Key takeaways from the Berkshire Hathaway AGM

This time last year, the Berkshire AGM transfixed investors even more than previous years, with markets in the grip of a major sell-down as the world realised the true impact of COVID. It was the first time in many years that Vice Chairman Charlie Munger failed to attend the meeting, but as promised at the time, Munger returned this year.

This year’s meeting was still a muted affair, with the notable absence of the thousands of fans that had caused the AGM to be dubbed “Woodstock for capitalists” in the time before COVID. However, much like the rest of America, it looks like it’s slowly returning to some sense of normality.

In this wire, I'll share eight of my favourite lessons, comments, and takeaways from this year’s Berkshire AGM.

Inflation is here

Many commentators have speculated in recent months about rising inflation, but thus far, it's failed to show up in any meaningful way in the various consumer inflation measures. Buffett said that the economy, much to his surprise, was "running in super high gear."

"We’re seeing very substantial inflation. It’s very interesting. We’re raising prices. People are raising prices to us, and it’s being accepted."

Greg Abel, Buffett's successor, backed that up:

"When we look at steel prices, timber prices, any petroleum input, fundamentally there’s pressure on those raw materials... There’s a scarcity of product right now of certain raw materials. It’s impacting price and the ability to deliver the end product... We’re seeing it flow through, both on price, but overall in scarcity of product."

Interest rates are ‘gravity’ for stock prices

The US Treasury recently sold US $43 billion of short-term bills at a yield of zero. Buffett said this was akin to being able to reduce the pull of gravity by 80%, and then enter the Olympic Games. He made the (perhaps obvious) point that valuations are much higher than they would be if rates were 10%. Buffett brought along a famous economics textbook from the ’70s, which contained only one line on the possibility of zero or negative interest rates: “You can conceive perhaps of negative interest rates, but it can’t ever really happen.”

Don’t expect big deals from Buffett anytime soon

When asked about the impact of Special Purpose Acquisition Companies (SPACs) on Berkshire’s ability to find and close new acquisitions, Buffett labelled it a “killer”.

“These SPACs generally have to spend their money in two years as I understand it … if you’re running money for somebody else and you’re getting paid a fee and you get the upside and you don’t have the downside, you’re going to buy something.”

Elsewhere, he commented that “we’re not going to have much luck on acquisitions while this sort of a period continues.”

Munger still (really truly) hates Bitcoin

Long time followers of Buffett and Munger may recall Munger’s comments on Bitcoin from several years ago, where he said, “It’s like somebody else is trading turds and you decide, ‘I can’t be left out.'”

Buffett openly chose to dodge the question for fear of annoying many of his followers who may be long Bitcoin. Munger however, showed no such restraint.

“I hate the Bitcoin success and I don’t welcome a currency that’s so useful to kidnappers and extortionists and so forth, nor do I like just shuffling out a few extra billions and billions and billions of dollars to somebody who just invented a new financial product out of thin air. I think I should say, modestly, that I think the whole damn development is disgusting and contrary to the interests of civilization.”

Buffett still loves Apple – selling it ‘probably a mistake’

Proving that even the most experienced investors are prone to mistakes, Buffett admitted to regretting selling part of Berkshire’s stake in Apple last year. In his characteristic brevity, Munger, when asked if he thought it was a mistake too, simply responded with “yes.” Buffett made the point that many people would probably prefer to give up their car than their phone, showing just how indispensable smartphones have become in the modern age.

Buffett still doesn’t like airlines

One call for which Buffett has received a lot of flak was their decision to sell their airline stocks at what turned out to be the bottom of the market. Buffett was rather sanguine about his choice, saying that the government was probably more willing to bail the industry out without Buffett as a shareholder. Regardless, he has no interest in buying airlines again – perhaps he should’ve listened to his own advice from years earlier to never buy airlines.

A three in 2000 chance

Picking industries that are set for growth is not the most complicated part of picking stocks. Getting the companies right is much harder. In the 1930s, there were over 2000 car companies in America – in fact, the list of companies with names that started with “M” was so long as to not fit on one page of his slide! But by 2009, “there were three left, two of which went bankrupt.” Buffett used this point to illustrate the value in holding broadly diversified index funds, which he still believes is the best investment for the vast majority of people.

‘Free’ trading is not so free

As the saying goes, ‘if you are not paying for it, you’re not the customer; you’re the product being sold.’ Some Robinhood users may think they’re getting a free lunch with no-commission trading, but how does Robinhood make money? By selling your orders to market makers. According to Bloomberg, over 40% of their revenue came from selling order flow in 2018.

“Robinhood trades are not free. When you pay for order flow, you’re probably charging your customers more and pretending to be free. It’s a very dishonourable, low-grade way to talk. Nobody should believe that Robinhood trades are free.”

Buffett and Munger’s biggest lessons from the last year

At the end of the Q&A, one shareholder asked a favourite question of mine: what the biggest lesson you’ve learned in the last year? Their responses are better than any editorialising I’m capable of, so I’ll present them in raw form:

Buffett: “Well, my biggest lesson has been to listen more to Charlie. He’s been right on some things that I’ve been wrong on.”

Munger: “Well, I don’t know. If you’re not a little confused by what’s going on, you don’t understand it. We’re in uncharted territory.”

Want to watch or read the full meeting?

If you missed the meeting, but still want to catch up you can watch the (five and a half hour long) full event on YouTube, or read the (50,000 word) transcript here.