Enjoy my detailed summary of the investing insights and wisdom I learned from Warren Buffett and Charlie Munger at the 2022 Berkshire Hathaway Annual Meeting on April 30th.
Video Contents:
-Berkshire 2022 Highlights Intro
-Buffett’s Emphasis On Trust
-Buybacks & Berkshire’s Intrinsic Value
-Alleghany, Activision, & Oil Companies
-Cash Is King
-Stock Market Is A Casino Lately
-GEICO and BNSF Losing Ground
-Buffett On Market Timing
-Nuclear Risk Is Uninsurable
-Career Advice Against Inflation
-Berkshire’s Culture
-Charlie Munger On Investing In China
-Bitcoin & Crypto Smackdown
-Enjoy The Second Half Of Your Life
Warren and Charlie answered questions for over 5 hours, and I was in awe just sitting there in Omaha in the presence of these Greatest Of All Time (GOAT) Investors!
Even when Warren Buffett or Charlie Munger may not give the most direct answers, they still deliver the wisdom we needed to hear. They talked about some of their holdings such as Activision Blizzard, which Buffett set the record straight that he was the one who bought more into ATVI as a workout/arbitrage opportunity, Occidental Petroleum (OXY), and their new acquisition of the $11.6 billion to buy Alleghany Corporation and lessons about investment banker fees.
One of the biggest takeaways I had is when Buffett said that Berkshire didn’t do any share repurchases (buybacks) in April 2022. So does this mean that Berkshire may have reached full intrinsic value in April!? Recent share prices are as follows:
BRKA: $460K now. April: $484K-528K End March high: $545K per share
BRKB: $310 now. April: $323-353 End March high: $362 per share
However, Buffett told one shareholder who tried to estimate the buyback rate that “you’re actually wrong — if somebody offered us $50B worth of stock at a certain point in the last 3-4-5 months, we’d have taken it. It’s that simple. As I mentioned earlier, we haven’t bought any stock in April. It’s something that when we can do it, and we know, probabilities are very high, we certainly believe it in terms of our own evaluation and investment.”
One of the biggest themes that stood out to me was Buffett’s emphasis on trust with how “we’re going to treat everybody the same,” and give no special treatment to anyone.
Buffett said “we have an extreme aversion to incurring any permanent loss with your funds. The idea of losing permanently other people’s money, people who trust us. Really that’s just the future I don’t want to have. We do know that we wake up every morning and want to be safer in terms of your eventual investment. We do not want you to get a terrible result because you decided to become our partner. That’s a pledge we live by.”
Buffett talked about the value of cash and “real” money when he showed current and old 20 dollar bills: “We will always have a lot of cash on hand. When I say cash, I don’t mean commercial paper. When 2008/2009 financial panic came along. We didn’t own anybody’s commercial paper. We didn’t have money market funds. We have treasury bills. I’ll explain to you why we believe in having cash. Berkshire is stronger than the banks.”
Sometimes the stock market is like a “gambling parlor,” Buffett said, where companies are being treated like poker chips in a casino because Berkshire was able to buy 14% of Occidental Petroleum in 2 weeks. Charlie chimed in, “I think we made more because of the crazy gambling.”
One shareholder asked about how GEICO and BNSF may be losing ground to Progressive and Union Pacific, respectively. Ajit Jain said how Progressive got a 10 year head start by using telematics and GEICO is starting to now and Greg Abel answered about continuous improvement, but I was kind of hoping for deeper insights.
But I am trying to resist criticism because Buffett said “Charlie and I know we’ve got all kinds of blind spots ourselves so have to be kind of careful criticizing other people for having them.” Later on they had a back and forth: Warren: “Is it wise to criticize people at all?” Charlie: “Probably not but I can’t help it.”
Another shareholder asked how has Buffett timed the big market moves so well? To which he said “We have never timed anything. Never figured out insights into the economy,” which I don’t fully buy because Buffett is astute in economics. However, maybe there’s something to letting a monkey pick stocks for you because Buffett continued, “but I’ll bet on the monkey’s better.”
On a sad and sobering note, when asked about insuring against nuclear risk, Buffett said “We have no solution for it.”
About 10-15 years ago, there was $800 billion of currency in circulation. Now there’s $2.3 trillion of currency in circulation, so it’s no wonder we’re seeing more inflation. “You print loads of money, and money is going to be worth less. Not worthless.”
But to Buffett, “In my book, Jay Powell is a hero. There are other fed chairmen that would’ve been sucking their thumbs.”
Charlie: “Really interesting country is Japan where they first buy back all the debt then start buying back all the common stocks. Now that’s really weird, and what did they get? 25 years of stasis. Who would’ve predicted that?”
One young shareholder asked what stock would they choose that’s resilient in inflation? Buffett totally deflected naming any stock but instead chose to advise: “The best thing you can do is to be exceptionally good at something. … whatever abilities you have can’t be taken away from you. They can’t be inflated away from you. Nobody can take away from you the talent you have. So study Becky Quick or somebody, figure out what makes her good.”
Buffett said he doesn’t know much about art, but he sees Berkshire as a painting where he gets to paint. When he makes a mistake he goes back and paints over it again to fix his mistakes. “Berkshire is built forever, there is no finish point. Didn’t sit down and work out some plan that said we’ll run the dumb textile business for 20 years and then we’ll finally have to fold it. I stumbled into it.”
Buffett talked about how sometimes it takes a while to realize new insights to change your behavior when he brought up the concept of optical illusions aka apperceptive mass with a rabbit/duck and a vase/2 faces, saying “All of a sudden, you see something important, why in the hell didn’t I see this in the first place. It’s better actually if it produces insight into your behavior than whether it produces insight to make money. Some people never get it.”
Reflecting on Berkshire’s culture and how Buffett changed the way he invested around age 19/20 because “I just had the whole approach wrong. Then I read a paragraph in chapter 8 of The Intelligent Investor and it told me I wasn’t looking at the duck, now it was the rabbit.” Charlie added, “it’s easy to get it wrong, and part of the trick is to get so you correct your own mistakes.”
Charlie said sometimes a good idea is taken too far in the stock market, like what happened with Robinhood and how it is unraveling. He said “We have computers with algorithms trading against other computers, we’ve got people who know nothing about stocks, being advised by stock brokers who know even less.”
Another young investor asked Charlie to put his multidisciplinary approach into more practical terms, and he basically said “You make a lot of wrong decisions if you don’t have a sum command of all the disciplines.”
On inflation, someone said something like “In the 70s you wrote an article entitled how inflation swindles the equity investor” and Buffett added, “It swindles almost everybody” and told a story about how he didn’t have to tell everything he knows in the Fortune article. “You’re better off, if you could really have a totally stable unit of monetary use, for the next 100 years, it would be better for business and investors in general.”
On index funds, Charlie said: “I think it’s out of control and counter productive. And I think indexing if it gets to 90%, then it won’t work very well at all, at the moment it’s worked fine. The only thing that really can mess up what is a very good deal for them [the big index fund brokerage entities] is to have Congress change the rules.”
Charlie on investing in China when asked how does he evaluate the dangers of investing in an authoritarian regime as recently evidenced by Russian atrocities in Ukraine? “Well those are good questions. There’s no question about the fact the government of China has worried the investors from the US to invest in China. More in recent months and years than they did in earlier periods. So it’s been some tension, and it’s affected the prices of some of the Chinese stocks, particularly Internet stocks. Just in the last day or two, the Chinese leader has sort of reversed course on that. He said he went too far, and he’s going to pull way back and so on.”
“So we’re having some hopeful signs. But yes, there are more difficulties in investing / dealing with the regime in China than there are in the US. And it’s different, it’s a long way away, and they’ve got their own culture and loyalties and so on. And the reason that I invested in China is I could get so much better companies at so much lower prices, and I was willing to take a little political risk to get into the better companies at the lower prices. Other people might reach the opposite conclusion. And everybody is more worried about China now than 2-3 years ago. So that’s just the way it is.”
On insurance, Buffett said “We wouldn’t be in the business unless it was my judgment that the likelihood — the weighted probabilities are higher that the float will be useful to us rather than costly to us.”
Charlie continued, “if we could buy common stocks when we’re virtually sure it would give us 8% after taxes with our whole float, that would be a helluva lot of money.
Warren: “I can tell you what it’d be — $11 or $12 billion annually.”
Charlie: “We really like our float don’t we. We love it. “
Warren: “Who knew GEICO would come along. The one thing you have to do is be prepared when opportunity comes. You really do, you just move. There’s so much luck, but there is that, you do have to be mentally prepared to do something when it makes sense and do it big time, and do it instantly. And then you gotta be sure you got the resources to do it.”
Charlie added, “The relative absence of bureaucracy at Berkshire has made the company a lot of extra money for a very, very long time.” Buffett concluded, “But in the end, we are extraordinarily well positioned to do exactly what we want to do with float, while at the same time never putting ourselves, never coming close to making a promise we can’t keep.”
On more career advice, Buffett said, “I would tell the students, find out what you love doing, spend most of your life doing it. Why in the world would you want to be around for a lifetime working with people you didn’t like unless you had to, which sometimes happens. Just work for whomever you admire the most. It’s what I did when I got out of school, I wanted to work for Ben Graham. I pestered him for 3 years and he finally hired me. And then I found somebody else I’d even rather work for than Ben, who happened to be myself.”
And Charlie worked in Warren’s grandfather’s grocery store as a lark for 12 hours a day, which was a fun interchange.
Charlie said, “Well, if you stop to think about it, 2 things neither one of us has ever succeeded at, one we’ve never succeeded at anything that didn’t interest us, right? And we’ve never succeeded at anything that was really hard where we didn’t have much aptitude for it.” Warren chimed in, “And we’ve been doing whatever we pleased. And we have fun in our way.”
In prior annual meetings, Buffett withheld from criticizing crypto, but this time he let loose in saying that bitcoin is not a productive asset compared to farms or apartment houses. Entertainingly, Charlie did not hesitate to drop the hammer on bitcoin!
Charlie said to a young person, “I got some advice for you too. When you have your own retirement account, and your friendly adviser suggests you put all the money in into bitcoin, just say no,” which reminds me of a DARE campaign.
On the hot topic of Bitcoin and cryptocurrencies, Buffett acquiesced, “Well, I shouldn’t answer any questions on the subject but I will.”
“There’s all kinds of people watching this that are long bitcoin, and there’s nobody that’s short. Nobody wants their windpipe stepped on, and I don’t blame, I don’t like people step on my windpipe. But I would say this, that if all the people in this room, owned all of the farm land in the US.”
“And you offered me a 1% interest in it, and you said, for 1% interest in all the farm land, pay me our group, [calculating] bargain price $25B, I’ll write you a check this afternoon. Now I own 1% of the farm land. If you tell me you own 1% apartment houses in the US. And you offer me a 1% interest, you want whatever it may be for it. Another $25B, I’ll write you a check. It’s very simple.”
“Now if you told me you own all the bitcoin in the world, and you offered it to me for $25, I wouldn’t take it because what would I do with it? I have to sell it back to you one way or another. Maybe I’m the same people. But it isn’t going to do anything. The apartments are going to produce rentals, and the farms are going to produce food. If I’ve got all the bitcoin. I’m back where whatever his name, may or may not have existed was, 15 years ago.”
“If I’ve got it all — he could create a mystery about it, but everybody knows what I’m like. So I’m trying to get rid of it, people will say, why should I buy some bitcoin from you. Why don’t you call it Buffett coin? But that explains the difference between productive assets and something that depends on the next guy paying more than the last guy got,” which is the Greater Fool Theory.
“But basically assets, to be, to have value, they have to deliver something to somebody. There’s only one currency that’s acceptable. Come up with all kinds of things, can put out Berkshire coins, Berkshire money. But get in trouble if call it money. In the end, this is money, and there’s no reason in the world why the US government whose currency people prefer. Anybody that thinks the US is going to change to what they let, Berkshire money replace theirs, is out of their mind.”
Charlie had some of the best smackdown comments on bitcoin: “In my life I try and avoid things that are stupid, and evil, and make me look bad in comparison to somebody else. And bitcoin does all 3.”
“In the first place, it’s stupid because it’s very likely to go to zero. It’s evil because it undermines the Federal Reserve system and the national currency system which we desperately need to maintain its integrity and government control and so on. And third it makes us look foolish compared to the communist leader in China. He was smart enough to ban bitcoin in China. With all of our presumed advantages of civilization, we are a lot dumber than the communist leader in China.”
Warren tried to do some damage control by saying, “When 25% of the people of the country get mad because we’ve said what we said today. Just remember Charlie spoke last, and it was the most.”
To end this blog, Warren said again what he’s said in the past, “Well if fortune has just showered you with all kinds of good things, you ought to be a better person in the second half of your life than in the first half. If they’ve won the ovarian lottery, and born in the US, all kinds of good things have happened to them. Why not have the second half of your life be better than the first half? But you do learn certain things only by interacting with people. … Then forget about the first half. Enjoy the second half.”
I am already looking forward to next year’s annual meeting on May 6, 2023!
If you’re interested in learning how to take control of your finances and start becoming an investor like Warren Buffett, check out my free PDF guide.
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