23 Highlights of the 2021 Berkshire Hathaway Annual MeetingDr. David Kass
These are the highlights of the 2021 Berkshire Hathaway annual meeting.
(Note: The two shareholder proposals relating to (1) climate change, and (2) diversity, equity, and inclusion, were each voted against by a 75% to 25% margin as recommended by Berkshire’s board of directors. Buffett: “Most shareholders who voted for these proposals have not bought the shares with their own money.” (They were funds like CalPERS.))
(1) Munger: “Greg will keep the culture”. (Therefore, Greg Abel will be the next CEO.)
(2) Buffett: “Interest rates are to asset prices, as gravity is to matter.”
(3) Buffett: Berkshire sold airline stocks at their lows since Buffett is chief risk officer and recovery was not certain. With Berkshire’s 10% stake in each of the four major airlines, the government may have expected Berkshire to bail them out. Berkshire’s sales of the airlines represented only 1% of its total assets of $700 billion. Berkshire also cut back its stakes in banks. It currently owns 19% of American Express. Cash on hand represents 15% of Berkshire’s value. Buffett could have deployed $50 -75 billion. “Looking back, you know, it’d have been better to be buying,” Buffett admitted. “I do not consider it a great moment in Berkshire’s history.”
“It’s crazy to think anybody’s going to be smart enough to husband money, and then just come out on the bottom deck in some crazy crisis, and spend it all,” Munger said in response to a question about why Berkshire wasn’t more acquisitive in March 2020. “There always is just some person that does that by accident. But that’s too tough a standard. Anybody who expects that of Berkshire Hathaway is out of his mind.” Jay Powell acted decisively with speed on March 23. There was a run on money market funds in March 2020 similar to September 2008. Congress also acted quickly (unlike 2008) since there was no one to blame. Fiscal policy and monetary policy did the job. 85% of the economy is now running in high gear. Berkshire is not a bank and therefore could not borrow from the Fed. They could not depend on anyone. Banks drew down credit. The economy turned out better than expected. He is no longer interested in investing in the airline industry.
(4) Buffett: Since the average person cannot pick stocks, he recommends an S&P 500 index fund. Munger: Prefers Berkshire over the S&P 500 (Berkshire’s 60-70 companies are better than the S&P 500 companies.)
(5) Buffett defended owning a stake in Chevron even though it is a fossil fuel company. Munger would rather have a Chevron employee as a son-in-law than an English professor.
(6) Buffett and Munger disagreed on Buffett’s sale of Costco and Wells Fargo.
(7) Buffett: Progressive Insurance is the best at charging appropriate rates (Telematics – matching rates to risk) and is growing faster than Geico. State Farm is the largest auto insurance company. Geico has a 13% share and Progressive about 12%. They will be the two largest 5 years from now. Geico is catching up to Progressive.
(8) Buffett sold some shares in Apple, called it a mistake, and Munger agreed it was a mistake.. Berkshire owns 5.3% of Apple Tim Cook is one of the best managers in the world. They have the brand and the product.
(9) Buffett: Large tech stocks are not overvalued because of interest rates. “Interest rates are to asset prices as gravity is to matter”. Stocks are cheap at 0% interest rates. Google (not owned by Berkshire) and Apple have great rates of return on capital.
(10) Buffett: SPACs are a threat to Berkshire with respect to acquisitions. They use other people’s money to earn fees.
(11) Buffett: Berkshire would like to put $70 -80 billion to work and sometimes conditions (lower prices) change rapidly.
(12) Buffett and Munger defended stock buybacks (as they did at last year’s annual meeting in response to my question). Munger: “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 existing shareholders, it’s a highly moral act, and the people that are criticizing it are bonkers.”
(13) Buffett reiterated that a few years ago 97% of Berkshire’s shareholders voted against dividends.
(14) Munger: California is stupid to have high taxes which are driving out rich people. Buffett: Berkshire’s shareholders will be hurt by higher corporate taxes.
(15) Abel: Kansas City Southern’s acquisition by Canadian Pacific or Canadian National would be detrimental to BNSF.
(16) Munger called bitcoin a “financial product invented out of thin air.” “Of course I hate the bitcoin success,” Munger said. “I don’t welcome a currency that is so useful to kidnappers and extortionists.” Buffett avoided the question on bitcoin because he said he didn’t want to get grief from everyone who is long bitcoin, relative to the few people who are short the digital asset.
(17) Buffett: Todd Combs and Ted Weschler are both terrific but will not be on the stage at future meetings since there is no reason to educate others on how to compete with us.
(18)) Munger: The Chinese government will allow businesses to flourish. They learned from Singapore.
(19) Buffett: The biggest risk to a business is the wrong CEO.
(20) Abel: Pleased with the new management at Kraft Heinz. Miguel (Patricio) is a strong leader on their path forward.
(21) Berkshire’s health care (17% of GDP) joint venture with JP Morgan and Amazon failed since providers do not want to receive less. Buffett referred to the situation as being a “tapeworm”.
(22) Munger: Berkshire is not too complex since its decentralized structure is working. No one copies us. “Greg will keep the culture”.
(23) Buffett and Munger are critical of Robinhood where millennials are accounting for 14% of calls and puts with expiration dates of 7 days. Robinhood has been turned into a casino.
Article by Dr. David Kass