Berkshire Hathaway (BRK-A), (BRK-B), held its second virtual annual meeting on May 1 in Los Angeles so that Vice Chairman Charlie Munger could join Warren Buffett, CEO and Chairman. Vice Chairmen Greg Abel and Ajit Jain also shared the stage.

Here are a few highlights from the annual meeting:

First Quarter Results

Berkshire Hathaway reported first quarter operating earnings increased 19.5% to $7.0 billion with most business segments benefitting from the reopening of the economy.

Economy Went Off The Cliff

Warren Buffett described how the economy “went off the cliff” last March as the pandemic ensued. The economy was “resurrected in an extraordinarily effective way” by the rapid response of the Federal Reserve and Congress. On the liquidation of all of Berkshire's airline holdings earlier in 2020, Buffett has no regrets. "I still wouldn't want to buy the airline business." He did, however, concede Berkshire could have been doing more buying when stock prices dropped dramatically last March as the pandemic was taking hold. "Looking back ... definitely we could have done better things. Overall, I do not consider it a great moment in Berkshire's history. But also, we've got more net worth than any company in the United States ... and we've got $600 or $700 billion of generally good businesses."

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Inflation

Fiscal and monetary policy responded to the pandemic in a way that was “incredible.” Buffett added, “It did a better job than either the Fed or the Treasury or anybody expected. This economy right now, 85% of it is running in super high gear, and you’re seeing inflation.” At Berkshire, Buffett noted, “We're seeing very substantial inflation. It's very interesting. We're raising prices. People are raising prices to us, and it's being accepted."

Apple

Buffett acknowledged that paring back about 4% of Berkshire's enormous Apple (AAPL) stake in last year's third quarter was "probably a mistake," and that Charlie, "in his usual low-key way," let Buffett know he thought it was a mistake. Berkshire continues to own about 5.3% of Apple with Buffett describing Tim Cook as one of the best managers in the world. Apple receives 99% satisfaction ratings on its products which are “incredible and indispensable.“

Low-Interest Rates And Then What?

Buffett remarked that stock market valuations may not be “crazy” given the current low-interest rate environment. He said, “Interest rates, basically, are to the value of assets what gravity is to matter.” He joked he would be in the Tokyo Olympics jumping if he could reduce gravity by 80%. He noted that we have had this “incredible reduction in the so-called super riskfree group, the short-term Treasury bill, and that is the yardstick against which other values are measured.” If you discount cash flows at present low-interest rates, “stocks are very, very cheap.” The question is what interest rates do over time. Buffett said, “It’s a fascinating time. We’ve never really seen what shoveling money in on the basis that we’re doing it on a fiscal basis, while following a monetary policy of something close to zero interest rates. But in economics, there’s one thing always to remember—you can never do one thing. You always have to say, “And then what?”

Share Repurchases

Buffett discussed that Berkshire spent about $25 billion last year repurchasing shares. “We can’t buy companies as cheap as we can buy our own, and we can’t buy stocks as cheap as we can buy our own.“ Buffett explained that share repurchases are a way essentially of distributing cash to the people that want the cash when other co-owners mostly want you to reinvest it. Charlie added, “Well, if you’re repurchasing stock, just to bull it higher, it’s deeply immoral, but if you’re repurchasing stock because it’s a fair thing to do in the interest of your existing shareholders, it’s a highly moral act, and the people who are criticizing it are bonkers.”

Speculation

During the past year, we have had millions of people set up accounts to day trade which gives the stock market the atmosphere of a casino. On the matter, Buffett quoted John Maynard Keynes who wrote in 1936, “Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill done.”

SPACS

Buffett noted that the rise of so many SPACs have been a “killer” on Berkshire’s ability to find and close new acquisitions. There are hundreds of new SPACs looking for deals. He explained, “These SPACs generally have to spend their money in two years. So, they have to buy a business in two years. If you put a gun to my head and said, you’ve got to buy a big business in two years, I’d buy one, but it wouldn’t be much of one. If you’re running money for somebody else, and you’re getting paid a fee, and you get the upside and you don’t have the downside, you’re going to buy something.” Buffett noted that Berkshire has about $70 billion or $80 billion in cash “we’d love to put to work.” This represents roughly about 10% of Berkshire’s assets. However, he added, “We probably won’t get a chance to do it under these conditions, but conditions change very, very, very rapidly sometimes in markets.”

Higher Corporate Tax Rates

Asked how a higher 25% or 28% corporate tax rate would impact Berkshire, Charlie responded, “Well, I don’t think it would be the end of the world. We will adapt to the tax rate, whatever it is.”

Railroad Consolidation

Greg Abel was asked how Canadian National Railway’s acquisition of Kansas City Southern would impact BNSF in terms of competition. Abel responded, “It’s obviously a transaction we followed very closely.” It will have an impact on BNSF. “What they’re basically proposing is to create a north/south railway that goes from Canada into Mexico. We do have a strong presence in Mexico, not as strong as some of our competition, but we would feel competition there.“

Bitcoin

When asked about Bitcoin, Charlie exclaimed, “Well, those who know me well are just waving the red flag at the bull! Of course, I hate the Bitcoin success, and I don’t welcome a currency that’s so useful to kidnappers and extortionists and so forth, nor do I like just shuffling out a few extra billions and billions and billions of dollars to somebody who just invented a new financial product out of thin air. I think I should say, modestly, that I think the whole damn development is disgusting and contrary to the interests of civilization, and I’ll leave the criticism to others.”

High-Margin Business

Buffett said, “Well, we’ve always known that the great business is the one that takes very little capital and grows a lot, and Apple and Google and Microsoft and Facebook are terrific examples of that. I mean, Apple has $37 billion in property, plant, equipment. Berkshire has $170 billion or something like that, and they’re going to make a lot more money than we do. They’re in a better business.“

Macroeconomic Predictions

Buffett said, “We don’t know what happens from the present policies. The best thing to do is recognize you don’t know and proceed in a way where you get a decent result, no matter what happens. That’s what we try and do at Berkshire. We do not think we can make money by making macroeconomic predictions.”

Berkshire's Size

Charlie said, “I don’t think we’re getting too big to manage because we’re different from practically every other big corporation in the United States in that we are so excessively decentralized. We have decentralized so much, and we have so much authority in the subsidiaries that we can keep doing it for a long, long time—as long as it keeps working. And I would say so far that our decentralization has caused more benefits than defects, but nobody seems to copy us.”

Berkshire's Future

Buffett remarked that, “We’ve seen some strange things happen in the world in the last 15 months, and we’ve always recognized the fact that stranger things are going to happen in the future. And I would say, if anything, it’s reinforced our desire to figure out everything possible we can do to make sure that Berkshire is 50 or 100 years from now every bit the organization and then some that it is now.”