On Saturday, May 1, Warren Buffett held the annual Berkshire Hathaway shareholder meeting. The event is typically held in Buffett’s hometown of Omaha with thousands of investors in attendance. Last year, Buffett stood alone on-stage to present. The pandemic, still in its early stages, made a large in-person gathering impossible.
This year, Buffett shared the stage with Vice Chairman Charlie Munger, and the event took place in Los Angeles. Thousands of investors had the opportunity to participate virtually – some for the very first time.
Any discussion that includes Buffett’s thoughts on market conditions is well-attended, and the Berkshire Hathaway annual shareholders’ meeting is enthusiastically anticipated each year. Buffett is a dynamic speaker, and his analysis of where we have been and where we are going is some of the most insightful in the business.
This year, Warren Buffett’s shareholder meeting was particularly noteworthy as he touched on the shocking highs and lows of 2020, then moved into an examination of 2021 trends. Seven of the topics covered were especially interesting to investors, analysts, and other movers and shakers in the financial world.
The U.S. Government Has Massive Unrealized Assets
The COVID pandemic has cost the world trillions, both in terms of the direct costs associated with protecting lives as well as the indirect costs of lost productivity due to shuttered businesses and a sickened workforce.
In 2021 alone, the US borrowed $3 trillion to provide COVID relief to people, businesses, educational institutions, and an exhausted healthcare system. Compare that to the funds borrowed in 2009 at the height of the global financial crisis. The total for that relief package came to $1.9 trillion – a figure that shocked everyone.
However, during Warren Buffett’s shareholder meeting, he made it clear that the anxiety around this new package of unfunded liabilities is likely overstated. He pointed out that the country has extensive unrealized assets that – if fully leveraged – could offset the size of this debt.
For example, the U.S. government could set up a corporation based on the tax receipts it receives from Berkshire Hathaway. Imagine the US government received $1 billion in tax payments from Berkshire annually (to keep numbers simple). That company could trade at a $20 billion valuation with relative ease. After all, the operating costs would be quite low.
The government controls the tax rate applied to Berkshire Hathaway and other corporations. If it set up a corporation that was valued based on the tax receipts of all companies, it would realize trillions in assets that are not currently measured on the nation’s balance sheet.
Betting Against Elon Musk Has A Price
It’s no surprise that Elon Musk’s name was mentioned during Warren Buffett’s shareholder meeting. After all, Tesla was one of 2020’s most lucrative stocks.
A shareholder inquired whether Berkshire Hathaway (BRK.B) would consider insuring a SpaceX mission to and subsequent colonization of Mars. Vice Chairman of Insurance Operations Ajit Jain was quick to answer:
This is an easy one. No, thank you, I’ll pass.
Later in the conversation, he went on to say:
In general, I would be very concerned about writing an insurance policy where Elon Musk is on the other side.
In a moment of levity, Buffett chimed in with this:
Well, I would say it would depend on the premium. And I would say that I would probably have a somewhat different rate if Elon was on board or not on board.
Still No Love for Bitcoin
Shareholders were predictably interested in Warren Buffett’s thoughts on Bitcoin. After all, this is the man who likened the cryptocurrency to rat poison. Buffett elected to dodge the question – presumably to avoid a passionate debate from proponents of the cryptocurrency.
Indeed he stated if the vast majority of viewers were proponents then the risk reward of upsetting the majority in favor of pleasing the few skeptics was not a smart tradeoff.
Charlie Munger had no such restraint. He was clear and unflinching in his response:
I hate the Bitcoin success. The whole damn development is disgusting and contrary to the interest of civilization.
It seems that Munger’s opposition boils down to the fact that Bitcoin is an “imaginary” currency that someone created to compete with the US dollar. Munger considers this in stark contrast to entrepreneurs who create and sell products that benefit humanity. He also expressed concern about bitcoin being used for nefarious reasons.
Apple Is A Better Business Than Berkshire
Certainly, Warren Buffett has made some investing errors in the decades since he took the leadership position at Berkshire Hathaway. However, for the most part, he has had the world convinced that he is all-knowing.
It was mildly comforting to learn that the Oracle of Omaha is human after all. Buffett pointed out two errors in his strategy over the past year.
During Warren Buffett’s shareholder meeting, he mentioned that Apple is a better business than Berkshire Hathaway in that it has much lower capital requirements. Buffett admitted that it was likely a mistake to sell some of Berkshire Hathaway’s shares of Apple in the last year.
Precision Castparts Purchase Price Was A Mistake
The second error Buffett discussed during the Berkshire Hathaway shareholder meeting was the acquisition of Precision Castparts. Specifically, he said that it has become clear he overpaid for this acquisition.
The good news is that Berkshire Hathaway is a massive conglomerate, and Precision Castparts barely registers in proportion to the company as a whole.
This single bad business is such a small percentage of Berkshire Hathaway that the mistake doesn’t have much of an impact.
Buying The Low Is Impossible When…
Some bold investors made fortunes during the March 2020 market crash and subsequent economic recovery. They bought valuable assets at or close to their lowest prices, then enjoyed the rapid rise to pre-pandemic levels.
During Warren Buffett’s shareholder meeting, some investors were curious as to why Buffett missed the 2020 low. Charlie Munger responded by asserting that in a company of Berkshire Hathaway’s size, it’s simply not possible to buy the low.
He explained that managing millions of dollars is one thing. Perhaps buying the market bottom is a reasonable goal. However, the market simply doesn’t have the liquidity necessary to put billions to work in a very short time period.
Berkshire Hathaway: #1 Company In The U.S.
Every shareholder meeting in every company in the world probably includes mention of the company’s #1 position. Of course, for most, #1 might be in “passion” or “potential”. It’s not related to any business metrics. When Warren Buffett and his team say Berkshire Hathaway is the #1 company in the United States, he’s talking about numbers. By balance sheet, no company has more assets under its control.
Sure, Alphabet, Amazon, and Apple have higher valuations, but it’s not a one-to-one comparison. Tech companies are less capital intensive.
For example, Berkshire Hathaway owns a railroad that earns a margin, but there are high running costs and fixed costs to consider. In contrast, Google essentially realizes a 100 percent margin on every new ad click.
Berkshire Annual Meeting Lessons From 2020
As the Q&A period closed, one curious shareholder inquired what lessons Buffett and Munger learned over the extraordinary past year. Buffett knew exactly how to answer:
My biggest lesson has been to listen more to Charlie. He’s been right on some things that I’ve been wrong on.
From Munger’s perspective, the best that can be said of lessons from 2020 is that it was a year like no other. He pointed out:
If you’re not a little confused by what’s going on, you don’t understand it. We’re in sort of uncharted territory.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.