Warren Buffett (Trades, Portfolio), the legendary investor and CEO of Berkshire Hathaway Inc. (BRK.A, Financial) (BRK.B, Financial), is widely regarded as one of the greatest investors of all time. Each year, the company's annual shareholder meeting attracts investors and business enthusiasts from around the world who eager to hear Buffett's insights on the economy, investing and his company's operations.
This year's meeting was no exception. From discussions on diversification and value investing to Buffett's thoughts on the U.S. banking system, the meeting was packed with valuable insights for investors. This discussion will dive deeper into some key topics covered at the 2023 meeting.
Diversification and value investing
At the meeting, Buffett and Charlie Munger (Trades, Portfolio) took center stage to discuss their views on diversification and value investing. Acknowledging the intensifying competition among money managers, Munger urged investors to brace themselves for lower returns, a sentiment Buffett countered with a powerful truth: smart investors can capitalize on the missteps of their peers.
While many believe holding a wide array of stocks is the key to a successful investment portfolio, Buffett warned that too much diversification could hurt investors in the long run. In his characteristic style, he compared stocks to children, advising investors to avoid taking on more than they can handle.
Buffett spoke passionately about the importance of carefully selecting a handful of high-quality investment opportunities as a benchmark of value investing rather than chasing after every stock in sight. He urged investors to trust their best ideas, ignoring conventional wisdom or expert advice. Of course, as with any investment strategy, there are risks. Buffett cautioned that investors must be able to discern their strengths and weaknesses to avoid costly mistakes.
Despite the challenges facing the investment landscape today, Buffett and Munger remained confident in their ability to spot good opportunities, citing their decades-long track record. They reminded investors of the importance of practical intelligence and the need to avoid blindly following experts who may lead them astray. After all, when it comes to investing, sometimes less is more, and "diworsification" is a risk that no savvy investor can afford to take.
U.S. banks and the dollar
Buffett also turned his attention to the U.S. banking system and the state of the U.S. dollar. While acknowledging that the banking system may face challenges in the years ahead, he emphasized that depositors' money is safe thanks to government protections, which should help maintain economic stability. In addition, despite holding only a few bank stocks, Buffett expressed confidence in Bank of America Corp. (BAC, Financial) and indicated his intention to keep the stock for the foreseeable future.
However, his cautionary tone about the turbulent banking industry did little to stem the renewed interest in regional bank stocks, which rebounded strongly after a rough patch. Even so, Berkshire Hathaway remains wary of making significant investments in banks, citing a lack of understanding among the American public and lawmakers alike about the current state of affairs.
On the topic of the U.S. dollar, Buffett shared his belief in its status as the world's reserve currency, cautioning against overuse that could lead to a loss of faith in it. He emphasized that while cash is not trash, the Federal Reserve's balance sheet shows the extent to which $100 bills have become widely dispersed. In contrast to banking, he highlighted the insurance business' unique advantage of producing float that can be invested until claims are made.
Looking ahead, the Oracle of Omaha expressed concern for the future of commercial real estate in light of the sector's reliance on non-recourse borrowing, particularly with rising interest rates and stricter credit practices.
Source: nextbigfuture.com
Berkshire's operating performance
Berkshire Hathaway's operations continue to thrive, with 12.6% year-over-year growth in earnings from its operating businesses, primarily driven by its insurance segment. Although Buffett predicts lower earnings for most of Berkshire's businesses in 2023, he believes the company's operating earnings will still surpass last year's performance with a boost from its insurance business. In addition, the company's cash reserve has increased to $130.6 billion as Buffett noted it was difficult to find worthwhile investment opportunities, stating his preference for private companies.
Source: First-quarter 2023 earnings
Berkshire was active in share buybacks during the first quarter, spending around $4.4 billion on repurchases. Despite the challenges in finding good investments, Buffett hinted at the possibility of significant share buybacks if the stock becomes undervalued and noted that Berkshire would consider substantial acquisitions if the opportunity arises.
He also provided guidance on the company's performance, indicating higher yields should lead to higher investment income in 2023. While the company faces challenges in finding suitable investments, its insurance segment continues to drive growth. As a result, the company remains cautious but optimistic about its future performance.
Portfolio management
The company's equity portfolio was also of great interest. Despite rumors of Berkshire's possible acquisition of Occidental Petroleum Corp. (OXY), Buffett clarified the conglomerate has no intention of buying control of the energy giant but may consider purchasing more shares. Further, while its 13F filing is not scheduled to be released until next week, Berkshire has disclosed it sold a significant portion of its Chevron (CVX) position while garnering $1.9 billion in net sales in banks, insurance and finance stocks.
Source: i.redd.it
Buffett also answered a shareholder's question about Apple (AAPL, Financial), noting the company is a "better business than any we own." He praised Apple as a special company and did not regard it as a tech stock but a consumer stock with a powerful and long-lasting competitive edge.
Skeptical about AI
Buffett and Munger also voiced their opinions about artificial intelligence. Munger's view on the AI hype was skeptical, placing importance on "old-fashioned intelligence" in a world primarily driven by technology. Despite acknowledging the increasing presence of AI and robotics in our lives, Munger noted there is a gap between hype and reality.
Similarly, Buffett drew a comparison between the creation of AI and the atomic bomb, highlighting its immense power and the need for caution. He stressed the importance of effective management, long-term stockholding and prudent approaches to AI.
The guru also shared his thoughts on Microsoft's (MSFT, Financial) ChatGPT technology, finding it impressive but noting its inability to tell jokes. Despite the vast potential of AI to revolutionize the world, both Buffett and Munger underlined the importance of human thinking and behavior. They recognize the presence and influence of AI and robotics, but cautioned against overhyped and new technologies, emphasizing the value of traditional intelligence.
Conclusion
In conclusion, the 2023 Berkshire Hathaway meeting provided valuable insights into the investing landscape, U.S. banks and Berkshire's operations. Buffett and Munger's discussions on diversification and value investing were a good reminder that quality investments are better than quantity. Buffett's cautious tone regarding the U.S. banking system highlights the importance of safety for depositors' money, while his thoughts on commercial real estate provide an early warning to investors.
Finally, despite its struggles to find ideal investment opportunities, Berkshire Hathaway's thriving insurance business and operating performance offer investors reasons to remain optimistic about its future.
