Warren Buffett has kept an extremely low profile over the past year. He finally broke his silence at Berkshire Hathaway’s annual shareholder meeting on Saturday, which was livestreamed by Yahoo Finance.
The famed investor and Berkshire CEO was joined by his company’s right-hand man, Charlie Munger, on the stage in Los Angeles on Saturday. Berkshire’s heads of insurance and non-insurance operations, Ajit Jain and Greg Abel, were also in attendance.
Buffett and Munger signaled a return to normality at the meeting, which is being held remotely this year due to the coronavirus pandemic. They positioned themselves on either side of a box of Peanut Brittle from See’s Candies, one of Berkshire’s oldest and best-known businesses. Munger had a couple of cans of Coca-Cola – one of the five biggest holdings in Berkshire’s stock portfolio -stationed in front of him.
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Buffett said that Berkshire’s businesses have done “really quiet well” in extraordinary circumstances.
The billionaire investor opened his presentation this year by highlighting how the biggest companies in the world change from decade to decade. He pointed out that investors and Wall Street were as sure of themselves in the 1980s as they are today, yet many of the era’s most successful companies have fallen by the wayside since then.
“Everybody’s starting something now where you can get money from people,” Buffett said, slamming the surge in speculative ventures aiming to capitalize on investor enthusiasm in recent months.
Taking cover during the market downturn in March 2020
“I’m the chief risk officer of Berkshire, that’s my job,” Buffett said. He pointed out that Berkshire sold 1% of its roughly $700 billion of businesses when the pandemic struck.
Buffett discussed the government bailout of the airlines last spring. He suggested that Berkshire, which boasts more than $130 billion in cash and short-term investments, might have had to foot the bill for helping the airlines if the company hadn’t sold its stakes.
“You’re looking at probably a different result than if we had kept our stock,” he said.
“I do not consider it a great moment in Berkshire’s history,” he said about the company exiting the airlines, but points out that the company remains one of the most valuable in America.
Selling bank stocks
“We didn’t like having as much money in banks as we had at the time,” Buffett said.
Why didn’t Berkshire use more of its cash during the crash?
Buffett has previously said he would never reduce Berkshire’s cash reserves below $20 billion, but appears to have raised that number significantly, estimating Berkshire could have spent $50 billion or $70 billion out of its roughly $130 billion in cash last year.
Buffett also commented on the Federal Reserve pumping liquidity into markets at the onset of the coronavirus pandemic last spring.
“They took a market where Berkshire couldn’t sell bonds a day before, and turned it into one where Carnival Cruise or whatever could sell them,” Buffett said. “It was as dramatic a move as you can imagine.”
“This economy right now, 85% of it is running in super-high gear,” Buffett said.
“We don’t want to depend on anybody,” the investor said. “You can’t depend on the kindness of friends if things really stop.” He added that the banks were caught offguard by a bunch of businesses drawing down their credit lines.
“I give great credit on both the monetary and fiscal side to what was done,” Buffett said.
Munger also protested the idea that Berkshire could have bought at the bottom of the market last spring.
“That’s too tough a standard,” Munger said. “Anybody who expects that of Berkshire is really out of their mind.”
Why should investors own Berkshire rather than an index fund?
“I’ve never recommended Berkshire to anybody,” Buffett said, highlighting that upon his death, his widow will have 90% of his estate put into index funds and 10% into Treasuries.
“I do not think the average person can pick stocks,” Buffett said, trumpeting index funds as a safer and more reliable option.
Is Berkshire happy to own Chevron given the ongoing backlash against oil and gas?
“People that are on the extremes of both sides are a little nuts,” Buffett said about the battle over the environmental impacts of the oil-and-gas industry.
Buffett said that the world will need hydrocarbons for at least the next few years, but climate-change concerns are real.
“I don’t like making the moral judgments on stocks,” he said, adding that he had no qualms about owning Chevron, which Berkshire added to its stock portfolio in the fourth quarter of 2020.
Why did Buffett recommend shareholders vote no on disclosing more about diversity and environmental impacts?
“It’s asinine frankly,” Buffett said about the proposal that all of Berkshire’s scores of businesses fill out reports on their diversity and climate-change progress. He argued that many of the shareholders who supported the motion haven’t read the company’s annual report or know much about its green initiatives.
Abel, CEO of Berkshire Hathaway Energy, touted his segment’s environmental credentials. He said the company has transformed how it does business and invested billions of dollars in renewable energy.
Why didn’t Berkshire sell Apple stock instead of buy more?
“Tim Cook is one of the best managers in the world and he’s got a product that people absolutely love,” Buffett said. “It’s an incredible product, it’s a huge bargain to people,” he said, highlighting how indispensable iPhones are to people’s lives.
Buffett suggested that if people had the choice between giving up their car or their iPhone, they would have a difficult choice on their hands.
“I sold some stock last year,” he said. “That was probably a mistake.”
Buffett revealed that Munger told him that Berkshire trimming its Apple stake was the wrong move. “I could only do so many things that I can get away with Charlie and I used them up between Costco and Apple.”
“He very likely was right in both circumstances.” Buffett added.
The investor also suggested that Cook has achieved some things that Apple cofounder Steve Jobs couldn’t have done.
The market boom
“Interest rates are to the value of assets what gravity is to matter,” Buffett said.
The investor pointed out that rock-bottom bond yields, combined with the appeal of “incredible companies” such as Apple, Alphabet, and Microsoft, have driven people to plow money into stocks and disregard their prices.
“Charlie and I consider it the most interesting movie by far we’ve ever seen, in terms of economics,” Buffett said.
Munger added that it’s clear more money can be pumped into the economy without major problems than anybody thought, but it can’t go on forever.
Buffett commented on special-purpose acquisition companies, saying the tidal wave of SPACs “is a killer.” He pointed out that there’s always been pressure from private equity companies, and the SPAC boom has worsened the rush to buy, as they have to return investors’ money unless they use it.
“SPACs have been working for a while. You stick a famous name on it and you can sell almost anything,” he said, describing it as an “exaggerated version” of what he’s seen in “gambling-type markets.”
“You have this incredible, huge asset to humanity but it really makes its money when people are doing stupid things,” Buffett said about markets. He highlighted the surge in people day trading, buying and selling options, and gambling on stocks.
“More people are entering the casino than are leaving everyday,” he said. “I creates its own reality for a while, and nobody tells you when the clock will strike 12 and it all turns to pumpkins and mice.
“To some extent it’s a moral failing,” Munger said. “The easy made by SPACs and derivatives and so on, you push that to excess, it causes horrible problems for the civilization.”
“We have a lot to be ashamed of in current conditions,” Munger said. “It’s not just stupid, it’s shameful.”
Buffett said the amateur investors gambling aren’t shameful. Munger agreed that the professionals taking advantage of them are the problem.
This story is being updated. Check back for more updates.