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Berkshire Hathaway (BRK-A), (BRK-B) held its annual meeting on May 6, 2023. Warren Buffett, Chairman, and Vice Chairmen, Charlie Munger, Greg Abel, and Ajit Jain, fielded shareholders’ questions for more than five hours. Here are a few highlights:
 

First Quarter Results

Warren Buffett began the meeting with a review of the company’s strong first-quarter results with operating earnings up 12.6% to $8.1 billion. Berkshire’s book value increased $31.1 billion during the quarter to $504.6 billion. Berkshire boasts the largest shareholders’ equity of any U.S. company. Buffett expects the majority of Berkshire’s businesses to report lower earnings this year amid rising inflation. However, improvements in the insurance businesses and significantly higher interest income should lead to higher overall earnings for the year. Berkshire ended the quarter with more than $127 billion in cash and equivalents. In April, Berkshire added between $6 billion to $7 billion to this cash hoard through the sale of $4 billion of stocks and operating earnings of about $2.5 billion net of $400 million spent on buying back Berkshire’s shares.
 

Share Repurchases

Berkshire repurchases its shares at prices below Berkshire’s intrinsic value, as conservatively determined by Warren Buffett and Charlie Munger. During the first quarter, Berkshire repurchased $4.5 billion of its common stock, signaling that Berkshire’s stock is attractively valued at current price levels. Since 2019, Berkshire’s share count has declined 10.8%, which means long-term shareholders own an increasing share of the overall business.
 

Bank Stocks

Buffett said it would have been “catastrophic” if regulators had not backstopped the deposits at the recently failed banks, as we would have had a run on every bank in the country. While he believes bank customers don't have to worry about their deposits, Berkshire is being very "cautious" about owning bank stocks be- cause the industry has been changing rapidly.
 

Artificial Intelligence

Charlie Munger is skeptical of some of the hype regarding artificial intelligence (AI) stating, “I think old-fashioned intelligence works pretty well.” Buffett added that while AI can do "amazing things," he is absolutely certain artificial intelligence won't be able to, for example, "replace" what Ajit Jain does to manage the company's insurance operations. He is, however, "a little bit worried" about something that can do "all kinds of things" because "I know we won't be able to uninvent it," comparing AI's potential destructive power to the atomic bomb. Paraphrasing Einstein, he said, "It can change everything in the world except how men think and behave. That's a big step to take." In regard to AI’s impact on value investing, Buffett believes the technology does not make any difference as there are “plenty of opportunities” for value investors. The greatest opportunity comes from other people doing dumb things.
 

U.S. Debt Default

Buffett said he could not imagine Washington allowing the U.S. to default on its debt by refusing to raise the country's debt ceiling and risk disrupting the world's financial system by letting the world "go into turmoil."
 

Dollar As Reserve Currency

Despite concerns about the debt ceiling, Buffett said it is unlikely the dollar gets dethroned as the world’s reserve currency.
 

Apple

Berkshire owns about 5.8% of Apple (AAPL) valued at $151 billion as of the quarter end. On its size in the portfolio, Buffett remarked, "It just happens to be a better business than any we own.”
 

Occidental Petroleum

Berkshire has built up a 23.5% stake in Occidental Petroleum (OXY). While Buffett likes the business, he noted, “There’s speculation about us buying control. We’re not going to buy control. We wouldn’t know what to do with it.”
 

Activision And Microsoft

Buffett said the British government was making a mistake in blocking the acquisition of Activision (ATVI) by Microsoft (MSFT). He added that if the deal doesn’t go through, “It isn’t due to any shortcoming by Microsoft or Activision. But not everything that should happen does happen.”
 

Reverse Engineer Obituary

Offering advice on how to live life, Buffett said, ”If you want to know how to live your life, write your obituary and then reverse engineer it so that you can live up to it. That’s something you get wiser on as you go along.” On investing, he added, “You just want to make sure you don’t make any mistakes that take you out of the game or come close to taking you out of your game. You should never have a night when you’re worried about investing.” Munger’s advice for a good life: “It's so simple to spend less than you earn, avoid toxic people, toxic activities, keep learning all your life, defer gratification because you prefer it that way, and if you do it all this way, you will succeed. If not, you will need a lot of unusual luck.”
 

Estate Planning

Charlie Munger exclaimed, “Well, at Berkshire, we have a simple (answer to the) problem of estate planning. Just hold the godd&** stock!“
 

China

"If there's one thing we should do is get along with China, and have lots of free trade with China … it's in our mutual interest," Charlie Munger said. Criticizing growing tension with China as “stupid, stupid, stupid,” he cited Apple as a brilliant example of how U.S.-China relations should work. "Apple has done (this) by engaging in a partnership with China as a big supplier. It's been good for Apple and good for China.” Buffett agreed. He said the two countries need to understand that they cannot push each other too hard. By working together, the U.S. and China can both become more wonderful countries.
 

Renewable Energy

Berkshire Hathaway Energy is investing in windmills and other clean energy generation, plus extending transmission lines to more renewable energy sources. Buffett said he would put Berkshire Hathaway Energy up against any other utility in the country. “There’s no question there’s an energy transition going on,” said Greg Abel. He added that the utility company is working to reduce its carbon footprint by 50% in 2030 relative to 2005 levels. 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.
 

Ben Graham

Warren Buffett reiterated that reading Ben Graham’s book, “The Intelligent Investor, changed his life. Munger pointed out that half of Ben Graham's lifetime investing return came from one stock: GEICO. "Buying one undervalued great company is a great thing — as Berkshire has found out again and again and again."
 

Capital Allocation

Berkshire’s free cash flow increased 33% during the first quarter to $5 billion. After reinvesting cash in its existing businesses, Buffett seeks to acquire other great businesses. He mentioned that he would like to make an acquisition in the $50 billion to $100 billion range. He’d prefer to do a deal with a private company rather than a more complex transaction with a publicly traded firm, but there just aren’t that many private businesses of that scale available. If Berkshire is selling at a discount to its intrinsic value, Buffett may also distribute substantial cash to shareholders through share repurchases. Buffett stated Berkshire “will buy $50 billion of our stock if it makes sense.” At the same time, Buffett joked that “it is not killing us” to hold $130 billion in cash with interest rates at 5%.” Buffett pointed out that Berkshire is now earning $5 billion annually on its cash, up from $40 million when rates were near zero.
 

Successor

Vice Chairman Greg Abel, who oversees Berkshire’s non-insurance businesses, is Buffett’s appointed successor. Buffett, 92, and Munger, 99, praised him for his long-term outlook and value-oriented approach. Buffett added, “I have also seen Greg in action, and I feel 100% comfortable. Greg is inheriting a good business, and I think he’ll make it better.” Buffett further explained, “Greg understands capital allocation as well as I do. That’s lucky for us. He will make those decisions, I think, very much in the same framework as I would make them. We have laid out that framework now for 30 years.” Abel said he would carry on Buffett’s capital allocation approach, seeking to buy back stock when its price falls below their estimate of intrinsic value. “When the opportunity presents itself, we’ll want to be an active purchaser of Berkshire shares,” Abel said. “It’s great for our shareholders to be able to own a larger share in all of Berkshire’s businesses.”
 

Berkshire Culture

Berkshire’s business model provides huge earnings power and significant cash flows. The firm’s shareholder base is unlike any other, which is a product of regarding shareholders as owners of the company over the last 58 years. Berkshire’s culture is strong which should prevent corporate raiders from dismantling the company once Buffett and Munger are no longer at the helm. Buy.

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