- The Berkshire Hathaway annual meeting took place today in Omaha. It was live streamed beginning at 4:45 PM Eastern.
- Warren Buffett and Greg Abel took the stage, with Charlie Munger and Ajit Jain not present.
- I present three key themes that came out of the four and a half hour discourse.
The Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) annual meeting took place today in Omaha. It was live-streamed, as it has been in recent years, but this time without the on-site fanfare that usually accompanies it. Typically billed as the Woodstock of Capitalism, the event this year seems to have had only ten to fifteen present in the flesh — this in comparison to the event I attended last year which was estimated to have had ~42,000 in Omaha for the festivities.
One of the key differences this year was that Warren Buffett was on stage with Greg Abel, not his partner-of-sixty-years, Charlie Munger. The hope for all shareholders — I hope I can speak for all of us — was that we would for the first time get to see Buffett, Munger, Abel, and insurance-manager Ajit Jain on stage at the same time this year for the Q&A. Instead, we got half of the equation (and perhaps not the half we might have expected). Succession planning on the whole has been one of the hottest topics at Berkshire Hathaway, as I noted when I covered Buffett’s 2019 Letter to Shareholders back in February.
The event began around 4:45 PM Eastern and ran to 9:15 PM, covering plenty of ground over the four and a half hour span. Amid the copious notes that I took and will continue to chew on over the next few days, I will share the three key points that stood out to me.
Key Takeaway No. 1
As he has in years past, Buffett opened the event with general remarks pertaining to the economy and, in this case, a full blown history lesson from America’s birth to the present day. He noted that the combined lifespans of he, Munger, and Abel exceed the total span of time that the U.S. has existed — its 231 years amount to it being, still, a youthful enterprise.
Over that span of time, the growth has been unprecedented and beyond anything that might be expected. Still, the growth has not been in a linear fashion. Buffett highlighted the Civil War which came about when the U.S. was still less than 75 years of age and which was a time when around 6% of the population of males between the ages 18 and 60 were killed. In today’s terms, he noted that this would be the equivalent of four million deaths, were the COVID-19 pandemic to hit as hard in relative terms — something that at this point it is nowhere even close to doing.
Skipping to the Great Depression of the 1930s, Buffett noted that it was twenty years hence when the Dow Jones Industrial Average once more reached its Depression-era peak. Those who came through the ‘30s were so psychologically impacted by that downturn that even then, decades later, they were concerned that the market wouldn’t be able to sustain the gains it had achieved (regained).
The point of the history lesson was to drive home the message that despite the incredible turbulence along the way, Americans have succeeded as a people and managed success that would have been entirely unpredictable from the foundation of the nation and certainly from any of the many challenges along the way. In other words, the pandemic we are now facing will be conquered, though the path through it in the current day remains unclear. Buffett both opened and closed his discourse today with his favorite, simple message: Never Bet Against America.
Key Takeaway No. 2
In a move he does not normally make, Buffett provided a slide to indicate the moves BRK has been making in the markets since the end of the last quarter in March. In that slide, he indicates that BRK sold ~$6.5B worth of equity securities, encompassing the company’s entire stake in four major airlines — America Airlines Group Inc. (AAL), United Airlines Holdings, Inc. (UAL), Delta Air Lines, Inc. (DAL), and Southwest Airlines Co. (LUV).
He said that he felt this move required explanation. Quite simply, he said that he had made a mistake and that the prices in the market in April offered a reasonable opportunity to get out without further undue harm. Although he still believes the companies have been well managed and that they did many things right, he fundamentally believes that the game has changed as a result of this pandemic. With the companies each needing to borrow $10B-$12B, this will take away from the upside, notwithstanding the fact that consumers may not fly as many passenger miles as they have in the past once the pandemic shakes out.
Although it was a low probability event that has taken hold which was based on no fault of the airlines themselves, the world has nevertheless changed and there may be no going back to business as usual.
One thing Buffett made clear is that this move is not a general remark on his sentiment about the stock market in general. This was the very specific liquidation of a large position which, in hindsight, was simply a mistake.
The significance both of this move and Buffett’s pointed remarks on the topic, for me, is that he remains willing both to make large moves (i.e., close to $10B invested in the airlines) and to still admit when he has made an error, own up to the situation if his mind has been changed based on changing facts, and then move decisively. For someone who claims to be an old dog who struggles to learn new tricks, Buffett remains tirelessly devoted to doing what he believes is right for shareholders, no matter how that might make him look. He will not doggedly remain fixed on a course of action if he sees the situation materially change.
Key Takeaway No. 3
There was a question from a viewer who asked why BRK has not acted as a lender of last resort through this crisis. Buffett’s response was that they simply have not seen anything attractive, particularly in the context that he believes the Federal Reserve has acted responsibly through this period which has provided the necessary support to markets along the way. This has created less opportunity for BRK to swoop in as it has in the past to opportunistically make deals.
Further, BRK was not buying back its own stock at deeply discounted prices (i.e., 30% from peak) when those occasions availed themselves. On several occasions through tonight’s live stream, Buffett appeared to suggest that BRK is still preparing itself for a further downturn and that although it may be possible to buy back stock at a lower price, this must always be balanced against the option value of money. Although he wasn’t present for this year’s discussion, I could hear Munger in my mind, hammering home the point that there is an opportunity cost to any course of action.
Taking these two concepts together, I am left with the impression that BRK hasn’t deployed its ~$130B in cash and equivalents yet simply because the price hasn’t yet quite been right. All things equal, Buffett and company would much rather be acquiring other businesses than simply buying back their own stock because it has declined, particularly in the context of a global shutdown unlike any we have ever seen before.
When you consider the BRK methodology of always having cash on hand when the time is right, sinking capital into stock buybacks — just when it might be needed for a proverbial elephant that they’re always hunting — simply wouldn’t fit the pattern. Buying back stock is something they might do under normal conditions. BRK is now, rather, awaiting better opportunities as this black swan event of a lifetime progresses.
Though Buffett appeared to start slowly, he picked up steam as the stream progressed and ultimately answered any questions there might have been around his longevity. He remained as sharp as ever in both providing his assessment of America’s business prospects and for BRK itself.
We were treated to hearing from Abel directly, on stage for the first time at the BRK shareholder meeting. I was entirely pleased with his performance. He naturally ceded the limelight to Buffett, though he provided many poignant, thoughtful answers regarding the overall business prospects of BRK and the operating businesses under his purview.
This was an encouraging shareholder meeting. Despite the changed format, I now walk away with the belief that BRK currently remains in good hands with Buffett and Munger at the helm still, and Abel and Jain to follow.
This article was written by
Analyst’s Disclosure: I am/we are long BRK.B. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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