Investors, entrepreneurs, economists, and policymakers alike tuned in Saturday May 4th, 2020 to listen to the wisdom imparted by the oracle of Omaha. A glass of coca cola placed conveniently, or perhaps strategically by his side, Warren Buffett presented the annual shareholder’s meeting with a deck of slides which he has never used in the past. There have been so many ‘first times’ this year but I am glad to report that Buffet’s use of Powerpoint slides has been an endearing one.
Like a Grandfather talking to his grandchildren by telling them stories of the past, building up the plot, and finally sharing some advice, Warren Buffett spoke to America Saturday afternoon. Buffett exhibited the steadfastness, confidence, and calmness one would seek in times of crisis. I have listened to many interviews from star CEO’s, traders, and policymakers over the past few weeks but something about Buffet sets him apart. I guess its his paternalistic nature. Even with his decades of experience and perseverance through many challenges including the dot-com bust, and the 2008 financial crisis, Buffett exudes an aura of humbleness and down-to-earth attitude that is admirable.
With that preamble, here are some highlights from the meeting:
- “America is a young country” – Buffett highlighted how his and Charlie Mungle’s age combined, yields 185 years compared to 243 years of American history – hinting at the long journey ahead.
- The meeting is typically attended by 40,000 people – this time however, there were only 12 people in the hall and it marked Berkshire’s first ever virtual annual meeting.
- Buffett highlighted the Spanish flu and many calamities of the past that Americans prevailed over. His message was clear: “Never bet against America”. And he repeated those four words.
- Berkshire sold all of its holdings in Airlines in April 2020. The firm’s interest in airlines amounted to circa $6 billion and included stakes in American Airlines, United Airlines, and Delta Airlines. “I don’t know whether two or three years from now that as many people will fly as many passenger miles as they did last year, “ Buffett said. “They may and they may not, but the future is much less clear to me about how the business will turn out through absolutely no fault of the airlines themselves.” he added.
- Berkshire’s colossal $49.7 billion Q1 loss falls in the “Unrealized Gains and Losses” category which is a result of a new accounting rule that books ‘paper’ losses – in Berkshire’s words, the figure is misleading and meaningless.
- Rumors abound that Buffett will acquire a substantial stake in “something”. His bite size can easily reach $50 billion so it will surely be something big. Will it be Boeing? Visa? Costco? Here are some thoughts from Andrew Barry at Barron’s.
- While many successful traders have taken sizable positions following the fallout from COVID-19, Buffett hoarded cash by exiting many positions and amassing nearly $10 billion in cash over Q1. Buffett is sitting on $137 billion of cash and did hint at taking positions in the near future but was not specific. Berkshire’s cash balance climbed to $137 billion as of the end of Q1, up from $127 billion three months ago. I listened to Carl Icahn’s interview on Bloomberg recently who also emphasized his cash rich position – Icahn, who is also a billionaire investor, follows a very different strategy to Buffet’s albeit.
- Insurance underwriting earnings for Berkshire, which includes GEICO, fell to $363 million in Q1, down from $389 million last year (Yahoo Finance).
- Berkshire’s Railroad earnings declined to $1.19 billion from $1.25 billion last year. The Association of American Railroads reported a 6% drop in March carloads year-over-year (Yahoo Finance).
- Most of the company’s operating businesses suffered losses but insurance investment income climbed to circa $1.4 billion from $1.2 billion as a result of a jump in dividend income.
Here’s a useful chart from Berkshire’s Annual report extracted by Yahoo Finance that shows the company’s major investments by investment cost and market value:
One thing Buffett said that resonated with me was his section on “what I don’t know”. It is important to emphasize this point because given the unprecedented market volatility, and uncertainty related to public policy on COVID-19, investors must exercise caution in making investments. It sounds like an obvious point but it is relevant now more than ever. Even Buffet got it wrong (as far as airlines are concerned).
In conclusion, the Annual Meeting served to provide some perspective to a lot of people, and it may also serve to calm some jitters in the market. It is hard to imagine a world without Warren Buffett. Like many, I am keen to learn about Berkshire’s next move.
Here’s the replay of the meeting in case you missed it: Click for Replay.
References: Yahoo Finance, Bloomberg, Barron’s, and Berkshire Hathaway. Please note that this briefing contains paraphrased summaries and attributes the original content to the news sources. We encourage readers to visit the links to access abbreviated articles in their original form for a thorough and complete view. You may need to subscribe to the news agency and source for access. Photo Credit: ValueWalk – Flickr.