The Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial) Annual Meeting is aptly known as Woodstock for Capitalists. Every year, ~20,000 investors descend on Nebraska to see the great Oracle of Omaha speak and share his wisdom on investing and life. The annual meeting for 2023 just concluced this past weekend, and the Q&A session with Warren Buffett (Trades, Portfolio) and Charlie Munger (Trades, Portfolio) lasted multiple hours, with the two answering various questions from the audience.
Buffett and Munger are widely regarded as two of the greatest investors of all time and some of the wisest people on the planet. Despite being 92 and 99 years old, respectively, the two still make time to sit and answer questions on a range of topics, which is incredible.
Here are my notes from the Q&A session on some of the key questions and answers discussed; let’s dive in.
Artificial intelligence and investing
In his typical deadpan style, when asked about artificial intelligence (AI) and investing, Munger states he is personally skeptical of some of the hype that has gone into AI, as “old-fashioned intelligence works pretty well."
In reference to AI, Buffett states “It can do amazing things” and mentions the time Bill Gates (Trades, Portfolio) showcased Open AI’s GPT to him. Buffett also mentions a quote by Albert Einstein after the atomic bomb was created. “It can change everything in the world, except how men think." Buffett believes the same can be true for AI.
Buffett was also asked if AI and technology will impact the ability to generate future investment returns. Zooming out on this topic, Buffett discusses the evolving technology from when he was born in the 1930s, from improvements in electricity to aeroplanes, the internet and much more.
“New things coming along don’t take away the opportunities, it's people doing dumb things," Buffett said. Buffett believes that the world is “overwhelmingly short-term focused." An example he gave is most Wall Street analysts and management on earnings calls are always trying to estimate/beat earnings, etc.
Referring to Apple (AAPL, Financial), the largest stock in Berkshire's 13F equity portfolio as of the end of the fourth quarter of 2022, Buffett admits he doesn’t understand the phone, but “understands consumer behavior." The key to investing is to “keep learning” and understand how businesses can “maintain their competitive advantage over time." It looks as though AI will not change that.
However, Buffett does caution about hype and states, “the big money is in selling people ideas, it isn’t outperforming," which is something to be aware of as value investors.
Investors should be aware that 13F reports do not provide a complete picture of a guru’s holdings. They include only a snapshot of long equity positions in U.S.-listed stocks and American depository receipts as of the quarter’s end. They do not include short positions, non-ADR international holdings or other types of securities. However, even this limited filing can provide valuable information.
Buying and then selling Taiwan Semiconductor
Berkshire Hathaway purchased shares of Taiwan Semiconductor Manufacturing (TSM, Financial) in the third quarter of 2022. However, the conglomerate then turned around and sold 86% of the position in the very next quarters. Thus, it's no surprise that questions about this came up at the annual meeting.
Buffett has briefly discussed this topic in previous interviews, but this time, he straight up admits he “doesn’t like the location” and sold due to “geopolitical concerns." He specifically referenced the tensions between Mainland China and Taiwan. He said he would rather have the “same company” with its competitive position in the United States (though of course, such a company does not exist at the moment).
Buffett’s secret to success
When asked about his secret to success, Buffett jokes that when he was younger, his friends were turning Playboy and he was turning Moody’s (MCO, Financial), in reference to the Moody’s stock manual which was often thousands of pages thick.
This consistency and persistence has enabled his knowledge to compound over time, and his ability to spot opportunities has become very powerful.
“We don’t get smarter over time, but we do get wiser," said Buffett.
“We are not so smart, but we know the edge of our intelligence," Munger chimed in.
"The Intelligent Investor” by Benjamin Graham changed Buffett’s life and has enjoyed a “sustained position” in terms of sales for decades. Buffett learned a lot from Graham in terms of his “intellectual honesty” and his “prepared mind.” Despite being a deep value investor, Munger reveals a little-known fact that “over half” of Graham wealth was made from buying one “growth stock” or “wonderful company," and that was Geico, which would later become a Berkshire subsidiary.
“Try to think things through and not do too many stupid things… and before you know it you have a lollapalooza," said Buffett.
Investing and emotions
Warren Buffett (Trades, Portfolio) states “you want to be a no-emotion person when making investment and business decisions”. However, he does caveat this by revealing it's okay to be an emotional person in other parts of your life.
Buffett admits to making an “emotional decision” with certain managers who have been with them for many years.
Portfolio concentration
Warren Buffett (Trades, Portfolio) is criticized in a question as estimates indicate Apple stock makes up ~35%-39% of Berkshire’s portfolio’s value. This is seen as a “danger zone” risk by the questioner.
Warren Buffett (Trades, Portfolio) responds by highlighting that Berkshire owns “many businesses” from energy to railroads. But the company can’t own “more than 100%” of See’s Candy or BNSF. However, the percentage of Apple shares owned can “go up” from around ~5.6% to 6%, as Apple buys back its stock.
Apple has a strong “position with consumers” where they pay “$1,500 for a phone” and “$35,000 for a second car”, but would rather give up “their car than their phone”, according to Buffett.
Charlie Munger (Trades, Portfolio) believes “vast diversification” is in fact “Deworsification”.
Munger would rather have more of his capital in his “three best ideas” than the others.
Chinese internet companies
Munger admits there has been some “tension” in the economic relations between the U.S. and China. He believes the U.S. should “get along with China” and have “lots of free trade”.
Everything which increases the tension is “stupid, stupid, stupid”, according to Munger. Warren Buffett (Trades, Portfolio) compares this to the tension to the U.S. and the Soviet Union, which resulted in a close call with the Cuban Missile Crisis.
Buffett believes it’s “imperative” that both China and the U.S., “understand what the game is” and how high the stakes are.
The railroad busines
Berkshire Hathawayacquired Burlington Northern Santa Fe (BNSF) in February 2010 for $44 billion. Prior to this acquisition, Berkshire Hathaway already owned about 22% of the company’s shares.
The BNSF Railway Company has 22,000 miles of track and is an essential part of U.S. infrastructure.
Back in an interview with CNBC in February 2010, Buffett stated;
“The beauty of railroads is that once you've laid the track and built the infrastructure, the incremental cost of moving goods is very low".
Despite this being a wonderful business it does have challenges and at the Berkshire Hathaway annual meeting in 2023, a “train derailment” was brought up.
On March 30th 2023, a train riding on the BNSF railroad derailed in Southwest Wisconsin. This included 22 cars, which were carrying ethanol, corn syrup, oxygen tanks, and Lithium-ion batteries.
Buffett’s response was to zoom out and remember that the railway infrastructure was built “along time ago”.
They carry “heavy freight” from “100’F to 0’F” and accidents will happen. A positive is the number of derailments in the industry was only 1,173 in 2023, down from 8,000 back in 1977.
The banking crisis
“Fear is contagious” with regards to the Banking system and “bank runs” which has occurred historically and more recently after the Silicon Valley banking crisis.
Buffett believes the “messaging has been poor, by the politicians, the banks, etc”. Due to the FDIC limit of $250,000, Buffett has made a “one million bet” that people won’t lose money deposits.
Berkshire has $128 billion in cash and treasury bills which a sizeable amount.
With regards to the Federal Reserve balance sheet, Buffett states “cash is not trash”, due to the sheer amount of $100 bills in circulation, which is over $2 trillion dollars.
What challenges does America face?
The U.S. is a relatively “young country” formed in 1776. Buffett states the United States is a “better place to live” than when he was born, in 1930. However, Buffett believes the “problem” the U.S faces is that “partisan has turned into tribalism” which means “democracy needs to be redefined”.
“It's an exciting world…its a challenging world”. - Warren Buffett (Trades, Portfolio) (2023)
Munger states:
“The best road ahead to human happiness is to expect less”
Munger criticized the number of “smart people” who are going into “wealth management”. Charlie believes this may impact the future success of the United States.
Personal keys to success
On a personal level “spending a little less than you earn” helps with success, as opposed to “spending more than you earn” and taking on debt.
Buffett has never known anybody who was “kind” who died without friends. However, he has seen plenty of “rich people” who died with friends.
Charlie Munger (Trades, Portfolio) states its best to “invest shrewdly, avoid toxic people and toxic activities”. In addition, its best to do alot of “deferred gratification” and to “keep learning”.
“Take care of each day's responsibilities pretty well and think ahead as best you can, then take the results as they fall” - Charlie Munger (Trades, Portfolio) 2023.
