I’ve attended a Berkshire Hathaway’s annual shareholders meeting in the past. Although, this year I didn’t have that opportunity. Due to the coronavirus, Berkshire didn’t allow shareholders to physically attend the meeting. Instead, Yahoo Finance streamed the event online.
Thousands of people tuned in to watch Warren Buffett. And the Oracle of Omaha didn’t disappoint. I stuck around for the entire 4+ hour event. At the start, there was some fumbling of slides with a little history lesson… but overall, it was another insightful meeting.
This year, I even submitted a few questions but they didn’t make the cut. Although, a few questions from others asked similar things. For example, did Berkshire sell all of its airline investments? Also, how will negative interest rates impact the insurance business?
When watching the event last night, I took a few pages of notes. And since, I’ve condensed some of the key topics and takeaways…
Please keep in mind these are my personal notes and please refer to the actual presentation for direct details.
2020 Berkshire Hathaway Annual Shareholder Notes
Warren Buffett opened up with remarks about America. Our country is only a little older than Buffett and Munger’s ages combined (185 years vs. 244 years). That’s just to show that in a short time, we’ve seen some amazing progress.
In 2020, we are now a better country as well as an incredibly more wealthy country than we were in 1789.
To put things in perspective, Warren Buffett also used a thought experiment… if given the opportunity to choose a place and time to be born throughout history, people would be crazy not to choose America in its current day. There have been plenty of setbacks but American progress overcomes. In Buffett’s words… never, never bet against America.
The Dow Jones Industrial Average has been around for over a century and continues its climb. Also, financial markets have become more stable thanks to regulation over the years. For example, Buffett highlighted the FDIC multiple times.
Increased Financial Regulation and Monetary Policy
Since the FDIC’s start in the 1930s, it has helped prevent bank runs and promote financial stability, all at a low-to-no cost to taxpayers. Buffett pointed out that people often overlook or underappreciate that fact. The FDIC works similar to a mutual insurance company and banks have chipped in about $100 billion over the years to its reserves. That’s a good safety net.
Keynesian economics has also started to take over since WWII. The government has shifted to being ok with operating at a deficit. And Buffett isn’t worried about the Federal government defaulting or its arbitrary debt limits. These debts will be refunded and debt paying capacity grows with the country.
Warren Buffett also joked, if he could issue Buffett Bucks, he would never default. He would simply print more.
One question that came up was on negative interest rates, relative to the insurance business. And Berkshire’s management has entertained the idea but it flips financial markets upside down. Buffett admitted he’s been wrong about inflation in the past and isn’t sure about negative rates. Raising money at negative interest rates would make things pretty good for borrowers.
Overall, America is in unprecedented monetary territory. And according to Buffett, banks are in very good shape. Unlike the 2008/2009 crisis, they’re not the main problem today.
Coronavirus Impact and Reactions
In response to coronavirus shutdowns, the government has rolled out huge bailouts on multiple fronts. And Buffett gave kudos to the current Fed chair, Jerome Powell, for the steps he’s taken. Although, his favorite Fed chair in the past was Paul Volcker. He even recommended Paul Volcker’s book, Keeping At It.
Buffett gave credit to Congress for acting promptly as well. Sure, there are hiccups, but Buffett thinks PPP is generally a good idea. He didn’t want to get too political with his answers so he didn’t expand on that topic much.
Overall, with recent bailouts, we know the dire situation we’ve been able to prevent or lessen. Although, Buffett doesn’t know what the long-term consequences of the monetary action will be. He didn’t expand on that but I’d love to know his thoughts.
A few questions then touched on how Berkshire Hathaway is helping its employees during the downturn. Both Buffett and Greg Abel indicated it depends on their individual businesses in the short-term. But in the future, Berkshire will have a higher number of employees.
Buffett also said he’s not aware of any of his fully owned businesses accepting PPP. And one of Berkshire’s big insurance businesses, Geico, is delivering back roughly $2.5 billion to customers due to decreased driving. Also, similar to other insurance companies, Geico is offering more time to pay and free insurance for a while if people cancel. Although, he mentioned recent events will lead to more uninsured drivers on the roads, which will put upward pressure on rates.
Alright, let’s now jump into some more portfolio specific questions.
Berkshire Hathaway Portfolio and Investing Strategies
Warren Buffett shared Berkshire Hathaway’s quarterly financials. Although, he said it’s not very useful for forecasting. So, I’m not going to dwell on those numbers. Instead, some other highlights…
One of the important announcements was the complete sale of all four airline investments. For the total in April, Berkshire sold over $6 billion in stock. Yet, he made it clear that he still thinks the airlines are great companies. They just have less upside due to uncertainty around current events. The world has changed but even with these big sales, Buffett is bullish.
Berkshire Hathaway has close to $130 billion ready to invest. A large chunk of that is in short-term, risk-free debt. But Buffett pointed out that’s a terrible investment and he would rather invest cash in big deals. He mentioned Berkshire is willing to be a lender of last resort but he hasn’t seen good enough deals.
They’ve invested a bit into the newspaper industry recently but that doesn’t make much of a dent in the big cash pile.
Even though Buffet is long the American economy, it’s still important to be careful with how he bets. Anything can happen in the markets, as we’ve recently seen. On one of the early slides, Buffett shared a much broader subject… what he doesn’t know. Risk management is vital along with waiting for great opportunities. Markets are manic in the short-term. So, you should wait to buy businesses you like when they trade at good values. Then once you buy, no one is forcing you to sell.
Another topic that came up was the energy industry. Berkshire’s Occidental Petroleum stake is struggling, along with other oil companies (like my recent investment in Exxon Mobil). Risk is being realized and some oil companies will go bankrupt. But with lower oil prices, oil supply will decrease a lot over the next few years.
Alright, let’s now jump into some final questions and thoughts.
Warren Buffet, Capitalism and Final Thoughts
The second to last question focused on capitalism. Buffett responded that the market system works wonders but would be brutal if left on its own. With history as a guide, it’s been one of the best models but still needs some fine-tuning.
The market is marvelous in many respects but needs some government. If left unchecked, it can move towards a winner takes all system. There’s a lot of creative destruction and we’re seeing less capital-intensive businesses take over.
There are growing problems with wealth concentration, along with inherited wealth. Although, it’s tricky to find solutions that don’t discourage people from working hard. Social Security has been around since the 1930s but it’s now greatly expanded upon.
There are many obstacles in the short-term but Americans will find solutions. Warren Buffett has lived through many crises but continues to play the long game. Throughout the meeting, he repeated that he wouldn’t be betting against America in his lifetime. And I won’t be either.
I’ll leave you with one more takeaway from Berkshire Hathaway’s 2020 shareholders meeting. Given all the bailouts, Warren Buffett said he doesn’t want to have to be dependent on the kindness of strangers or friends. And my interpretation, consider and prepare for a wide range of outcomes. That’s why I’m living a frugal lifestyle today.