businesses
Berkshire Hathaway CEO Warren Buffett kicked a question about the company’s subsidiaries’ performance to his deputies.
Geico is coming off a strong first quarter, with an underwriting profit of $703 million, versus a loss of $178 million in the year-ago quarter.
Ajit Jain, who oversees Berkshire’s insurance operations, said that Geico is working to close the gap with competitors on its employment of telematics, or usage-based insurance, which adjusts customers’ rates based on how they drive.
“Geico’s technology needs a lot more work than I thought it would,” Jain said, noting that the company uses more than 600 distinct tech platforms.
Greg Abel, who oversees non-insurance operations and is in line to succeed Buffett as CEO, spoke about BNSF. He said there was “more work to be done” on making the railroad more efficient and productive and that he was aware of most competitors moving to precision-scheduled railroading.
2022 was a “reset” year for the business, Abel said, that will set it up for better long-term growth.
Buffett Agrees With Regulators’ Decision to Protect Failing Bank Deposits
The 2023 Berkshire Hathaway shareholders’ meeting’s first question had to do with the past few months’ banking-industry turmoil.
CEO Warren Buffett said that regulators made the right decision to intervene to protect depositors at banks including Silicon Valley Bank, which failed in March.
Had they not, “it would have been catastrophic,” Buffett said.
Buffett Talks First-Quarter Results, Berkshire’s Balance Sheet, and Buybacks
Berkshire Hathaway CEO Warren Buffett ran through the company’s first-quarter results, which were released on Saturday morning. The conglomerate’s operating profit after taxes was up almost 13% year over year, to $8.1 billion.
Buffett attributed the gain to a higher return on the company’s stock portfolio, better interest income on its cash holdings, and a higher insurance underwriting profit.
He continued with an overview of Berkshire’s balance sheet, noting that the company’s $504.5 billion in shareholders’ equity is more than any other American company. Berkshire’s insurance float—the difference between an insurance company’s cash collected from premiums and the claims it must pay out—stood at $165.1 billion at the end of the first quarter, while cash and Treasury bills were $127.7 billion. That’s a lot of ammo for potential acquisitions or interest income.
Berkshire bought back about 9,600 class A shares in the first quarter, worth about $4.4 billion. That was faster than the first-quarter pace of buybacks, but slower than Berkshire’s repurchases in 2020 and 2021.
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