On Saturday morning, some 12,000 people gathered around the Oracle of Omaha and an 11-tonne mound of See’s Candies in Berkshire Hathawayit is (BRK.A -2.94%) (BRK.B -2.55%) first in-person shareholder meeting in three years.
Chairman and CEO Warren Buffett will turn 92 at the end of August, and his longtime partner Charlie Munger will turn 99 on New Year’s Day 2023. Born in the teeth of the Great Depression, Buffett has built a treasure trove of stories over the years. Through the end of 2021, Berkshire produced a compound annual gain of 20.1%, compared to 10.5% for the S&P500 with dividends reinvested. Wisdom and outperformance are two of the many reasons why millions tune in to Berkshire Hathaway’s annual meeting. Here are some preliminary takeaways from Buffett’s opening remarks as well as the state of Berkshire right now.
Between November 30, 2011 and November 30, 2021, Berkshire Hathaway underperformed the S&P 500, producing a total return of 251% compared to the S&P 500 total return of 266%. But so far in 2022, Berkshire is up 8% while the S&P 500 is down 13%. And now Berkshire has officially outperformed the S&P 500 for the past 10 years, with a total return of 300% compared to less than 260% for the S&P 500.
Much of the outperformance was due to Berkshire’s focus on market-beating stocks like Apple, Coca Cola, American Express, Chevronand western oil. But it also has to do with value stocks finally starting to outperform growth stocks.
Conserve significant cash and protect investors
Even after spending about $50 billion on stocks in the first quarter, including large investments in Occidental Petroleum and resume, among other things, Berkshire maintained a sizable cash position of $106 billion at the end of the quarter. Cash, Berkshire does not mean commercial paper or lines of credit. This means regular treasury bills. One of the reasons Berkshire invests the way it does and keeps a lot of cash is that it feels a duty to protect its partners. “We have an extreme aversion to taking a permanent loss with your funds. If I went bankrupt, it wouldn’t really make a difference. … The idea of losing, permanently, other people’s money, people who trust us, it’s just a future that I don’t want to have. … We would die psychologically if we lost a lot of other people’s money,” Buffett said. “So the only thing I can tell you about Berkshire Hathaway…we wake up every morning and want to be more certain about your potential investment.”
The purchase included 136.373 million shares of Occidental Petroleum at prices ranging from about $40 per share to nearly $60 per share. Commenting on the purchases, Buffett said: “Now we’re back in our lethargic mood, but anything can change at Berkshire. But the one thing that won’t change going back to the second quarter is that we’ll still have a lot of ‘money on hand.’
A light dig at cryptocurrency
Buffett and Munger are famous for their negative views on cryptocurrency. And without saying it explicitly, these opinions are still valid today. As part of the Berkshire Treasury discussion, Buffett presented a slide of a $20 bill. “This note is legal tender for all public and private debt, and that’s what makes it money. Money is the only thing the IRS is going to take from you. You can offer them all kinds of things , but that’s what settles debts in the U.S. You’ll hear a lot about different kinds of money, but that’s the only kind of money you’ll ever see in your lifetime,” Buffett said. .
“When people tell you they’re issuing new forms of currency, that’s the only thing that will pay the bills under certain circumstances,” Buffett added.
It was also a commentary on the government’s actions to keep the economy going during the Great Recession and then the early days of the pandemic in March 2020. “If the Federal Reserve hadn’t done what it did in a very short time things could have stopped,” he said. “And I took my hat off a few years ago to Jay Powell for acting the way he did. You have to act quickly.”
Buffett said he once asked former Federal Reserve Chairman Paul Volcker, “What are the limits of what you can do?” And Volcker replied, “We can do whatever we have to do.” Buffet spoke favorably of the Federal Reserve but was not shy about the uncertainty facing the economy.
“We want Berkshire Hathaway to be … able to operate if the economy shuts down, and that can still happen,” Buffett said.
Altogether, Buffett’s opening remarks emphasized the importance of financial discipline and prudence, and struck a cautiously optimistic tone about the future without shying away from the very real risks facing the economy.