6 Takeaways from the Berkshire Hathaway Annual Meeting👩🌾
Updated: Jul 9, 2019
On Berkshire 2019: "an invaluable experience priced at a massive discount of its intrinsic value" - Gem
✌ What's up from the Coachella for Capitalists!!
Each year, tens of thousands of shareholders from around the world make their way to Omaha, Nebraska to pay homage to the most legendary investors of all time, Warren Buffett and Charlie Munger. As the CEO and Vice Chairman of Berkshire Hathaway, Buffett and Munger conduct a shareholders meeting annually in the month of May. The meeting is a Q&A marathon on subjects ranging from the state of the Berkshire biz, to the economy, political climate, and whatever other spicy topics shareholders fire at them.
The six-hour discussion with Buffett and Munger was filled with priceless percipience and indispensable investing wisdom. Indeed, Buffett produces an annual letter to shareholders every year, but the letters focus solely on what management desires to discuss. What differentiates this meeting is while the letters are premeditated, prepared from around November - March, the meeting is completely improvised. That's right, Buffett and Munger have NO idea what questions will be posed to them. Buffett and Munger share their thoughts on topics they never would have discussed in their letters - cue the popcorn 🍿.
TBH I didn't quite know what to expect as a first-timer. I imagined a sea of golf shirts gathered in a mass of cropland. I met a 24-year old Real Estate Broker* on the plane whose eyes lit up when I told him I was attending the convention: "I love meeting female investors!" he exclaimed. I felt like a legendary creature of American folklore. We gushed over our idols and companies that excited us - it was basically like in the Avatar movie when the two blue people connected their tail things and bonded. Our investing/mating ritual ended when he told me he was going to line up for the meeting at 1 AM (doors opened at 7), and I was like yeah, that's gonna be a no from me dawg. Although, he did offer to hold a space for my sister and me in line = score.
*Side note: my boy Bijan, got featured in the Omaha World-Herald. Read about his experience here.
My Expectations of Omaha
Here are a few gems I took away from this year's meeting:
💎 The Destiny of Capitalism
With the increasing influence of socialism and criticism of capitalism in the US, it was questioned whether this changing tide would affect Berkshire's business approach, especially considering it's no secret that Buffett is a lifelong Democrat. When asked about the future of capitalism in America, Buffett told the audience, “I’m a card-carrying capitalist. You don’t have to worry about me changing in that matter. I also think capitalism does involve regulation. It involves taking care of people who are left behind... I don’t think the country will go into socialism in 2020 or 2040 or 2060.”
Charlie added, "We’re all in favor of some kind of government social safety net in a country as prosperous as ours."
💎 Baby Got Buybacks
Why not more?? This was the first question put to Buffett and Munger, and apparently is a question that is frequently asked at these annual meetings (according to the grumblings of the repeat-customer golf shirts around me).
One shareholder questioned why Berkshire didn't buy back more shares in addition to the $1.7 billion of stock it purchased in Q1. Buffett (skirting around the question IMHO) answered, "We will buy stock when it is trading below a conservative estimate of its intrinsic value. We want to be sure when we repurchase stock that those that have not sold are better off than they were before.”
To me, Buffett is indicating in this statement that he believes Berkshire's stock ain't cheap rn. And turns out, other people did as well as share prices dropped on Monday in response to this comment.
Companies typically swoop their shares back up to reduce the number of those outstanding, which can effectively boost their stock prices. BUT if those shares are overpriced and are inevitably going to drop, why would a company buy them back just to lose money?? However, Berkshire's buyback behavior is only likely to increase in the future as the conglomerate is sittin' on a whole lotta stash 'o cash - Charlie added, "I predict we will get a little more liberal in repurchasing shares."
He went on to say one of my fave lines of the weekend: "I think when it gets really obvious, we’ll be very good at it." Because like, same #relatable.
💎 Stick to What You Know But Adapt When Necessary
Having worked in the energy efficiency biz myself for four years, I was particularly interested in Buffett's and Munger's thoughts about Musk and Tesla possibly venturing into the auto insurance business - especially in light of Musk's criticism of Buffett's investing approach that "moats are lame" - Elon Musk, visionary, entrepreneur, tech bro.
Insurance is an incredibly difficult business to understand that requires A LOT of capital and regulations, and that's why we love well-established, reputable institutions.
To this question, Buffett and Munger perhaps gave some of their most savage responses -
Buffett: "The likelihood of an auto company successfully getting into the insurance business was about as likely as insurance companies successfully getting into the auto business."
Munger: "Good luck."
IDK if the juice is worth the squeeze here, Elon. Maybe you'll have some success building the next dating app, matching up Tesla owners or something...
But in the wise words of Warren: "You should expand your circle of competence if you can. I have expanded mine a little over time. But you should be pretty cautious." Buffett revealed that Berkshire has been buying shares of Amazon and regretted not buying them earlier. While he has admitted to perceiving tech companies as being too difficult to understand with unpredictable growth in the past, he defended that buying Amazon aligns with his value investing principles.
Warren Buffett: "The decision to buy Amazon’s stock was just as much based on value investing principles as a decision to buy a statistically cheap stock. Value investing is about estimating and valuing future cash flows, not about how low a Price to Book or a Price to Earnings ratio is for a stock."
💎 Delayed Gratification - You Either Have it or You Don't?
At one point, a 13 year-old boy rose from the crowd to ask about how young people can develop his or her strength to delay gratification. Employing delayed gratification, or deferred consumption, has historically been perceived as a key behavior in attaining financial success. The idea involves the more immediate pleasures you can defer, the more money you'll have later on, presumably bringing you more happiness at that point.
While Charlie bluntly noted that he's over believing that delayed gratification can be teached, i.e. you're either born with it, or you never have it, Warren was a bit more thoughtful in his response.
Warren told the young boy and the crowd, "I don’t necessarily think that for all families in all circumstances, that saving money is necessarily the best thing to do... I think there’s a lot to be said for doing things that bring you and your family enjoyment."
He added, "I probably know as many rich people as just about anybody... if you aren’t happy having $50,000 or $100,000 dollars, you’re not going to be happier if you have $50 million… Don’t go overboard on delayed gratification."
The insight I'm taking away from this discussion is that constantly striving to delay gratification with our personal finances is an antiquated view; time is not an infinite resource, and many joys in life are certainly worth the monetary costs in the present. I couldn't help but wonder (Carrie Bradshaw voice), is deferred consumption always worth deferred happiness? And does having more money in the future going to create SUCH happiness at that point that it'll make up for the years of foregoing pleasure?
Later on when asked what he values most in life at the moment, Buffett warmly responded, "It’s the two things you can’t buy: time and love." #foodforthought
💎 Google was "The One That Got Away"
Charlie Munger explained that passing up the opportunity to purchase Google earlier was a mistake, and he was kicking himself for it: "We just sat there sucking our thumbs." From this I learned that even as the most intelligent value investors, there will always be big opportunities we'll miss. What can we learn from passing up these gems?
💎 Learning to Not Give a F*ck
Charlie pretty much spent the entirety of the six-hour discussion shoveling peanut brittle into his mouth, into the microphone, in front of tens of thousands. It was both incredibly distracting and entertaining. My takeaway here is that I aspire to that level of not giving a f*ck. That is all.
See ya next year, Omaha!
A dolla makes me holla,