More than 40,000 folks from all around the world trekked to Omaha for the Berkshire Hathaway (BRK-A, BRK-B) annual meeting to hear the wit and wisdom of Warren Buffett, Chairman, and Charlie Munger, Vice Chairman. Below are highlights from the May 4, 2019 meeting.

FIRST QUARTER RESULTS
During the first quarter, Berkshire reported net earnings of $21.7 billion compared to a loss of $1.1 billion in the prior year period. New accounting rules in 2018 require Berkshire to book the net changes in unrealized appreciation/depreciation in net income instead of comprehensive income which resulted in a $16.1 billion gain in the first quarter from investments and derivatives compared to a $6.4 billion loss in the prior year period. Berkshire’s operating revenues increased 4% in the first quarter to $60.5 billion with growth in all business segments led by 8% growth in the total insurance operations. Operating earnings increased 5% in the first quarter to $5.6 billion, which excluded Kraft Heinz results. Berkshire Hathaway reported the company’s net worth during the first quarter rose 6% with book value equal to $224,952 per Class A share as of 3/31/19.

SHARE REPURCHASES
During the first quarter, Berkshire Hathaway repurchased $1.7 billion of its own common shares. Warren Buffett said, “We will buy stock when we think it is selling below a conservative estimate of its intrinsic value. We think that the shares we repurchased in the first quarter leave the shareholders better off than if we hadn’t bought the shares, but we don’t think the difference is dramatic.

You could easily see periods where we would spend very substantial sums if we thought the stock was selling at, say, 25 or 30 percent less than it was worth, and we didn’t have something else that was even better. We’ve got the money to buy in $100 billion worth of stock. We will spend a lot of money. We’ve been involved in companies where the number of shares has been reduced 70 or 80 percent over time, and we like the idea of buying shares at a discount.”

SOCIALISM VS CAPITALISM
In response to a question addressing socialism versus capitalism, Warren Buffett stated, “I’m a card-carrying capitalist. I believe we wouldn’t be sitting here except for the market system and the rule of law and some things that are embodied in this country. But I also think that capitalism does involve regulation. It involves taking care of people who are left behind, particularly when the country gets enormously prosperous.”

Charlie Munger added, “Well, I think we’re all in favor of some kind of a government social safety net in a country as prosperous as ours. What a lot of us don’t like is the vast stupidity with which parts of that social safety net are managed by the government. It’d be much better if we could do it more wisely, but I think it also might be better if we did it more liberally.”

GOOGLE (ALPHABET)
One of Berkshire’s investment managers (not Buffett) recently made a nearly $1 billion investment in Amazon (AMZN). Charlie Munger revealed, “I don’t mind not having caught Amazon early. I give myself a pass on that. But I feel like a horse’s ass for not identifying Google (GOOG) (GOOGL) better.” Buffett agreed, “He’s saying we blew it. And we did have some insights into that because we were using them at GEICO, and we were seeing the results produced. And we saw that we were paying $10 a click, or whatever it might’ve been, for something that had a marginal cost to them of exactly zero. And we saw it was working for us.” Charlie added, “We could see in our own operations how well that Google advertising was working. And we just sat there sucking our thumbs. So, we’re ashamed. We’re trying to atone. Maybe Apple was atonement.”

APPLE
Despite regulatory challenges, Buffett remarked, “I like our Apple (AAPL) holdings very much. I mean, it is our largest holding. And actually, what hurts is that the stock has gone up. You know, we’d much rather have the stock at a lower price so we could buy more stock.” Charlie noted, “Well, in my family, the people who have Apple phones, it’s the last thing they’ll give up.”

INSURANCE BUSINESS
Buffett stated, “Our insurance business gives us a float that’s other people’s money, which we’re temporarily holding, but which gets regenerated all the time. So, we have $124 billion that people have given us. And that’s somewhat like having a bank that just consists of one guy and people come in and deposit $124 billion and promise not to withdraw it forever. We’ve got a very good insurance business. We have managed to earn money on money that was given to us for nothing and have earnings from underwriting and then have these large earnings from investing and it’s an integral part of Berkshire.”

BREAKING UP BERKSHIRE?
When asked if Berkshire might be vulnerable to an activist trying to break up the company, Buffett explained, “It can’t happen for a lot of years, in terms of the way my stock gets distributed and in terms of the way other stock is held. But in the end, Berkshire should prove itself over time. I mean, there are no perpetuities. It deserves to be continued in its present form. It has a lot of attributes that are maximized by being in one entity, which people don’t fully understand. I think the culture will remain one of a kind. I think that we will be able to do things other people can’t do. I think that the advantages of having them in one spot will likely be significant over time. And if that happens, then no activist is going to take it over. And if the model doesn’t work for some reason over a long period of time, then something else should happen.”

SIGNIFICANT CASH POSITION
Berkshire Hathaway has been holding a significant cash position topping more than $110 billion as of 3/31/19. Buffett proclaimed, “We do like having a lot of money to be able to operate very fast and very big. We know we won’t get those opportunities frequently. Certainly, in the next 20 or 30 years, there’ll be two or three times when it’ll be raining gold and all you have to do is go outside, but we don’t know when they will happen and we have a lot of money to commit. We want to make money for everybody, but we want to make very, very sure that we don’t lose permanently money for anybody that buys our stock somewhere around intrinsic business value to begin with. We know how people behave when the world generally is upset. I think they want to be with something they feel is like the Rock of Gibraltar and we have a real disposition toward that group.”

CHINA
In response to a question about investing in China, Warren Buffett answered, “China, it’s a big market, and we like big markets. I mean, we really can only deploy capital in a major way maybe in 15 or so countries just because of the size.” Charlie expressed, “But generally, I think the climate is getting better. It really makes sense for the two countries to get along. Think of how stupid it would be if China and the United States didn’t get along. Stupid on both sides, I might add.” Buffett concluded, “We’ve done well in China. We haven’t done enough.”

BREXIT
Asked about investing in the U.K. given Brexit concerns, Buffett exclaimed, “We’d love to put more money into the U.K. I mean, if I get a call tomorrow and somebody says, you know, ‘I’ve got an X-billion-dollar — pound — company that I think might make sense for you to own,’ and that I would like to actually have as part of Berkshire, I’ll get on the plane and be over there. We’re hoping for a deal in the U.K. and/or in Europe, no matter how Brexit comes out. I’m not an Englishman, but I have the feeling it was a mistake to vote to leave. It doesn’t destroy my appetite in the least for making a very large acquisition in the U.K.”

COMPOUNDING MACHINE
When asked if Berkshire will continue to be a compounding machine, Buffett noted, “When we get chances to deploy capital, we’ve always tried to make all entities compounding machines. That’s why people gave us capital. That’s why we put our own capital in. So that will continue. I think Berkshire is better situated than it’s ever been, except for the fact that size is a drag on performance. But this culture is special. It can work. It won’t be the highest compounder, by a long shot, against many other businesses. I think it will be one of the safest ways to make decent money over time.” Charlie described, “Well, we came a long way from very small beginnings and the fact that it slows down a little when it becomes monstrous is not my idea of a huge tragedy. I think we will continue to do very well in the future.”


$10 BILLION OCCIDENTAL DEAL
Berkshire Hathaway recently provided Occidental Petroleum (OXY) with $10 billion to help finance their acquisition of Anadarko Petroleum. Buffet boasted, “If somebody wants a lot of certain money for a deal, they’ve seen that I can get a call on Friday afternoon, and they can make a date with me on Saturday, and on Sunday, it’s done. They absolutely know that they have $10 billion. If there are any $10 billion, or $20 billion, or maybe even $50 billion two-day transactions, if there are any in the world, believe me, they’ll think of Berkshire Hathaway for sure in terms of what number to call.”