This article was submitted by a Guest Contributor. The opinions expressed in this publication are those of the Guest Author/Contributor. They do not purport to reflect the views or opinions of the Financial Horse Team.
Did you know that Berkshire Hathaway is the world’s most expensive stock? This year’s AGM was hotly anticipated as investors worldwide waited to hear from Warren Buffett & Charlie Munger.
In this post, we sum up 10 important takeaways from this year’s AGM.
- Warren Buffet’s advice to new investors
“The main thing to do is to be aboard the ship”.
Buffet advocates that an average person should be invested in the market and the best way to do so is through the S&P 500 index.
For the average person, he recommends 90% of your portfolio to be in the S&P 500 as he does not believe the “average person can pick stocks”. He likes Berkshire, but he thinks that the average person who doesn’t know anything about stocks should buy the S&P 500.
https://www.youtube.com/watch?v=_qa6NbVrUtM
- On trading & speculation
Buffett quotes famous economist Keynes and warns about over speculation in the market.
Charlie Munger had some harsh words for institutions that encourage the gambling instincts of day traders, “I don’t mind the poor fish that gamble. I don’t like the professionals that take the suckers.”
His comments come at a time where a rising numbers of mobile trading applications appear to gamify stock trading and encourage “gambling” behaviour.
- Berkshire’s COVID-19 strategy
“Be fearful when others are greedy and be greedy when others are fearful” is one of Warren Buffet’s most famous sayings, so it came as a surprise when Berkshire Hathaway sold off airlines stocks, when others were considering it a great discount. The actions of Berkshire Hathaway were closely scrutinised, and investors looked for signs of institutional buying from Berkshire, to get a clue if the managers at Berkshire thought the market was bottoming out.
The incredible size of Berkshire meant that the sale of airlines only represented about 1-1.5% of Berkshire’s worth, and Berkshire’s incredible size meant that their continued shareholding would have prevented airlines from getting support from the government, which ultimately allowed them to stay afloat.
Munger also commented on Berkshire’s actions in March 2020. He added that it is impossible for Berkshire, much less for ordinary retail investors, to accurately predict the bottom of the stock market and anyone who expects Berkshire to do so is “out of his mind”.
There seem to be no regrets in Berkshire’s decision as Buffett emphasized that they would have sold airlines and banks regardless.
- US federal monetary policy
Buffett praised Jay Powell, the Chairman of the Federal Reserve, on his “speed and decisiveness” in deploying assets to support the credit market.
While there were some concerns about the heavy support by the federal government, Buffett only had praise for the monetary and fiscal policies implemented, which greatly benefited the economy.
He also highlighted what many economists noted about the multiple waves of economic support could bring, inflation, and its effect on the fast-rising valuations of the technology companies. Buffett sums it up nicely, “interest rates, basically, are to the value of assets, what gravity is to matter”.
Buffett also gave praise to many of the most well-known technology companies, and commented that with the right interest rates, many of these highly valued companies might still be “a bargain”.
While both Buffett and Munger did not provide opinions on what might be the possible consequences of the stimulus packages, they shared the same view that every action has a consequence, especially with the economy progressing into the realm of negative interest rates which were once thought of as impossible by Paul Samuelson, a legendary Economist.
- ESG Investments
There was some discussion on the history of ESG decision making in Berkshire’s history, when it turned down a tobacco deal in the 1990s, despite it being a good financial decision, and if moral factors were taken in Berkshire’s continued Oil and Gas investments.
Warren Buffett maintains a critical lens on the environmental and social impact of Berkshire Hathaway. Buffett and Greg Abel, the Chairman and CEO of Berkshire Hathaway Energy, both laid out the concrete positive impact Berkshire has had on the environment – even before ESG became a buzzword.
There were also questions on reporting climate risk and diversity, and the board’s recommendation of voting against these reports. Warren Buffett had strong views towards these reports and stakeholders that constantly push them.
Buffett points out that those calling for such reports are not shareholders in the company and went as far as to call these reports asinine, lamenting that the additional work put into these reports would have no real contribution to Berkshire’s green efforts.
- The future of Berkshire’s leadership
A growing concern at Berkshire pertains to the longevity of Buffett and Munger at the company.
There were some questions on Mr Jain and Mr Abel, 2 other senior leaders at the company, and if they shared the same bond as Buffett and Munger (Buffett notes how they have not gotten mad at each other in 62 years). While they seem to share a more corporate relationship, both Mr Jain and Mr Abel had very kind words for each other.
There were also questions raised about Todd Combs and Ted Weschler, who are seen as Warren Buffett’s successors in Berkshire, particularly on their absence in AGMs. To which Buffett seems adamant about protecting them from public scrutiny and not “educating other people on how to compete with us”.
- SPACs – a Berkshire killer?
Buffett calls the SPAC mania “about as extreme as we’ve seen it” and says “it’s a killer” in the acquisition space. He admits that SPAC are making the acquisition space extremely competitive for Berkshire but also provides some commentary on fee-based institutions.
Both Buffett and Munger agree that the fee-based structure might not be the best in encouraging morally right behaviour due to the incentive for private equity managers to just “buy something”, especially with the 2-year deadline many SPACs have.
https://www.youtube.com/watch?v=nkUcRfBHA30
- The effects of increased taxes on Berkshire
“We’ve adapted to the tax rate, whatever it is” best describes Buffett and Munger comments on increased tax rates.
- Cryptocurrencies
Munger had some harsh words for Crypto currencies, naming Bitcoin by name. He called it a currency for “kidnappers” and called it “disgusting and contrary to the interest of civilization”.
He openly announced his disapproval of Bitcoin success, which stems from his discomfort that billions of dollars are moving around in a financial product that was created “out of thin air”.
https://www.youtube.com/watch?v=IZo2k1x6nPQ
- Is Berkshire too big to manage?
Berkshire is “excessively decentralised”, said Munger, whose model he says contributed to the Roman Empire’s lasting success. Buffett added that he is happy with the way subsidiary companies are run, even if he did not know his way to their offices.
Buffett insist that having the right culture of not prioritising short-term gains is the key to maintaining this level of decentralisation. Buffett affirms that without this culture, the decentralised system would not have worked.
It is interesting to know that the key leadership in such a large corporation maintains a very high level of trust for the managers of Berkshire’s portfolio companies. Throwing shade at the usual corporate culture of constant reporting, Buffett maintains that managers are happier not having to “fill out a bunch of reports about how much he’s using in the way of carbon”.
Honourable mentions:
Charlie Munger mentions Singapore twice during the AGM. The first mention of our island nation was as the inspiration for China’s change in attitude towards capitalism which ultimately contributed to their success today. On the topic of healthcare, Munger then praises Singapore for having a low cost, high quality healthcare, unlike that of the United States.
Closing reflections:
After watching the entire AGM, Buffett’s talent shines in his ability to breakdown social, economic, and corporate problems. In discussing the myriad of topics raised, Buffett confidently express ideas which may initially seem simplistic, but reveal a deep sense of understanding and comprehension of the issue at hand.
One example is energy’s environmental impact. Buffett insightfully points out that high-voltage transmission and developing new generating capacity (which is more commonly seen as an accessory to coal producing units), are key to resolving America’s power grid issues, which in turn provides an essential pathway for green energy.
It is without a doubt that his brilliance remains crucial to the continued success of Berkshire Hathaway, which recorded about 870 Billion USD in assets in 2020. It will be interesting to see how the new generation of leaders continue the legacy of the immensely successful Berkshire Hathaway.
Share your own takeaways in the comments below! Watch the AGM on Yahoo Finance!
This article was submitted by a Guest Contributor. The opinions expressed in this publication are those of the Guest Author/Contributor. They do not purport to reflect the views or opinions of the Financial Horse Team.