Highlights from Buffett and Berkshire

Legendary share market investing expert and owner of Berkshire Hathaway Warren Buffett

Look, I’m sure that, like me, you were up at an ungodly hour on Sunday morning watching the livestream of the Berkshire Hathaway meeting, right?

Right?!?!

Oh, you weren’t?

Truth be told (don’t tell anyone, or I’ll be kicked out of the investing nerds club), I wasn’t either. I did get up a couple of hours early to watch the back end of it being livestreamed, and then caught up with the rest over brekky.

But perhaps I should backtrack.

Berkshire Hathaway is the company that’s run by the world’s greatest investor, Warren Buffett.

Buffett, who started investing at 11, is now 93, and is, according to Forbes, the world’s eighth-richest person, with a fortune estimated at US$137 billion (about $207 billion in our money).

He has smashed the market over almost 60 years, with a cumulative return of 4,384,738% between 1965 and 2023, compared to the market’s 31,223%. The latter is impressive: a 300-times return. The former is astounding: a 43,800-times return!

If you prefer annual numbers, that’s an average 19.8% per annum bump over 58 years, compared to the market’s very good 10.2%.

So he’s kind of a big deal.

But not only is he rich and successful, he walks the talk. He shares his wisdom with the general public in a 6-hour Q&A session once a year at the company’s annual meeting.

And yes, I am absolutely going to suggest you watch it! (CNBC livestreamed it and you can find it on that company’s YouTube channel).

Why? Because you will truly get no better investment education – none – than reading what Buffett writes and watching him speak.

(I don’t want to be too prescriptive, either, but there’s an argument that the individual investor who is picking stocks, but can’t find the time to watch Buffett, might be doing themselves and their portfolio a huge disservice.)

But if you don’t want to watch it, let me share some of the highlights from what I saw and heard.

He’s missing Charlie

Charlie Munger, his long time vice-Chairman, died late last year at 99. The tributes were as effusive as they were deserved. What I said about reading and listening to Buffett applies equally to Munger. The man was a polymath genius.

The Berkshire Hathaway annual meeting always includes an expo of sorts: a huge hall full of the company’s subsidiaries selling their various merchandise, and a bookstore, which usually sells dozens and dozens of titles. This year, it only sold one: Poor Charlie’s Almanack: The Wit and Wisdom of Charles T. Munger. I suggest you grab a copy from your favourite bookseller!)

In prior years, Buffett usually answered questions first, then asked Charlie if he wanted to say anything. At one point this year, Buffett accidentally asked his next-in-line, Greg Abel, if he wanted to add anything, calling him ‘Charlie’ in an amusing, if poignant, reminder of Charlie’s absence.

The company has cash. A LOT of cash

Berkshire Hathaway now has around $190b worth of cash on the balance sheet. That’s a lot of money in anyone’s language, but is now almost one-quarter of the company’s market capitalisation (total value of all the shares, put together). That’s huge in general, and unusually huge for a company of that size.

Buffett said he simply can’t find anything attractive to do with the money, but also noted that it was earning more than 5% on the cash in government bonds, which made him feel more comfortable about the holding. He didn’t say directly, but seemed to infer that if the yield was meaningfully less, he might feel differently about having that much cash.

Is Buffett ‘timing the market’? No. But he is content to keep his powder dry until and unless he finds something that meets his criteria. And with one additional complexity – as he says, it’s hard to find deals big enough to move the needle, when you’re as big as Berkshire.

Stay within your circle of competence

It’s a recurring theme, but Buffett reminded us that he stays within his circle of competence. Asked about AI, he said didn’t have views on its impact. Not that there wouldn’t be an impact, but that he realised he had no special ability to opine on what it might be.

That tied in nicely to comments made in a video that was shown before the meeting, with some of Charlie Munger’s past comments and highlights – that just avoiding doing dumb things can be a great contributor to investing success. Dumb things tend to happen when you don’t know that you don’t know… or you do, but do things anyway!

Regret the right mistakes

Are there really good mistakes and bad ones? Buffett seems to think so. One of his more interesting comments was that missing some opportunities didn’t worry him, because he didn’t understand the investment case at the time:

“Charlie and I missed a lot of things … we never worried about missing something that we didn’t understand.”

That’s a really important insight. Don’t chase something just ‘in case’ it subsequently makes money. Don’t do things other people are doing, just because they’re making money. Do things only when it seems smart, based on your reasoning and experience, and don’t regret the ones that got away.

And the ‘why’ is important, here. Implicit in regretting the ones you didn’t understand would be the assumption that you should swing at every pitch, just in case one of them turns out well. I hope I don’t need to tell you that doing so would mean you’d run out of money with which to invest, but also you’d have insufficient capital invested in your best ideas.

Portfolio curation is vital, if you’re going to build your own portfolio (otherwise, just stick with ETFs).

Fiscal policy is the risk

In a comment on US policy that should have Australians thinking about the local analogs, Buffett called US Fed Chair Jerome Powell a “very wise man”. But then added that Powell “doesn’t control fiscal policy, and every now and then he sends out a disguised plea … because that’s where the trouble will be, if we have it.”

Buffett said he wasn’t concerned about the US dollar or US government bonds (known as ‘Treasuries’) because he didn’t think there was much alternative, but the implication is clear – unchecked national debt could be more of an issue than interest rates themselves.

Bringing that back home, there are alternatives to the AUD and Australian government bonds, of course… and so what Buffett is (in effect) advising the US Government should be considered even more important for our federal politicians (and we have a Federal Budget coming up).

He intends to be back next year

Closing the meeting, Buffett said he hoped the attendees would be back next year. Then added a joke:

“I not only hope you come next year. I hope I come next year.”

Buffett is, of course, 93. But you won’t find a sharper 93 year old. At one point, he mentioned the CEO of one new subsidiary, adding, without notes, details of his family background, his schooling, his sporting career and his subsequent work career, then adding details of the number of staff in that business,  the number of sites it operated and the average size of each site. That’d be impressive from the CEO of a single business. But Berkshire has dozens of subsidiaries. His recall, analysis and wit were as sharp as ever.

You may not be surprised to know that Berkshire Hathaway is my largest individual holding (only the cheap shares, unfortunately!). If you get to invest in a portfolio of partly- and wholly-owned businesses, put together by the world’s greatest investor, and then have him work on your behalf every day… I think you’d need a pretty good reason not to take the opportunity!

But, whether you do that, or not, I reckon you’d be mad to ignore or avoid the investment wisdom he’s imparted over the last half-century. You’ll be a better investor for spending a little time taking it in.

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Motley Fool contributor Scott Phillips has positions in Berkshire Hathaway. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Berkshire Hathaway. The Motley Fool Australia has recommended Berkshire Hathaway. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.