Major News! 2019 Berkshire Hathaway Annual Meeting: 21 Highlights in 6 Hours

From 9:45 PM on May 4, 2019 to 4:30 AM on May 5, 2019 (Beijing time), the Berkshire Hathaway annual shareholder meeting was held in Omaha, Nebraska.

 

The nearly 89-year-old Buffett and his 95-year-old partner Charlie Munger took the stage, answering over 50 questions from 50,000 investors during the six-hour meeting. Topics included overseas market investment (particularly in China), holdings in tech stocks like Apple and Amazon, and succession planning.

 

 

We have compiled 21 key takeaways to share with you.

 

1. Opening Remarks: Focus on Operating Profit, Not Short-Term Capital Gains and Losses

 

Before the Q&A session began, Warren Buffett introduced the guests and discussed the company's recently released quarterly report.

 

Buffett stated that the first quarter of 2019 was similar to the first quarter of 2018, and urged shareholders to focus on Berkshire Hathaway's operating earnings, disregarding capital gains or losses, noting that there would be substantial capital gains, including unrealized gains, in the future.

 

Due to significantly better-than-expected stock investment returns, Berkshire Hathaway's total profit for the first quarter reached $21.66 billion, far exceeding the net loss of $1.14 billion in the same period of 2018. Class A shares earned $13,209 per share, compared to a loss of $692 per share in 2018; Class B shares earned $8.81 per share, compared to a net loss of $0.46 in 2018. In the fourth quarter of 2018, Berkshire Hathaway had a net loss of $25.39 billion.

 

The poor profit performance in previous quarters was due to US accounting rules requiring Berkshire Hathaway to record unrealized gains and losses on stock investments.

In his annual letters to shareholders in recent years, Buffett has emphasized that the company's total profit will face "wild and erratic fluctuations," considering these fluctuations meaningless. In the first quarter of 2019, Berkshire Hathaway earned $15.5 billion from stock investments and $608 million from financial derivatives.

 

Buffett specifically mentioned Kraft Heinz. Although Berkshire Hathaway is Kraft Heinz's largest shareholder, the first-quarter results did not include Kraft Heinz's impact because Kraft Heinz had not yet provided its first-quarter 2019 financial report to Berkshire Hathaway; therefore, Kraft Heinz's performance was not factored into Berkshire Hathaway's first-quarter dividend payments.

 

Buffett stated that the bottom-line figures would be highly erratic, and expressed concern that not everyone had studied accounting. Buffett argued that the bottom-line figures could be detrimental to shareholders, encouraging the audience to focus on operating profits. He said that over time, capital gains "are very important," but should not be calculated on a quarterly or annual basis.

 

 

2. On Stock Buybacks: The Amount of Cash Doesn't Matter; What Matters is Undervaluation

 

The first question was: Why is Berkshire Hathaway repurchasing so many shares of its own stock?

 

Buffett responded that when they decided to repurchase shares, they had around $80 billion to $90 billion in cash. "We have one or two hundred billion (dollars), which isn't much different from 150 billion (dollars), and it didn't change our approach to repurchases."

 

       Buffett stated that they only repurchase stock when they believe the company is performing well and the stock price is worth repurchasing.

 

"If you're in a partnership with three partners, each with $1 million, and one says they want to sell their shares, if they want $1.1 million, we wouldn't buy. But if they say $900,000, we would buy. In that case, our equity would be $2 million, and the share price would go up." Buffett used this example to illustrate why Berkshire Hathaway was willing to spend so much money repurchasing its own shares.

 

Buffett said that when Berkshire Hathaway buys shares, it believes the share price is below the company's intrinsic value. This intrinsic value isn't necessarily a specific price point, but rather a range, perhaps around 10%.

 

"In the first quarter of this year, we bought $1 billion worth of stock. That's not a huge amount," said Buffett. The first-quarter repurchases benefited shareholders, but the difference wasn't significant. "We don't plan to do much of this in any given quarter, unless it's the best thing to do."

 

 

3. Very Satisfied with Apple as Berkshire Hathaway's Largest Holding

 

Buffett expressed satisfaction with Apple as Berkshire Hathaway's largest technology holding, noting that the only downside was that Apple's stock price was too expensive; he wished it was cheaper so he could buy more. Buffett also supported Apple's stock repurchase program, as it increases Berkshire Hathaway's holdings' value and Apple is a strong business.

 

Munger added that his family members loved Apple products, suggesting that Apple is a popular consumer brand and a worthy investment for Berkshire Hathaway.

 

 

 

4. 11-Year-Old Chinese Boy Asks Buffett: How Does 'Getting Older' Help You Make Better Investments?

 

An 11-year-old Chinese boy asked Buffett, "You've said that the older you get, the more you understand human nature. Can you tell us what you've learned, and how a different understanding of human nature helps you make better investments?"

      

Buffett said that as he gets older, his physical condition is not what it used to be. If he were to take the SATs now, he likely wouldn't score as well as he did in his twenties, which would be embarrassing.

 

However, Buffett also believes that As people age, their experiences become richer, and they gradually gain insights into human nature, learning far more than in their youth. However, the lessons learned throughout life's journey, both in studies and experiences, are invaluable and cannot be acquired solely through reading.

 

“What do we truly learn from? Sometimes, we must learn through more experiences and accumulation. Besides my shortcomings, I may not be as agile as before. But my observation of human behavior is indeed sharper than 25 or 30 years ago,” said Buffett.

 

Munger mentioned a quote from Lee Kuan Yew, the founding father of Singapore: See what works, and do it. ”。

 

Munger believes this is a very simple principle. If you put it into practice, you'll find it incredibly effective. It's about finding what works and observing how others do it; these can all help you.

 

 

5. What is an interesting personal investment? Buying duck hunting club stock and discovering oil

 

A young girl and her father asked Warren Buffett and Charlie Munger about their most interesting personal investments.

 

Buffett answered without hesitation: They're always more interesting when you make a lot of money from them. ”

 

Then, he told a story about his purchase of a single share of a company called Atled, which had 98 shares in total. Atled was a duck hunting club in Louisiana. The company bought some land, which was then used for duck hunting. However, Buffett said that after someone fired a few shots into the ground, oil gushed out. The company's stock price soared from $100 per share to $29,200. If the stock hadn't been sold, it would likely be worth millions today.

 

Charlie Munger replied: I have two. When I was young and poor, I once invested $1,000, and I only did it once. Later, the stock I bought rose 30 times, but I sold it when it had only increased fivefold. That was the stupidest decision of my life. So, you should be proud if you've done better than me.

 

 

6. Having $100,000 won't make you happy, and neither will $100 million.

 

A 13-year-old child at the shareholder meeting said that Buffett and Munger's success relies on "delayed gratification," and asked how children can develop this skill.

 

 

Munger said, "I'm an expert in this. I also appreciate the knowledge I gained many years later. Even now, if I give a child a small amount of stock, they can't be satisfied, but they might be satisfied quickly if they buy jewelry."

 

Buffett said, "If you buy a 30-year bond, with a personal tax of 3% and the Fed saying there's 2% inflation, delayed gratification is even harder to achieve with government bonds. It's better to go to Disneyland. Low interest rates and fixed investments mean what? It means you can't immediately profit and enjoy. Saving doesn't seem to be the best thing for all families and environments. You can tell your children that enjoying themselves immediately is also a way, and saving money to buy 30-year treasury bonds won't earn much. If you can let your family enjoy themselves now, instead of keeping the money in your wallet, it's not unacceptable."

 

Delayed gratification doesn't mean it shouldn't be advocated. I've always believed that saving still has great power. But I don't think many rich people are happy because they have a lot of money. Happiness and wealth are not proportional. If you're not happy with $500,000 or $1 million, you won't be happy with $5 million or $100 million.

 

 

7. Berkshire Hathaway will not be leveraged

 

Buffett said, "I think that with investments in these common stocks, you will slowly find a way. First, in my investment experience, I have repeatedly said that index funds will do very well. If you can leverage in that area, how high will your return be? Leveraged investments, compared to non-leveraged investments, sometimes work well, sometimes not. As you mentioned, we want to protect those who are in debt, but it is not necessarily beneficial to our business, and for a period of time we will encounter low interest rates, which are beneficial to us."

 

       Buffett said, "Personally, I don't think that comparing these non-leveraged investments to leveraged common stocks would be effective in today's market environment." If you go into debt, at 7% to 8%, you may have some bankruptcies, and in many cases you will also get better returns. We won't leverage Berkshire Hathaway. Of course, if we did leverage, we would have made more money. But Charlie and I have witnessed some highly intelligent people ruin their businesses because of leverage. Some people may be very intelligent, and can do better things even while sleeping. We can't do that. These very smart people, with their own money and years of experience, ended up failing miserably.

 

 

8. China is a large market, and we like large markets.

 

Someone asked Buffett about his views on the opening up of China's financial industry and whether he would invest in new businesses in China in the future.

 

Buffett said, "China is a large market, and we like large markets. We were already engaging with China before the new opening-up policies." Berkshire Hathaway has already done a lot in China, but not enough. In the future, some major deployments may be made within 15 years.

 

Munger said, "Overall, the situation is improving. It's important for China and the United States to get along. It would be foolish if they couldn't."

 

 

9. Signaling a successor

 

An investor asked about the succession plan and whether Berkshire Hathaway should invite its two young vice chairmen and two investment managers to co-host the shareholder meeting.

 

Buffett said it was a good idea and they could discuss it. The format wasn't finalized because he feared he and Charlie would look shabby compared to the younger two, who are exceptionally handsome. The format of Buffett and Munger hosting couldn't continue indefinitely. However, the two recently promoted vice chairmen, Ajit Jain and Greg Abel, were suitable to participate in hosting the shareholder meeting—four people on stage answering questions. But the two investment managers couldn't answer investment-related questions because Berkshire Hathaway shouldn't provide investment advice; investment is a proprietary business.

 

Munger said that sometimes they faced such thorny problems because Berkshire Hathaway operated with great precision in some areas. They had minimal bureaucratic procedures for decision-making, and their headquarters was very efficient. They didn't have all those complicated committees, as sometimes cumbersome bureaucratic procedures led to poor decisions, which they avoided. However, being different was sometimes awkward. He just felt this approach worked for them, so attendees needed to tolerate their methods, which might differ from others'.

 

Ajit Jain answered questions related to insurance business on-site.

 

Greg Abel answered questions about energy investment on-site.

 

10. Investing in Amazon Doesn't Represent a Change in Berkshire Hathaway's Future Investment Logic

Someone asked if Berkshire Hathaway's investment in Amazon was surprising and whether it meant that Berkshire Hathaway's investment philosophy would shift from value investing over the next 20 years because the Amazon investment didn't seem like a 'be fearful when others are greedy' approach.

 

Buffett said that one of Berkshire Hathaway's two investment managers bought Amazon last quarter, but still adhered to the value investing philosophy. In value investing, "value" doesn't mean an absolutely low Price-to-Earnings ratio but a comprehensive consideration of various indicators when buying stocks, such as whether it's a business the investor understands, its future growth potential, existing revenue/market share/tangible assets/cash holdings/market competition, etc. He believes the two investment managers will make more right decisions than wrong ones in the future.

 

Munger added that he and Buffett weren't the most flexible people and regretted not seizing the extremely developing internet trend. Therefore, he didn't mind investing in Amazon; he and Buffett already regretted not better identifying and investing in Google.

 

 

11. Buffett's Answer on How to Replicate His Success: Stay Away from Areas You Don't Understand

 

Someone asked how to replicate their success and build their core competitiveness. The questioner noted that the current investment environment was far more competitive than when Buffett first started his company, and asked whether they would build a broader or narrower framework in the future, whether they would focus more on specific areas or countries, and what areas would continue to pique their investment interest.

 

Buffett replied that the investment environment is indeed more competitive and the competition is fiercer. Currently, I think I would do very extensive reading to try to understand which businesses I have more expertise and understanding of. I found that insurance business is actually very easy for me to understand. I can do it well, but I don't understand retail too much. So I put more energy into insurance, and you should do the same. And now you face more intense competition; you must find your core competitiveness. Although there is no way to do this immediately, be patient and wait for a good opportunity to act. Although the competition is fierce now, the game is also more interesting.

 

Munger said, I think the best way now is specialization You wouldn't go to a dentist for an orthopedic problem. So the most common way is to gradually narrow down the professional scope and achieve refined specialization.

 

Buffett added that there were treasures everywhere to find back then, but it's definitely not that easy now. Knowing something profoundly and extensively will give you an advantage. Sometimes you'll find that this becomes your competitiveness. At that time, I knew where my weaknesses were and the areas I didn't understand, so I stayed away from those fields. We've been involved in many different fields, and it's not as easy as it used to be.

 

 

12. What's the Most Important Thing in Life? Buffett: Munger and I Both Want to Live Longer

 

A young person asked what Buffett and Munger currently considered the most important thing in life.

 

Buffett jokingly said that first, he hoped he and Munger could live longer, but time and love are irreplaceable with money and are the most important.

 

He was very fortunate to be able to control his time in life and have enough money to do what he wanted. He and Munger are very lucky to be able to do work that isn't limited by the extent of physical aging.

 

Munger also believed that the most important thing was to do what you wanted to do. At the same time, Buffett once again emphasized how lucky he was to be born in America, consistent with his usual assessment of his investment career.

 

 

13. A Shanghai Shareholder Asks: What's Your Core Competitiveness in the 5G Era?

 

"Mr. Buffett, you're my idol. I'm from Shanghai, China. I also want to seize the best investment opportunities in the next era. You know that 5G (fifth-generation communication technology) is coming. People say that various industries will be challenged in the 5G era. How should we master professional skills to capture the best opportunities in the 5G era?" A Chinese investor asked Buffett this question at the meeting.

 

Regarding this issue, Buffett said that they would not conduct special research on a certain industry. Berkshire Hathaway does not have a so-called core competence; its subsidiaries will be involved in industries such as 5G or any technological development in the world, including public utilities, liquefied natural gas, and railways. They have staff who are knowledgeable and have unique professional concepts across various industries. Berkshire Hathaway relies heavily on company executives; Buffett believes they are more professional and will inform him of what happens in the industry, but the parent company will not excessively interfere with the subsidiaries' business.

 

Buffett then asked Munger to add to this. However, Munger said that although he is not very clear about 5G, he knows a lot about China. Berkshire Hathaway has also bought some Chinese things and believes that the company will buy more.

 

 

 

Why advocate for others to invest in index funds but not do so themselves?

 

The questioner asked why Buffett, while advocating for index fund investment, doesn't allocate these funds to index funds before finding the next suitable investment target?

 

In response, Buffett stated, Investing all funds in index funds would make the company more vulnerable to stock market shocks and less flexible.

 

       “ Index funds are a very good option if future conditions meet our requirements so we believe there will definitely be such opportunities; others are unwilling to allocate such funds, but we are. Buffett said.

 

Why insist on holding cash and government debt?

 

Buffett, known for advising investors to invest in index funds, said this was a "very appropriate question; I would not object to these figures." Speaking of the S&P 500's 335% return since the market bottomed out in 2009, Buffett said, "Looking back at this 10-year bull market, you would certainly be surprised."

 

Buffett said his successors might choose index funds over US Treasuries. But he believes this strategy might limit Berkshire Hathaway's opportunities, such as those that arose during and after the financial crisis. In September 2008, Berkshire Hathaway invested $10 billion in Goldman Sachs preferred stock, with a dividend yield as high as 10%.

 

Munger further stated, "I'm a little more conservative than others in using cash, but I don't mind; we can put our money in securities that outperform the S&P index. For a while, we had a lot of cash, and many opportunities were presented to us; having so much cash with such a large company is normal. We also looked at how Harvard does it; they would pay tuition in advance. They also suffered many losses because they made commitments they shouldn't have made in advance."

 

Buffett said he wouldn't do that, that's a promise, "But such good opportunities to use money don't come along often; there will be such opportunities in the next two or three years, but we don't know when they will occur."

 

       另外，巴菲特还强调， For Berkshire Hathaway, the way of doing business is consistent with the interests of shareholders; this principle must be adhered to under any circumstances. ， We want to respect those who trust us; if we can adhere to standard investment principles, we hope to make money for everyone under this principle.

 

 

How to find good deals?

 

Regarding how to find good deals, an analyst asked whether Berkshire Hathaway should be more proactive in seeking deals instead of waiting for calls.

 

Buffett stated that fund managers Ted and Todd actively look for suitable deals. Berkshire Hathaway only buys companies that want to be owned by Berkshire Hathaway. Usually, Berkshire Hathaway doesn't offer the highest price, but it makes commitments to companies, allowing their management to remain the same and not be sold. These are guarantees that other buyers cannot make.

 

Berkshire Hathaway's investment managers Todd and Ted

 

       芒格表示， Munger stated that Working harder to find deals won't help Berkshire Hathaway because there's no shortage of deal opportunities; what's lacking are deals at the price Berkshire Hathaway wants to pay. Buffett said we could spend

 

 

$100 billion next year without a problem, but the question is how to spend it wisely.

 

How to view the impact of automation on full-time human labor?

 

       A young mother attended the Berkshire Hathaway shareholder meeting with her 11-week-old baby, wanting to know how Buffett views the impact of automation and increased temporary outsourcing on full-time jobs with good wages and benefits. Buffett and Munger both said they are not worried about automation eroding human labor. Buffett stated that if you told someone

 

 

200 years ago that 90% of agricultural jobs would be eliminated, they would think it was terrible. But times always change; companies try to improve efficiency, perhaps replacing labor with automation, but the American economic system always finds ways to employ more people. Buffett believes that this system has worked well in the past and will continue to do so in the future.

 

Stick to or expand one's circle of competence?

 

An investor from China asked whether one should continuously expand their circle of competence given the faster pace of change and progress in the world, or maintain their existing circle of competence at the risk of asset shrinkage. Buffett stated,

 

 

If you can continuously expand your circle of competence, you should certainly do so; I have probably expanded mine a little over the years, but you can't force the pace of expansion.

 

Someone asked Berkshire Hathaway's investment managers, Todd and Ted, why their performance was not as good as the S&P 500 index.

 

Buffett refused to hand the microphone to the two investment managers to answer. He said that as of March 31, one investment manager slightly outperformed the S&P 500, while the other lagged behind. Each manages $13 billion in assets, and they are doing better than themselves. Buffett also praised the two investment managers, saying that they are working on other projects for the company. For example, Todd is responsible for Berkshire Hathaway's projects with JPMorgan Chase and Amazon to reduce healthcare costs. Ted is responsible for Berkshire Hathaway's investment in Home Capital Group.

 

 

How Buffett and Munger Handle Conflicts

An investor asked, "I find your investment strategy very magical. How do you two resolve conflicts if they arise?"

 

Buffett: Personal conflicts? If we know whether it's Berkshire's or a conflict between the two of us. Mr. Munger and I, perhaps you won't believe it, we have never had a dispute in over sixty years Of course, we have differing opinions on certain issues, but we never argue. By definition, what is an argument? It might involve emotions or anger, etc.? This will never happen between the two of us. Because Charlie is smarter than I am, he thinks it's not worth the time to get angry about certain things, leading to emotional fluctuations, etc.

 

 

Berkshire Hathaway Will Allocate Large Amounts of Cash to Charity in the Future

 

An investor asked: "You now hold so much cash. How do you view stock buybacks versus dividend distributions? Also, we see that Berkshire Hathaway's returns are getting lower and lower. In the near future, Berkshire Hathaway may transition from an acquisition platform to a shareholder-driven platform. How do you view this shift?"

 

Buffett: That possibility certainly exists. But it depends on how large acquisitions are handled in the next few years. Sometimes, you can't make a judgment in one or even three years; we need long-term observation. Another point is that we need to constantly diversify, and we certainly hope to do so. We hope they can use most of Berkshire's funds for charitable purposes. I will certainly donate a large portion of my personal assets. I write a will every few years, and the content is similar.  有时候不能用一年甚至三年时间做出评断，我们需要长期观察。 另外有一个地方就是我们要不断进行多元化，我们当然也希望这样做。希望他们能把伯克希尔大部分资金用于慈善事业。我自己肯定有很大一部分个人资产做捐赠。我每几年会写一份遗嘱，而且内容都差不多的。

 

Uncertainty About Future Outperformance of the S&P 500 Index

Buffett said that we don't know whether the company can surpass the S&P 500 index. We only know that we will treat shareholders' money and our own money equally, that we will tie our personal wealth to Berkshire's business, and that we will be highly vigilant about anything that might significantly damage value. If Berkshire Hathaway were a single stock holding, its performance would be inferior to the S&P 500 index because the two face completely different tax situations.

 

       巴菲特称，我们并不知道公司是否可以超越标普500指数。我们只知道会把股东的钱和自己的钱等同对待，会把自己个人的财富和伯克希尔的业务绑定，对于任何可能会大幅损害价值的事情都会高度警惕。如果伯克希尔是一只单独持有的股票而言，那么它的表现会不如标普500指数，因为两者面临的税收状况完全不同。