Highlights From the Berkshire Hathaway Annual Meeting
Berkshire Hathaway's annual shareholder meeting on Saturday included dozens of questions spanning topics such as investing strategy, artificial intelligence and politics for the legendary investors at the helm of the conglomerate: Chairman Warren Buffett and Vice Chairman Charlie Munger. And here's a recap of highlights from what Warren Buffett and Charlie Munger said at Berkshire's annual meeting.
Bank Troubles - Buffett Agrees With Regulators' Decision to Protect Failing Bank Deposits
Buffett gets his first question. He's asked what the economic consequences would have been for the U.S. if deposits above the $250,000 insurance limit at Silicon Valley Bank hadn't been fully covered.
"I would simply say it would have been catastrophic, and that' why they were covered," he says.
While $250,000 is the limit, the U.S. isn't going to behave that way, just as, he says, the government won't let the debt-ceiling showdown cause a default that would send the world into turmoil.
Buffett, Munger Skeptical of AI: 'Old Fashioned Intelligence Works Pretty Well'
At Berkshire Hathaway's annual shareholder meeting on Saturday in Omaha, Nebraska, investment gurus Warren Buffett and Charlie Munger shared their thoughts on the pros and cons of artificial intelligence.
Munger, who introduced Buffett to Chinese electric vehicle maker BYD Manufacturing Company, noted that, at BYD's factories, robotics is used at an unbelievable rate, according to CNBC. "We're going to see a lot more robotics in the world," he added.
The Berkshire vice chairman, however, said he is personally skeptical of the hype around AI. "I think old-fashioned intelligence works pretty well," he said.
Buffett chimed in and said he believes "there won't be anything in AI that replaces the gene." He also noted that his good friend Bill Gates had shown him ChatGPT, referring to GPT language model that Microsoft licenses from OpenAI.
"If something can do all kinds of things, I get a little worried," Buffett said, adding that "we won't be able to uninvent it."
The "Oracle of Omaha" warned of AI's impact by making an analogy between the technology and the atomic bomb, wondering aloud whether the invention of the atomic bomb would be "good for the next 200 years of the world that the ability to do so has been unleashed."
"With AI, you can change everything in the world, except how men think of the AI, and that is a big step to take," he said.
Buffett and Munger Disagree on the Future of Value Investing
Buffett said investors specifically focused on value get opportunities when others make bad decisions.
"What gives you opportunities is other people doing dumb things," he said.
Still, Munger said value investors should be comfortable making less because there's more competition. He said there's a lot of more in the hands of "smart people all trying to outsmart one another."
But Buffett said those people are trying to outsmart each other in arenas investors do not have to enter. He said the world is overwhelmingly short-term focused.
"I would love to be born today and go out with not too much money and hopefully turn it in to a lot of money," Buffett said. "And Charlie would too actually."
Buffett said Munger would also have a "big pile" from his decisions, but Munger said he wouldn't like the possibility of his pile shrinking.
Commercial Real Estate Starting to See the Consequences of High Borrowing Rates
Berkshire Hathaway has never been very active in commercial real estate, but the “hollowing out of the downtowns in the United States and elsewhere in the world is going to be quite significant and quite unpleasant,” Munger said.
Buffett said the commercial real estate market value mainly depends on how much you can borrow non-recourse, and it’s starting to see the consequences of that.
“That’s the attitude of most people that have become big in the real estate business and it does mean the lenders are the ones that get the property,” Buffett said. “And of course they don’t want the property… the bank tends to extend and pretend.”
"It all has consequences," he added. "We are starting to see the consequences of people who could borrow at 2.5% and find out it doesn’t work at current rates, and they hand it back to somebody that gave them all the money they needed to build it."
Berkshire Hathaway Is Taking Part In the Energy Transition
"There's no question there's an energy transition going on," said Abel, who oversees Berkshire's non-insurance businesses, including Berkshire Hathaway Energy. He said the utility company is working to reduce its carbon footprint by 50% in 2030 relative to 2005 levels.
"There's no question there's an energy transition going on," said Abel, who oversees Berkshire's non-insurance businesses, including Berkshire Hathaway Energy. He said the utility company is working to reduce its carbon footprint by 50% in 2030 relative to 2005 levels.
Berkshire Hathaway Energy is investing in windmills and other clean energy generation, plus extending transmission lines to more renewable energy sources, which by their nature are more distributed than traditional power plants.
"It's a very, very good business opportunity for us," Abel added.
Buffett said that the United States' approach to renewable energy is overly fragmented, with different rules and regulations state by state and no society-wide organized effort. He drew a comparison to the World War II-era coordination between the federal government and American businesses to reorient the nation's industrial economy to support the war effort.
Buffett Reiterates Abel Will Be Successor, Discusses Berkshire Executive Bench
Succession issues tend to be the elephant in the room at Berkshire annual meetings given the age of Buffett, 92, and Munger, 99. Greg Abel has been designated to succeed Buffett when he's no longer capable of running Berkshire.
At present, Ajit Jain runs Berkshire's insurance operations, while Abel is in charge of non-insurance operations.
The question is who are the next generation to succeed Abel and Jain in their current roles?
When the time comes, those decisions will be up to Abel, with advice from Jain, Buffett says.
"Everybody talks about the executive bench and all that sort of thing, which is baloney," Buffett says. "You don't have that many people that can run five of the largest GAAP net worth companies and all kinds of diverse businesses, but you don't need five people either.
"You need a lot of good operating managers and you need somebody at the top who allocates capital and makes sure that you've got the right operating managers," he says.
It wouldn't be smart to name who will fill the roles currently held by Abel and Jain right now because a lot could change, Buffett says.
"We have a lot of good people that have risen in the Berkshire subsidiaries," adds Charlie Munger. Berkshire changes managers way less frequently than other companies do, and that's been an advantage,he says.
Too Many Smart, Young People Going Into Wealth Management: Munger
Don't bet against America, Warren Buffett often repeats. The question from a shareholder is how does he think the U.S. will fare in the face of current challenges.
The U.S. tends to tackle problems in a "herky jerky" manner, but has consistently produced an improvement in living standards over his lifetime, Buffett says.
"I'm slightly less optimistic than Warren is," Munger says.
Too many smart young people are going into wealth management, Munger complains.
"I think the solution of having a huge proportion of the young and brilliant people all go into wealth management is a crazy development in terms of its consequences for American civilization," Munger says. "We don't need as many wealth managers as we have."
Buffett Explains Japan Investments
Buffett talks about Berkshire's recent investments in five Japanese trading houses.
Berkshire had done business with perhaps all of them in the past, he noted. As a group, they were earning arond 14% "on what we were going to pay to buy them," Buffett said, while paying decent dividends and in some cases repurchasing shares, while holding businesses "we could understand as a group."
At the same time, Berkshire could take out the currency risk by financing in yen, which would cost half of one percent. "Well, if you get 14% on one side and half a percent on the other side, and you've got money forever and they're doing intelligent thngs and they're sizable, so we just started buying them," he said.
Berkshire announced when it hit 5% stakes in all of them. "Now we own 7.4% of them and we won't go over 9% without their agreement.
The Conflict Between the U.S. and China Is 'Stupid, Stupid, Stupid,' Munger says
The tension between the U.S. and China is unnecessarily harmful to both countries, according to Buffett and Munger.
The conflict is "stupid, stupid, stupid," the 99-year-old Munger said, adding that each side should respond to stupidity with kindness. He believes that the U.S. should get along with China and have a lot of free trade with the developing nation.
"We are going to be competitive but should judge how far to push without the other side reacting," Buffett said.
Buffett Says Apple Is Different — It Is 'a Better Business Than Any We Own'
Buffett clarified that $Apple(AAPL.US$ is not 35% of Berkshire's portfolio like a questioner suggested because that figure does not account for the non-publicly traded businesses owned by the conglomerate. But Buffett did speak glowingly about Apple, of which Berkshire owns nearly 6%.
"Our criteria for Apple was different than the other businesses we own —It just happens to be better business than any we own," Buffett said.
He added that the iPhone's status among consumers makes it an "extraordinary product," making him very happy to own a stake in the stock.
"I made a mistake a couple of years ago and I sold some shares. I had certain reasons why gains were useful that year from a tax standpoint, but having heard me say that, it was a dumb decision."
"We want to own good businesses and we also want to have plenty of liquidity. And beyond that, the sky’s the limit," Buffett said.
Buffett Says There's 'No Option' for Reserve Currency Besides U.S. Dollar
Nobody understands the situation better than Fed Chair Jerome Powell, Buffett says, but notes he has no say over fiscal policy.
"Nobody knows how far you can go with a paper currency before it gets out of control, particulary if you're the world's reserve currency...And you don't want to try and pick out the point where it does become a problem because then it's all over," he says. He doesn't see alternatives to the dollar.
"I think we should be very careful," Buffett adds, noting how quick inflation grew after the end of World War II. People behave very differently when the inflation genie "gets out of the bottle," he says.
Berkshire is better prepared than other investments to withstand inflation, but not perfectly prepared, he says.
"At some point printing money to buy votes will be counterproductive," Munger says.
Munger notes that Japan has done "some strange things" when it comes to monetary and fiscal policy, with the Bank of Japan buying massive swaths of bonds and equities. The result has been stasis but the economy is "not going to hell," Munger says, adding that, "I don't think we should imitate them." Japan enjoys a more cohesive society, Buffett adds.
Meanwhile, "it's madness to just keep printing money," Buffett says.
It's a Joke to Think of 'Tokens' as the World's Reserve Currency, Buffett Says
People may be losing faith in the dollar, but that doesn't make it bitcoin's moment to shine, Buffett said.
"Forget about all the toys – it's a joke to think of any tokens, that's madness," when it comes to the reserve currency of the world, he said. "But it's also madness to just keep printing money."
Elon Musk Does Things the Hard Way, Munger And Buffett Say. They Prefer the 'Easy Job'
Elon Musk has become successful by "taking on the impossible job," Buffett and Munger said, highlighting their differences with the tech exec.
"Elon Musk overestimates himself, but he is very talented," Munger said.
Musk "wouldn't have achieved what he has in life if he hadn't tried his unreasonably extreme objectives," Munger continued. "He likes taking on the impossible job and doing it." Conversely, he said, "Warren and I look for the easy job that we can identify."
Buffet affirmed that he and Munger "don't want to compete with Elon."
"We don't want that much failure," chimed in Munger.
Berkshire Won't Be Investing In Automakers, Buffett Says
"Charlie and I have long felt that the auto business is just too tough," Buffett said, adding an anecdote about Henry Ford's challenges in the industry in the early 1900s.
Buffett said that there are too many global competitors for the automaking business to generate attractive returns. It's also in the midst of a transition to electric vehicles, which imposes huge capital costs and risks in the near term before it becomes clear which companies will be successful and which won't.
Berkshire prefers the auto dealership business, where it owns 78 dealerships across the U.S. Those generate more than $8 billion in annual revenue, making Berkshire among the largest dealership groups in the U.S.
Source: CNBC, Benzinga, MarketWatch, Barron's
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imaginative Otter_ya : The Conflict Between the U.S. and China Is 'Stupid, Stupid, Stupid,' Munger says... I love this statement. These 'stupid' people are doing stupid things and are dampening the economics growth of the world. Sanctions and 'cut them off' is the US trump cards. The more you play out your trump cards, the more you are showing your weaknesses and fears.
tianwan1 : US is overdoing the world police job, while China just focusing on improving China. US should focus on internally more rather than try to hold on too much on global affairs as they will be stretched out too thin on all sides, mainly their internal people's life.
RDK79 : Loved their advice: don’t hang around negative / bad people (sorry, paraphrased a ton). Family, a slightly different story.
Rigid Bull : Berkshire will be disrupted sooner than later.
Warkenator imaginative Otter_ya: ^
19550503 imaginative Otter_ya: really???!!!
China copies and steals US technology all the time using "trade".
American corporations started making shareholder and stock values as the almighty indicator of success beginning in the 90s. They had to share their trade secrets and technology to China to gain more and more global market- share (euphemism for profits) and the rest is history. Countries like China and India can thank America and globalization for their prosperity!