- Warren Buffett and Charlie Munger spoke at Berkshire Hathaway’s annual meeting.
- The pair discussed Apple, SPACs, Robinhood, market speculation, and other subjects.
- The Berkshire bosses warned against treating the stock market like a casino.
- See more stories on Insider’s business page.
Warren Buffett has kept an extremely low profile over the past year. He finally broke his silence at Berkshire Hathaway’s annual shareholder meeting on Saturday, which was livestreamed by Yahoo Finance.
The 90-year-old investor and Berkshire CEO was joined by his 97-year-old business partner, Charlie Munger, on the stage in Los Angeles on Saturday. Berkshire’s heads of insurance and non-insurance operations, Ajit Jain and Greg Abel, were also in attendance.
The meeting’s highlights included Buffett saying that he potentially avoided having to bail out the “big four” US airlines by selling their stocks last year, and that he likely made a mistake when he trimmed his Apple stake and exited his Costco position last year.
Meanwhile, Munger said the professional investors and promoters encouraging amateurs to speculate and invest recklessly should be ashamed. He also slammed bitcoin as a “disgusting” development and bemoaned its rising popularity.
Here’s what Buffett and Munger discussed at the meeting:
Buffett started his presentation by encouraging newbie stock investors to consider something before they “do 30 or 40 trades a day in order to profit from what looks like a very easy game.”
The billionaire investor highlighted how the biggest companies in the world have changed from decade to decade. He pointed out that investors and bankers were as sure of themselves in the 1980s as they are today, yet many of the era’s most successful companies have fallen by the wayside between now and then.
His advice to stock-market neophytes was that they shouldn’t be too sure of themselves, as the world can dramatically change within a matter of years. He pointed out that at least 2,000 companies entered the automobile business — and there were only three left by 2009.
“There’s a lot more to picking stocks than figuring out what’s going to be a wonderful industry in the future,” he continued. “It’s not as easy as it sounds.”
Buffett also slammed the surge in speculative ventures aiming to capitalize on investor enthusiasm in recent months. “Everybody’s starting something now where you can get money from people,” he said.
Taking cover during the market downturn in March 2020
“I’m the chief risk officer of Berkshire — that’s my job,” Buffett said. He pointed out that Berkshire sold about 1% of the value of its roughly $700 billion of businesses when the pandemic struck.
While Berkshire was happy to backstop its businesses last spring and spare them from applying to government loans, it didn’t want to foot the bill for the airlines. He suggested that Berkshire, which boasts more than $130 billion in cash and short-term investments, might have been called upon to bail out the airlines if the company hadn’t sold its stakes of 8% to 11% in the “big four” airlines.
“You’re looking at probably a different result if we had kept our stock,” he said.
Selling bank stocks
“We didn’t like having as much money in banks as we had at the time,” Buffett said.
“I like banks generally, I just didn’t like the proportion we had compared to the possible risks if we got bad results,” Buffett added later. “When things froze for a short period of time, the biggest thing the banks had going for them was that the Federal Reserve was buying them.”
Buffett previously said he would never reduce Berkshire’s cash reserves below $20 billion. He has now raised that number significantly, estimating Berkshire could have spent $50 billion or $75 billion out of its roughly $130 billion in cash last year.
The investor said that “two calls came in” when the pandemic tanked markets last spring, but he couldn’t strike a deal in the days before the Federal Reserve began pumping liquidity into markets.
“They took a market where Berkshire couldn’t sell bonds a day before, and turned it into one where Carnival Cruise or whatever could sell them,” Buffett said. “It was the most dramatic move that you could imagine.”
“This economy right now, 85% of it is running in super-high gear,” Buffett said.
“We don’t want to depend on anybody,” the investor said. “You can’t depend on the kindness of friends if things really stop.”
“I give great credit on both the monetary and fiscal side to what was done,” Buffett said.
Munger also protested the idea that Berkshire could have bought at the bottom of the market last spring.
“That’s too tough a standard,” Munger said. “Anybody who expects that of Berkshire is really out of their mind.”
Owning Chevron as the backlash against oil and gas grows
“People that are on the extremes of both sides are a little nuts,” Buffett said about the battle over the environmental impacts of the oil-and-gas industry.
Buffett said that the world will need hydrocarbons for at least the next few years, but climate-change concerns are real.
“I don’t like making the moral judgments on stocks,” he said, adding that he had no qualms about owning Chevron, which Berkshire added to its stock portfolio in the fourth quarter of 2020.
Diversity and environmental disclosures
“It’s asinine frankly,” Buffett said about the proposal that all of Berkshire’s scores of businesses fill out reports on their diversity and climate-change progress. He argued that many of the shareholders who supported the motion haven’t read the company’s annual report or know much about its green initiatives.
Abel, CEO of Berkshire Hathaway Energy, touted his segment’s environmental credentials. He said the company has transformed how it does business and invested billions of dollars in renewable energy.
“Tim Cook is one of the best managers in the world and he’s got a product that people absolutely love,” Buffett said, highlighting how indispensable iPhones are to people’s lives.
Buffett suggested that if people had the choice between giving up their car or their iPhone, they would have a difficult choice on their hands.
“I sold some stock last year,” he said. “That was probably a mistake.”
Buffett revealed that Munger told him that Berkshire trimming its Apple stake and exiting its Costco position were bad moves. “I could only do so many things that I can get away with with Charlie, and I used them up between Costco and selling Apple.”
“He very likely was right in both circumstances.” Buffett added.
The investor also suggested that while Cook can’t match Apple cofounder Steve Jobs’ creativity, he has achieved several things that Jobs couldn’t have done.
The market boom
“Interest rates are to the value of assets what gravity is to matter,” Buffett said.
The investor pointed out that rock-bottom bond yields, combined with the appeal of “incredible companies” such as Apple, Alphabet, and Microsoft, have driven people to plow money into stocks and disregard their prices.
“Charlie and I consider it the most interesting movie by far we’ve ever seen, in terms of economics,” Buffett said.
Munger added that it’s clear more money can be pumped into the economy without major problems than anybody thought, but it can’t go on forever.
Buffett commented on special-purpose acquisition companies, saying the tidal wave of SPACs “is a killer.” He pointed out that there’s always been pressure from private equity companies, and the SPAC boom has worsened the competition to buy businesses.
“You stick a famous name on it and you can sell almost anything,” he said about SPACs, describing them as an “exaggerated version” of what he’s seen in “gambling-type markets.”
Buffett bemoaned broader market speculation and warned investors of the consequences.
“We’ve got the greatest markets that the world could ever imagine. We have this incredible, huge asset to humanity, but it really makes its money when people are doing stupid things,” Buffett said. He highlighted the surge in people day trading, buying and selling options, and gambling on stocks.
“More people are entering the casino than are leaving every day,” he said. “It creates its own reality for a while, and nobody tells you when the clock’s gonna strike 12 and it all turns to pumpkins and mice.”
“This is about as extreme as we’ve seen it,” Buffett said.
“To some extent it’s a moral failing,” Munger said. “The easy money made by things like SPACs and derivatives and so on — you push that to excess, it causes horrible problems for the civilization.”
“We have a lot to be ashamed of with the current conditions,” Munger said. “It’s not just stupid, it’s shameful.”
Buffett said that amateur investors gambling isn’t shameful. Munger agreed that the professionals taking advantage of them are the problem.
Looking for bargains
“We’re used to shooting fish in a barrel but that’s gotten harder,” Munger said.
Buffett said that Berkshire has 10% to 15% more of its assets in cash than he would like, downplaying the need to deploy more of his company’s war chest.
The investor said that his company has $70 billion to $80 billion that “he would love to put to work,” but it’s difficult to use it shrewdly at current valuations.
Buffett declined to reveal which stocks he’s bought that he doesn’t have special insights into.
Munger said that critics of stock buybacks are “bonkers” if they’re against repurchases done right.
Asked about President Biden’s tax proposals, Buffett said that he doesn’t leave his politics at the door, but he refrains from speaking on behalf of Berkshire. He added that he’s not at all concerned about higher taxes.
Munger slammed critics of capitalism, saying that a capitalist economy has been key to American prosperity. “I’m a little wary of just constantly being mad at people because they have a little more money.”
Buffett’s right-hand man added that he believes it’s “stupid” for states to drive out rich people and lose out on their tax contributions.
“This isn’t the worst case, and yet what has happened is staggering,” Buffett said. He described the pandemic fallout as “one of the great human catastrophes of all time.”
“I will continue making mistakes,” Buffett said. Munger chimed in that the rest of the team will help on that front.
Buffett pointed out that Berkshire has evolved with the times, and its outdated and failed businesses have faded into the background over time.
Buffett cheekily dodged a question about whether he still sees cryptocurrencies as “worthless, digital gold.”
“We’ve probably got hundreds of thousands of people watching this that own bitcoin, and we’ve got two people short,” Buffett said. Angering the former group to make a couple of people happy wouldn’t be worth it, he added.
“Of course I hate the bitcoin success,” Munger said. “I don’t welcome a currency that’s so useful to kidnappers and extortionists, nor do I like just shuffling out a few extra billions and billions of dollars to somebody who just invented a new financial product out of thin air.
“The whole damn development is disgusting and contrary to the interests of civilization,” Munger added.
Insuring Musk’s mission to Mars
“No thank you, I pass,” Jain replied. Buffett said it would depend on the premium, and the rate would also depend on whether Musk was on board or not on board. “That’s called getting skin in the game.”
“In general I would be very concerned about writing an insurance policy where Elon Musk is on the other side,” Jain said.
“Tell Elon to call me and not Ajit,” Buffett quipped.
Buffett celebrated the capital-light business models of Apple, Microsoft, Alphabet, See’s Candies, and other companies.
“They’re the best businesses but they command the best prices too,” Buffett said. “We’re looking for them all the time.”
“That’s what capitalism is about — people getting a return on capital,” he added.
Ted Weschler and Todd Combs
“They’re both absolutely terrific. That’s one reason I don’t want people quizzing them on stocks,” Buffett joked about his two portfolio managers. “They are assets of Berkshire. There’s no reason for them to be out educating people on how to compete with us.”
Buffett added that Merck and Pfizer aren’t expected to reveal publicly what they’re working on, and it’s the same case with Weschler and Combs.
Munger on China
Munger — who spearheaded Berkshire’s bet on Chinese electric-vehicle company BYD, and likely bought Alibaba shares for Daily Journal, a newspaper company he chairs — said that he expects the Chinese government will allow corporations to flourish in the coming years.
Buffett said the venture didn’t make significant inroads into transforming corporate healthcare costs. His team “learned a lot about the difficulty of changing around an industry that’s 17% of GDP.”
He added that Berkshire’s bosses learned more about healthcare in their company than Amazon and JPMorgan learned about theirs, and likely realized more cost savings than its partners, as Buffett’s company is far more decentralized.
Is Berkshire at risk of becoming too large and complex?
Buffett said that Berkshire owns businesses that he’s never visited, and he imply trusts his managers will run their businesses well.
“It’s become a very significant part of the casino group that has joined the stock market in the last year, year and a half,” Buffett said about the popular trading app.
“12% or 13% of their casino participants are dealing in puts and calls,” Buffett said. “They’re gambling on the price of Apple over the next seven days. There’s nothing illegal about it, there’s nothing immoral, but I don’t think you build a society around people doing it.”
Buffett criticized trading apps for taking advantage of people’s gambling instincts, offering them free trades, and selling their order flow. “I hope we don’t have more of it,” he said.
“It’s just godawful that something like that would draw investment from civilized man and decent citizens,” Munger said. “It’s deeply wrong.”
Munger bemoaned that it’s becoming respectable to encourage people to day trade or buy lottery tickets. “The states are just as bad as Robinhood,” he said, saying they replaced the Mafia in running the “numbers game.” Buffett described the states as “taxing hope” when they charge people to play a lottery.
Buying and holding forever
“Our businesses are equities,” Buffett said. “We don’t turn them over at all, we don’t resell businesses. We don’t do it.”
Munger teased Buffett that he’s tweaked Berkshire’s stock portfolio too much, and the Berkshire chief agreed.
Buffett joked that the biggest thing he learned was to listen to Munger more. Munger said that humanity remains in uncharted territory.
The meeting has now concluded. Thanks for following along!