Prominent Quotes From Warren Buffett's Berkshire Hathaway 2021 AGM
Prior to the pandemic, thousands of shareholders gathered at Omaha in the US to hear Warren Buffett and his partner Charlie Munger speak about investing and more.
This year’s AGM was held in Los Angeles instead so that Munger can attend as well.
Present during the meeting were also Greg Abel — vice chairman of Berkshire’s non-insurance operations — and Ajit Jain, vice chairman of Berkshire’s insurance operations.
With that, here are some of my key takeaways from Berkshire Hathaway’s 2021 AGM (italics are used to emphasise key points when quoting the speakers).
On the Air Travel Sector
During last year’s AGM, Buffett said that he made a mistake by buying airline companies and thus, sold entire stakes in them.
In this year’s AGM, Buffett talked about the airline business early on and he mentioned that he wouldn’t want to buy airlines. But on a sector basis, Berkshire still has exposure to the air travel industry.
“And I think the airline business has done better because we’ve sold, and I wish them well, but I still wouldn’t want to buy the airline business. People really want to travel for personal reasons. And business travel isn’t everything, and we’ve got a big exposure to business travel, of course, through the fact that we own 19% of American Express. And we own Precision Castparts, which services as the air business. So we still got a big investment in air travel, a big commitment to it.”
On Apple’s Business
As of 31 December 2020, Berkshire held a 5.4% stake in Apple Inc (NASDAQ: AAPL).
Buffett weighed in on the company’s business, saying:
“It’s got a fantastic manager. Tim Cook was underappreciated for a while. He’s one of the best managers in the world, and I’ve seen a lot of managers. And he’s got a product that people absolutely love. … And there’s an installed base of people, and they get satisfaction rates of 99%. … I mean the brand and the product is — it’s an incredible product. So a huge, huge bargain to people. I mean, the part that plays in their lives is huge.”
(For our analysis on Apple, you can jump in here).
Buffett spoke about the experience he had with someone who’s involved in SPACs.
“And I could tell you, but I had a very famous — I had a call from a very famous figure many years ago that was involved in it and wanted to learn about reinsurance. And I said, “Well, I don’t really think it’s a very good business. And he said, “Yes.” He said, “If I don’t spend this money in 6 months, I’ve got to give it back to the investors.” So it’s a different equation that you have if you’re working with other people’s money where you get the upside, and you have to give it back to them if you don’t do something.”
When there’s a timeline pressure, people might do deals just for the money, and that fuels a gambling mentality.
On Repurchasing Stocks
A shareholder shared that a prominent senator recently categorised share buybacks as a form of market manipulation. However, Berkshire is big on repurchasing shares at prices below intrinsic value.
Charlie weighed in on the topic, saying:
“Well, I — if you’re repurchasing stock just to pull it higher, it’s deeply immoral. But if you’re repurchasing stock because it’s a fair thing to do in the interest of your existing shareholders, it’s a highly moral act. And the people who are criticizing it are bonkers.”
On What COVID-19 Has Taught Berkshire About Risks
Someone asked Ajit Jain what COVID-19 has taught about systemic and correlated risks. And if there’s anything that will be done differently from now on.
In reply, Jain said:
“Yes, in the insurance business, we often think about pandemic risk as one of the risk factors that we need to cope with in our business. Having said that, I think the big lesson for us, having gone through what we’ve gone through recently, is that while we were aware of the fact that pandemic risk is a risk factor, it is totally, totally underpriced by all of us in the industry. Several of us thought it’s an event that will happen, at most, once in 100 years. And even then, those odds are pretty high. So I think the big lesson for us is to recalibrate and rethink about what the return time is for something like a pandemic risk.”
On How Disappointing Businesses Will Naturally Get Weeded Out
When it comes to investing, as the winners in our portfolio grow larger over time, the losers will naturally take up a smaller portion of our portfolio.
“But when we’re disappointed in a business, it usually becomes a smaller and smaller percentage of our business, just by the nature of things, because it isn’t going any place. And when we got a successful business like a GEICO or something of the sort, GEICO’s doing — they’re doing 15x as much business as when we bought control in 1990. They become a proportionately much more important part of our mix. So you really get through just natural forces, you get more of your money in the things that have developed more favorably than you thought. You actually end up getting a greater concentration in the ones that work out.”
Generally, we don’t have to worry too much about losing stocks. We should concentrate on the winners instead as they make a huge difference to our portfolio.
Someone asked a question on the cryptocurrency market, and it went like this:
“Now that the crypto market overall is valued at $2 trillion, do you still consider cryptos as worthless artificial gold?”
To that, Munger replied:
“Well, those who know me well are just waving the red flag at a bull. Of course, 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. So I think I should say modestly that I think the whole development is disgusting and contrary to the interest of civilization. And I’ll leave the criticism to others.”
For further thoughts by Munger on Bitcoin, be sure to check out his quotes during Daily Journal Corporation‘s (NASDAQ: DJCO) AGM held earlier this year.
(Editor’s note: The below was originally published on 18 May 2020)
Prominent Quotes From Warren Buffett’s Berkshire Hathaway 2020 AGM
Every year in May, tens of thousands of investors throng to the US city of Omaha, Nebraska to hear well-renowned investor Warren Buffett and his partner, Charlie Munger, speak investing during the Berkshire Hathaway annual general meeting (AGM).
This year, the meeting was held just like every other year.
However, instead of talking to over 40,000 shareholders with Munger flanking him, Buffett had to make do with a virtual AGM, with an equally-sharp Greg Abel being his deputy. Abel is Berkshire Hathaway’s vice chairman for non-insurance business operations.
Even though this year’s meeting was different in terms of the setting, there were still many nuggets of wisdom dished out.
Some are worth repeating over and over again, especially during the troubling market and economic conditions brought about by Covid-19.
With that, here are some things I learnt from Berkshire Hathaway’s 2020 AGM (italics are used to emphasise key points when quoting Buffett).
I thought it would be interesting to first highlight what Buffett thinks about the whole coronavirus pandemic that’s affecting the world. Here’s something he said (emphasis is mine):
“And I would say again, I don’t know anything you don’t know about health matters, but I do think the range of possibilities has narrowed down somewhat in that respect. We’re not getting a best case, and we know we’re not getting the worst case. The possibility initially of the virus was hard to evaluate, and it’s still hard to evaluate. There’s a lot of things that we’ve learned about it and a lot of things we know we don’t know. But at least we know what we don’t know, and some very smart people are working on it, and we’re learning as we go along.”
On Using Leverage
It’s far better to invest with money we already have than to leverage, only to end up scampering to pay off the interest if something unexpected happens to the investment.
On that note, Warren Buffett mentioned:
“But it is hard to think about things that haven’t happened yet, and so we can experience when something like the current pandemic happens, it’s just — it’s hard to factor that in. And that’s why you never want to use part of money, and at least in my view, margin to buy into investments. And we run Berkshire that way. We run it so that we literally try to think of the worst case of not only just one thing going wrong, but other things going wrong at the same time, maybe partly caused by the first, but maybe independent even of the first hand. You learned in, I don’t know what grade now, probably earlier than when I went to school, but fifth or sixth grade that anything, you’re going to have any series of numbers times 0 and just need 1, 0 in there and the answer is 0. And there’s no reason to use borrowed money to participate in the American tailwind, but there’s every other reason to participate.”
“And I pointed out, I think the year, maybe 2 years ago in the annual report — just the one before this most recent one, I pointed out that there have been 3x in Berkshire’s history when the price of Berkshire stock went down 50% 3 different times. Now if you hold it on borrowed money, you could have been cleaned out. There wasn’t anything wrong with Berkshire when those 3 times occurred. But if you’re going to look at the price of the stock and think that you have to act because it’s doing this or that or somebody else tells you, I mean, how can you stay with that when something else is going up or anything?”
On Viewing Stocks As Businesses
It never dulls me to read about this point from time to time.
“But going back to stocks. People bring the attitude to them too often that because they are liquid and quoted minute by minute, that it’s an important — that you develop an opinion on them minute by minute. Now that’s really foolish when you think about it, and that’s something Graham taught me in 1949. I mean that single thought, stocks were parts of businesses and not just little things that moved around on charts or — charts were very popular in those days and whatever it may be.”
“So stocks have this enormous inherent advantage of people yelling out prices all the time to you, and many people turn that into a disadvantage. And of course, many people profit in one way or another from telling you that they can tell you what this farmer is going to yell up tomorrow or next — your neighboring farmers going to yell up tomorrow or next week or next month. There’s huge money in it. So people tell you that it’s important and they know and that you should pay a lot of attention to their thoughts about what price changes should be, or you tell yourself that there should be this great difference.
But the truth is if you own the businesses you liked prior to the virus arriving, it changes prices, and it changes, but nobody is forcing you to sell. And if you really like the business and you like the management you’re in with and the business hasn’t fundamentally changed, and I’ll get to that little one report on Berkshire, which I will soon, I promise, the stocks have an enormous advantage.”
“The American tailwind is marvelous, American business representatives, and it’s going to have interruptions, and you’re not going to foresee the interruptions. And you do not want to get yourself in a position where those interruptions can affect you, either because you’re leveraged or because you’re psychologically unable to handle looking at a bunch of numbers. … It’s a very, very, very important matter to bring the right psychological approach to owning common stocks.”
On Making a Mistake With Airline Stocks
Buffett acknowledged that he personally made a mistake by buying airline companies.
Berkshire Hathaway began investing in four of the biggest US airlines — American Airlines, Delta Air Lines, Southwest Airlines, and United Airlines — in 2016, after avoiding the aviation industry for years.
During the AGM, he said that he has sold entire stakes in those airlines. The decision is not to time the market, but it was due to a mistake he made with evaluating those companies.
He went on to explain:
“The — but the airline business — and I may be wrong, and I hope I’m wrong, but I think it changed in a very major way. And it’s obviously changed in the fact that their 4 companies are each going to borrow perhaps an average of at least $10 billion or $12 billion each. Well, you have to pay that back out of earnings over some period of time. I mean you’re $10 billion or $12 billion worse off if that happens. And of course, in some cases, they’re having to sell stock or sell the right to buy a stock at these prices, and that takes away from the upside down. And I don’t know whether it’s 2 or 3 years from now that as many people will fly as many passenger miles as they did last year. They may and they may not. It’s — but the future is much less clear to me about how the business will turn out through absolutely no fault of the airlines themselves. It’s something that was — a low-probability event happened, and it happened to hurt particularly whether it’s the travel business, the hotel business, cruise business, theme park business, but the airline business, in particular. And of course, the airline business has the problem that if the business comes back, 70% or 80%, the aircraft don’t disappear. So you’ve got too many planes. And it didn’t look that way when the orders were placed a few months ago and arrangements were made, but the world changed for airlines. And I wish them well, but it’s one of the businesses we have.”
Lower demand for oil due to Covid-19, coupled with the Russia–Saudi Arabia oil price war, have tanked the price of oil. Buffett talked about the repercussions of having a low oil price on banks:
If oil stays at these prices, there’s going to be a lot of money — a whole lot of money. And it will extend to bank loans and it will affect the banking industry to some degree. Not that it doesn’t destroy them or anything, but it — there’s a lot of money that’s been invested that was not invested based on a $17 or $20 or $25 price for WTI, West Texas Intermediate oil.”
On Share Buybacks
Buffett is a proponent of companies doing share buybacks.
However, firms should only buy back their shares when the conditions are right, and not just for the sake of buying back shares. He said:
“Now whether the company should buy it, depends on a couple of things. One is they ought to retain the money they need for intelligent growth prospects. And secondly, and this is a point that’s never mentioned, they should be buying it back below what they think it’s worth. Now they’ll make mistakes in that, but you make mistakes in a lot of business decisions, but all of that should be the guiding principle. And to my knowledge, JPMorgan, Jamie Dimon said once and we’ve said at various times, we retain — we will repurchase shares when it’s to the advantage of the continuing shareholder to have us do so. But you read about all these buyback problems that we’re going to spend $5 billion buying it back or $10 billion. Well, that’s like saying I’m going to go out and buy some business this year for $5 billion without knowing what you’re going to get for the money. … But when the conditions are right, it should also be obvious to repurchase shares, and there shouldn’t be the slightest taint to it anymore than there is to dividends.”
On Personal Finance
Buffett gave a personal finance tip when he shared an anecdote from a friend of his:
“My general advice to people, I mean, we have an interest in credit cards, but people, I don’t — I think people should avoid using credit cards as a piggyback to be rated. I had a woman come to see me here not long ago, and she’d come on some money, and not very much but it was a lot to her. And she’s a friend of mine. And she said, “What should I do with it?” And I said, well, what do you owe on your credit card? And she’s — well here’s what I owe, and I said, well, what you should do — I don’t know what interest rate she was paying, but — I think I asked her and she knew, said something like 18% or something. I said I don’t know how to make 18%. I mean if I owed any money at 18%, the first thing I’d do with any money I had would be to pay it off. It’s going to be way better than any investment idea I’ve got.”
When Buffett and Munger hold court at Berkshire Hathaway’s AGMs in the past, Buffett would often turn to Munger to ask if he has anything to add. Oftentimes, Munger responds, “I have nothing to add”.
In the absence of Munger during the 2020 AGM, Abel inadvertently took over that role.
At one point, Buffett asked Abel, “Greg, would you like to add anything to that?”
Greg: “Really nothing to add, Warren.”
Buffett: “Okay. Well, we got another Charlie here.”
Greg: “I didn’t intend to use that as a line, but you’ve covered it well.”
Here’s another funny moment where Buffett talked about his favourite See’s Candies business:
“See’s is an interesting example because we’ve owned that since 1972. That’s a long time. And we love it. And we continue to love it. And I have a box here of our peanut brittle and I’ve got another box of fudge right here, and I’ll probably take them all home and not share with Greg…”
You have not lost your sense of humour at all, Buffett!
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Disclaimer: The information provided by Seedly serves as an educational piece and is not intended to be personalised investment advice. Readers should always do their own due diligence and consider their financial goals before investing in any stock. The writer may have a vested interest in the companies mentioned.