Berkshire Hathaway held its AGM in Omaha, Nebraska in the early hours of Sunday morning local time. The annual ‘Woodstock for capitalists’ continues to draw huge crowds hoping to hear the wisdom and wit of two of the world’s great investors.
Buffett and Munger are now 87 and 94 years old respectively, so naturally, there are questions about succession planning. Notably absent was any discussion of total retirement (though Buffett admits he is semi-retired “at my most active”), with most seeming to accept that the pair will work until they can no longer stand. Buffett repeatedly emphasised the skills of his lieutenants, Todd Combs, Ted Weschler, and Ajit Jain – all of whom have been touted as potential replacements at various times.
Here are some of the highlights from this weekend’s meeting.
A $100B spending spree?
When a shareholder asked about Berkshire’s $128B cash balance and $116B insurance float, Buffett made it clear that they can and would spend a large portion of this on equities… If they could.
“We would much rather have a closer to 20 than to have 116… Our cash and cash equivalents has grown because the competition for acquisitions has become much stronger, both as money has piled up with the buyers of businesses, and because debt is so cheap, a variety of factors. I don’t think those are necessarily permanent, in fact, I can be reasonably sure they aren’t permanent. It’s just a question of when they change.
Defending your moat
After a question by a shareholder that quoted Elon Musk’s comment that competitive moats are “lame", “quaint”, and that “the pace of innovation” is the only thing that matters, Buffett fired back at the Tesla CEO.
“In recent years there have been more moats that have been susceptible to invasion than seemed to be the case earlier, but there’s always been attempts to do it. There are places where the moats are as strong as ever, but certainly, you should be working at improving your own moat and defending your own moat all the time. Elon may turn things upside down in some areas. I don’t think he’d want to take us on in candy.”
Ridiculous rates on long-term bonds
“Long term bonds, as these rates, it’s almost ridiculous when you think about it. The Federal Reserve board is telling you ‘we want two percent per year inflation’, and the very long bond is not much more than 3%. If you’re an individual and you pay taxes on it, you’re going to have some income taxes to pay. Let’s say, it brings your after-tax return down to two and a half percent. The Federal Reserve is telling you that they’re going to do everything that’s in their power to make sure that you don’t get more than half a percent per year of inflation adjust income. That seems to me… I wouldn’t go back to penny stocks, but I would stick with productive businesses.”
What to do with Apple’s cash?
"It's extremely hard to find acquisitions that would be accretive to Apple the $50-$100 billion range. As I look around the horizon, I don't see anything that would make sense for them, whereas I do see a business that they know everything about ... I'm delighted to see them repurchasing shares ... we own 5 percent of ... Over time, we may own 6 or 7 percent because they repurchase shares."
Asset prices as “nose-bleed” levels
“The corporate acquisition game now is so driven by leveraged buyouts and strategic – I usually translate that into barnyard language. There’s so much craziness in price (inaudible), of course it’s hard for us to . The people in the leveraged buyout game, who love massive leverage and don’t mind high prices, even they are getting nose-bleeds. It’s hard. It’s not an environment that allows Berkshire to go out and buy a whole lot of companies.”
To Buffett: “We’ve never had a strategic plan unless you’ve hidden it from me.”
No formula for qualitative factors
After an academic sounding question that roughly translated to ‘how do you incorporate qualitative factors into your valuations’, Munger kept it characteristically straight-forward.
“I can’t give you a formulaic approach because I don’t use one. I just mix all the factors, and if the gap between value and price is not attractive, I go on to something else. Sometimes it’s just quantitative.
For instance, when Costco was selling at about 12 or 13 times earnings, I thought that was a ridiculously low value just because the competitive strength of the business was so great that it so likely to keep doing better and better.
But I can’t reduce that to a formula for you… If you want formula, you should go back to graduate school. They’ll give you lots of formulas that won’t work.”
The effects of Trump’s tariffs
“The conditions in steel were almost unbelievably adverse to the American steel industry. Even Donald Trump can be right on some of this stuff.”
Political memories are short
“There’s a tendency to think that our present politicians are much worse than any we had in the past. But we tend to forget awful our politicians were in the past. I can remember a prominent senator arguing with absolute earnestness that mediocre people ought to have more representation on the United States Supreme Court.”
Watch the meeting
The full seven-and-a-half-hour video, as well as dozens of highlights, can be accessed on Yahoo Finance. Make sure you don’t miss Munger trying to open his peanut brittle at 31:42 in the first ever glimpse of the Berkshire AGM video - normally only shown to in-person attendees.
Patrick, your wires are a delight to read and your podcasts are equally wonderful. You convey such a passion for your work and respect for those in the business. Many thanks, J