Photo by Wance Paleri on Unsplash

Berkshire Hathaway held its annual meeting in Omaha on April 30, 2022, with thousands of shareholders from around the globe able to attend the meeting once again following the pandemic. Warren Buffett, CEO, and Vice-Chairmen, Charlie Munger, Greg Abel, and Ajit Jain answered shareholder questions for several hours. The following includes highlights from the meeting:
 

First Quarter Results

Berkshire Hathaway reported the company’s net worth during the first quarter of 2022 increased slightly to $508.1 billion, reflecting significant liquidity and a very strong capital base. As of 3/31/22, book value was about $345,439 per Class A share. Berkshire Hatha- way reported first quarter revenues increased 10% to $70.8 billion. Operating earnings held relatively steady at $7.0 billion thanks to solid results from BNSF Railway, Berkshire Hathaway Energy, and the manufacturing, service, and retailing businesses offset by weakness in the insurance business.
 

$51 Billion Stock Spending Spree

During the first quarter, Warren Buffett went on his biggest quarterly stock spending spree in company history—abiding by his famous quote to “be greedy when others are fearful.” He spent $51.1 billion to purchase stocks, including about $21 billion from Chevron, about $7 billion from Occidental Petroleum, about $6 billion in Activision Blizzard as an arbitrage play, $5 billion in German and Japanese stocks, $4 billion from HP, Inc., and about $600 million more from Apple. In addition, Berkshire purchased a net $14.4 billion in Treasury Bills and fixed-income investments. Berkshire also announced an agreement to acquire Alleghany, a property and casualty reinsurance, and insurance business, for $11.6 billion in cash with the deal expected to close in the fourth quarter of 2022.

In addition, Buffett repurchased $3.2 billion of Berkshire stock as the stock was selling below its intrinsic value as conservatively determined by Buffett and Munger.
 

Gambling Parlor

Buffett noted that in the past couple of years, the stock market had turned into a “gambling parlor” as speculation ran rampant with even large companies becoming poker chips. Charlie agreed about the mania of speculation and added, “We have computers with algorithms trading against other computers. We’ve got people that know nothing about stocks being advised by stockbrokers, who know even less.” However, when speculation leads stocks to become mispriced, long-term investors can take advantage of the opportunities which Buffett did in acquiring 14% of Occidental Petroleum’s stock in a two-week period during the past quarter.
 

International Investments

Buffett said Berkshire would like to buy more companies outside of the U.S., but they are harder to buy both from a regulatory and size standpoint. However, during the first quarter, Buffett did spend $5 billion to buy three German securities and one new Japanese stock while adding to a few other Japanese positions.
 

Market Timing

Buffett stated that he doesn’t have the faintest idea of what the markets or economy will do over the short term. While Berkshire does not attempt market timing, Berkshire is good at valuing businesses and buys when values appear.
 

Nuclear Risk

Buffett acknowledged that it is a very dangerous world, but that Berkshire can’t protect against the risk of nuclear weapons. Berk- shire’s insurance policies exclude nuclear risks as there is no ability to estimate what exposure would be in the event of a nuclear event. Buffett concluded, “If you’re worried about the effect of nuclear attacks, you’ve got other things to worry about than the value of your Berkshire [stock]. I’ll put it that way.” Charlie added that he knew a man who said, “I know what I’m going to do if there’s a nuclear war. I’m going to crawl under the table and kiss my ass goodbye.”
 

Berkshire Hathaway Annual Meeting

Investment Framework

Charlie was asked how to apply a multi-disciplinary framework in making investment decisions and in life. Charlie answered, “Well, obviously, it helps to know more than one discipline. There’s an old saying that a man who carries only a hammer thinks everything else is a nail. And you may go on wrong decisions if you don’t have some command of all the disciplines.”
 

Inflation Swindles Everyone

Warren Buffett has previously said that inflation swindles equity investors as companies find it hard to increase their returns on equity, especially for capital-intensive businesses. He added, “It swindles bond investors, too. It swindles the person who keeps their cash under the mattress. It swindles almost everyone.”

Following the significant pandemic stimulus payments, people had a great deal of money in their hands. With a shortage of a wide variety of goods due to supply chain disruptions, prices went up. Charlie said stimulus payments drowned the country in money. Buffett noted it is “extraordinary” how much inflation Berkshire currently sees in its businesses. However, no one knows what inflation will be over the next 10 years. The best protection against inflation is your own earnings power.
 

The Intelligent Investor

Buffett noted that the three most important lessons on investing came from reading Chapter 8 of Benjamin Graham’s book, The Intelligent Investor.

These lessons are: 1) Think of a stock as part of a business and seek to own a group of high-quality businesses; 2) Use the stock market to serve you, not to instruct you; and 3) Always buy with a margin of safety.
 

Bitcoin

When asked if he had changed his mind on Bitcoin, Buffett contrasted productive assets such as farmland, apartments, and businesses, which generate cash flows, with bitcoin which does not. He said, “Now, if you told me you owned all of the bitcoin in the world, and you offered it to me for $25, I wouldn’t take it, because what would I do with it? I have to sell it back to you one way or another.” It does not produce anything, but people have attached “magic” to bitcoin.

Charlie added, “Well, in my life I try and avoid things that are stupid and evil and make me look bad in comparison with somebody else. And bitcoin does all three. In the first place, it’s stupid because it’s very likely to go to zero. In the second place, it’s evil because it undermines the Federal Reserve system and the national currency system, which we desperately need to maintain its integrity and government control. And third, it makes us look foolish compared to the communist leader in China. He was smart enough to ban bitcoin in China, and with all of our presumed advantages of civilization — we are a lot dumber than the communist leader in China.“
 

Index Funds

When asked if index funds have an undue influence over corporate governance, Charlie agreed, “The thing is out of control and counterproductive. I think indexing, if it gets to 90%, then it won’t work very well at all.”
 

Chinese Stocks

Charlie said, “The reason that I invested in China is I could get so much better companies at so much lower prices, and I was willing to take a little bit of a risk to get into the better companies at the lower prices.

Other people might reach the opposite conclusion. And everybody is more worried about China now than they were two or three years ago. So that’s just the way it is.”
 

Oil

Charlie Munger said, “I like having big reserves of oil. If I were running the benevolent despot of the United States, I would just leave most of the oil we have here, and I’d pay whatever the Arabs charge for their oil and I’d pay it cheerfully and conserve my own. I think it’s going to be very precious stuff over the next 200 years. And nobody else has my view, so it doesn’t bother me, I just think they’re all wrong. “
 

Texas Pacific Land Trust

Warren Buffett recounted that the second stock he ever bought was Texas Pacific Land Trust when he was 13 or 14 years old. The company originated from the bankruptcy of the Texas and Pacific Railroad back in the 1880s and owned approximately three million acres in Texas. Their charter said they could use the proceeds from land sales to repurchase stock every year, so they bought stock week after week after week. Buffett joked that he figured if he lived to be 100 and held onto his stock, he would soon own the whole company which hasn’t quite worked out that way.
 

Built For Forever

Warren Buffett said, “Berkshire is built forever. There is no finish point.” He noted that even after he is gone, Berkshire Hathaway has a culture that has worked and a board of directors and shareholders that will carry it over the next 100 years. Charlie agreed that Berkshire’s culture will last a long time and should prosper pretty well even though the rest of corporate America is quite different. Buy.