What Did Buffett Just Say?

Omaha, Nebraska, isn’t a particularly popular travel destination, but in the days leading up to Berkshire Hathaway’s annual shareholder meeting on May 6th, every flight to Omaha was packed. Thousands made the trip to hear Warren Buffett’s insight on the company and the economy as a whole.

May 2023 marked Buffett’s 59th time hosting Berkshire Hathaway shareholders in an event he calls “Woodstock for capitalists.” Though Buffett is rapidly approaching his 93rd birthday and Vice Chairman Charlie Munger is already 99, the two didn’t lack for stamina. They spent the whole day on-stage, which included five hours of Q&A from meeting attendees.

The pair were joined by Chairman and CEO of Berkshire Hathaway Energy/Vice-Chairman of Non-Insurance Operations Greg Abel and Vice Chairman of Insurance Operations Ajit Jain. Both are long-term senior Berkshire Hathaway leaders who have been named in Warren Buffett’s succession plan.

Throughout the interactive discussion, Buffett and Munger shared their perspectives on everything from Berkshire Hathaway’s inner workings to the state of the economy and the potential impact of recent bank failures. The biggest concern on everyone’s mind was clearly recession. Will there be a recession? Has the country avoided a significant market downturn? Will bank failures prompt another global financial crisis?

This is what Warren Buffett had to say.

Does Warren Buffett Think There Will Be A Recession?

It’s been a tumultuous few years for the economy. From COVID lockdowns and record inflation to crypto collapses and bank failures, there are enough catastrophes to keep investors up at night. It’s no surprise that they wanted Warren Buffett’s insight on whether a recession is coming. Buffett’s answer? Absolutely, yes. When? He doesn’t like to speculate.

Buffett knows recessions are a standard part of the economic cycle, and he plans accordingly. He doesn’t worry about whether a recession is looming this year, next year, or five years from now. In his February 2023 Letter to Shareholders, he said:

Our job is to manage Berkshire’s operations and finances in a manner that will achieve an acceptable result over time and that will preserve the company’s unmatched staying power when financial panics or severe worldwide recessions occur.

Buffett has never invested based on short-term forecasts, whether the predictions relate to a specific stock or to the economy as a whole. Every asset he buys is positioned for long-term success, and he ensures that each has the financial stability and leadership expertise to navigate the ups and downs that are inevitable as the market moves through its cycle.

How Does Buffett Prepare For a Recession?

At the most recent shareholders’ meeting, Buffett sidestepped direct questions on the prospect of a recession with a response that reflects the investment strategy he has used for decades.

Specifically, he ensures that his businesses are “ready for anything that happens.” That involves keeping cash on hand, “so that people are going to keep making intelligent decisions rather than those forced upon them.”

In other words, Warren Buffett takes recessions in stride whenever they come, because he knows they will come at some point. His own investment strategy and that of Berkshire Hathaway takes that fact into account with every decision. Buffett said, “We just want to buy good businesses run by people we like and trust and at a decent price. And we’ll keep doing that.”

With that said, Buffett did have some opinions on current economic conditions. Most notably, he had harsh words for the lawmakers that have influence over key economic decisions. For example, he suggested that Americans are worried about their deposits because the government is doing a poor job communicating how deposit guarantees work.

Charlie Munger didn’t pull any punches either. Munger said in no uncertain terms that he considers both the United States and China “stupid, stupid, stupid,” for creating and sustaining the economic tensions that are preventing mutually-beneficial trade partnerships.

Is Berkshire Hathaway Still A Buy?

Aside from offering his perspective on current economic conditions, Warren Buffett used the shareholder meeting to provide an update on key areas of Berkshire Hathaway’s business. One item that caught investors’ attention was news of Geico, one of the company’s wholly owned subsidiaries.

Outside of Berkshire Hathaway, Geico insurance is best known for its mascot – the gecko with the British accent. Inside of Berkshire Hathaway, Geico is known as one of the more challenging businesses owned by the conglomerate. It has been struggling to return a profit, but Vice Chairman Jain said he expects that to turn around in 2023.

Buffett and Munger also discussed the risks associated with Berkshire Hathaway’s stock portfolio. Specifically, shareholders inquired about Berkshire’s largest holdings such as Apple stock, which makes up more than 40 percent of the total portfolio. Buffett shared his passion for Apple, indicating he believes it to be “a better business than any owned by Berkshire Hathaway.”

Most financial advisors don’t recommend with putting so much faith in a single stock, but Buffett assured shareholders that he is comfortable with the risk. Buffett has never been one to worry about diversifying his portfolio. In one memorable Warren Buffett quote, he said, “Diversification is protection against ignorance. It makes little sense if you know what you are doing.”

Will Berkshire Buy Occidental Petroleum?

The discussion of Berkshire Hathaway’s current holdings and future plans offered Buffett an opportunity to put speculation to rest regarding Occidental Petroleum.

Shareholders, analysts, and financial news media have noticed Berkshire Hathaway’s increased stake in Occidental Petroleum. Rumors that Buffett planned to take full control of the energy company have run rampant since Berkshire Hathaway’s most recent SEC filing, but on-stage during the meeting, Buffett was clear. He does not have plans for an Occidental Petroleum takeover.

Overall, the shareholder meeting demonstrated that Warren Buffett and his highly-skilled leadership team are well-aware of the risks and challenges facing their business, and they are fully prepared to meet them. Buffett has managed Berkshire Hathaway since 1965. He has weathered all sorts of market conditions, including the global financial crisis of 2008 – 2009 and the dramatic 2020 market crash.

In that time, Berkshire Hathaway stock has gone up more than 50,000 percent, and the average annual rate of return is more than twice that of the S&P 500. Investors can rest assured that recession or no recession, Berkshire Hathaway stock is still a buy.

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