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Buffett Gives A Seminar On Risk, Cash, Debt, Discipline And The Future Of Berkshire

May 04, 2020 5:03 PM ETBerkshire Hathaway Inc. (BRK.A), BRK.BAAL, BA, DAL, LUV, UAL179 Comments
Jim Sloan profile picture
Jim Sloan


  • Buffett's Q&A at Berkshire's virtual annual meeting addressed risk, cash, debt, discipline and Berkshire's future.
  • Buffett explained that Berkshire's calculable risks were very manageable but that a large incalculable risk hung over the economy; he suggested that this required a larger cash set aside than previously.
  • Berkshire's cash set aside for emergencies has a message for ordinary investors: start with a bucket for cash you need to sustain your lifestyle for the foreseeable future.
  • Buffett explained his reasons for dumping the airlines in a way that should focus investors on the true risks for many industries.
  • In February, the world changed to a degree which may not have been fully recognized; Buffett showed that he is in the process of learning and changing with it.

"In times of change learners inherit the earth while the learned find themselves beautifully equipped to deal with a world that no longer exists." - Eric Hoffer

Buffett has never been in better form than answering questions at Berkshire's (NYSE:BRK.A)(NYSE:BRK.B) virtual annual meeting on Saturday afternoon. He began with a civics lesson on America's growth into a richer, but also better, nation and detailed its long painful journey to realize the "aspirational" ideals of its founders. He also expressed the view that capitalism was the greatest vehicle for meeting human needs but required supervision, and that Schumpeter's "creative destruction" was necessary but greatly damaged many individuals who deserved some form of rescue.

Sitting an adequate social distance away Greg Abel, the overall manager of Berkshire's non-insurance businesses, commented with the brevity usually supplied by Charlie Munger but also fleshed out answers having to do with operational issues. His command of facts and strategy made him look like a suitable successor when the occasion arises. He will be among the upper 1% of all CEOs.

While answering call-in questions Buffett fully dealt with the inquiries bearing upon his "silence." He was silent during the crash and the rally that has followed because his best judgment was that the future path of the economy was unknowable. That being the case, he had also been silent in terms of actions taken except for the selling of his four airline positions. This sort of silence spoke volumes.

Measuring his words carefully, and declining to speculate on future scenarios, he nevertheless managed to give an outline of his views of the range of business problems presented by the virus and lockdown. In the process he provided a rare gift for his followers - a seminar on risk, cash, debt, discipline and the future of Berkshire Hathaway.

This article was written by

Jim Sloan profile picture
I am a retired professor, a retired investment adviser, and currently a private investor and full-time tennis pro. I bought my first stock in a custodial account in 1958. I am a student of history, particularly military and economic/market history. The intellectual passions of my retirement years have been markets, mathematics, and quantum theory. Recently I have found myself reading book after book on the thoughts and feelings of animals, and I believe they are subtly influencing some of my views. I have a cat I like a lot. I like to travel. I served in Vietnam.

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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (179)

Barry Dunaway profile picture

This is a very good, nuanced look at what Buffett said at the Berkshire Hathaway Annual Meeting.

For people who are disappointed that he didn’t buy stocks during the downturn, it’s worth considering that he isn’t in the position of the average individual investor.

Berkshire is so big that it’s extremely difficult to find stock investments that will make much of a contribution to results. Utilities and railroads can at least get him an average rate of return over time, which he considers a good result from where he sits.

Buffett hasn’t completely given up the possibility of beating the market, though. Part of the reason he held cash during the downturn, he hinted, was to be able to lend money to good companies that were on the verge of being shut out of the capital markets.

The Federal Reserve was able to provide liquidity to prevent a credit freeze, so the opportunity to lend huge amounts of money at high rates didn’t occur. Buffett also said he had been too early when doing such deals during the financial crisis of 2008-09, and that he could have gotten even better terms had he waited.

You can find some other points the media missed in this post I wrote:
Barry, I read your post. Most interesting and informative. Thanks for providing the link.
Barry Dunaway profile picture
Thanks, Bruce!
Fuld Kronasson profile picture
Very true @Barry Dunaway Berkshire is so big that it’s extremely difficult to find stock investments. Best reason cited here yet for Buffett to break up his creaky, opaque conglomerate. That you for sharing.
User 8550221 profile picture
Mr Sloan,
Did you ever end up buying back or replacing the Emerging Market ETF’s that you wrote about and sold around 2 months ago?
I believe you wrote that your intention was to buy them back or replace them with similar ETF’s after 31 days.
Thanks for clarifying
Nice Article, the best Buffett/ Berkshire article I have read recently on this forum.
Though i did purchase some stocks during the dip, all through put options, I also missed buying some stocks at their lows when the puts expired. No other actions since Then.
Currently I feel that the smart money is waiting this out, there are too many unknowns.
Easily the best article on BRK on this platform after annual meeting. To me Mr. Buffet stands out in contrast to Mr. Cramer's histrionics (for which he gets very well paid). If you follow Mr. Cramer's recommendations, your net worth is likely to reduce and you will spend a lot of time tracking his ever changing mind. On the other hand Mr. Buffet stands out for his complete transparency, honesty and humility - he does not claim to know how the stock market or US economy is likely to behave after opening up. He appeared a little less crisp than usual in his delivery. Perhaps although he sees the likely economic downside if he has to take us to a disaster as far as back as the Civil War to find a suitable comparable marker, he can't spell it out!
Nice read. I'm glad I channeled my inner Buffett/Berkshire and have no debt and a healthy rainy day fund just in case my personal circumstances change. I obviously do NOT have the investing chops of a Buffett, but I always enjoy hearing his Q&A sessions.
@Jim Sloan
I read your article 3x. So, I have to give an additional comment with a question.

Do you think that the balance of power could shift from the US to China or Asia since Covid-19?

What I observe:

1. The social distancing is over in China and South Korea.
2. There has never been a lockdown or shutdown in South Korea.
3. People start consuming like hell in China and South Korea (If you noticed that the French luxury manufacturer Hermès made $ 2.65 mil. revenue in Wuhan ONE DAY!!).
4. My mom is in South Korea and told me that every department store is full and people are buying luxury goods like crazy.
5. South Koreans cannot travel internationally, but they do travel in Korea. Every domestic trip is fully booked. There is no possibility to book for a domestic trip anymore.
6. There is no excessive unemployment rate in China or South Korea in contrast to the USA or Europe.

When the US economy gets worse, China and South Korea will face a downturn for sure. However, China may try to take over the 1st position in the world.
Warren Buffett is bothered by the FED.
Even Warren Buffett cannot compete against the FED.

But we do not know anything about consequences with a lot of debts.
Printing money and stabilizing the stock market with higher real estate prices...

What´s the next? The FED thinks too short. The FED may rescue the current market situation, but sooner or later, the next generation will have a big problem.

Hey...I want to buy a house, but I cannot pay it because the FED "skyrocketed" the real estate price.

Rich people get richer and poor people get poorer.
Dusty profile picture
I remember Buffet saying, some years ago, that airlines were a great convenience but a terrible investment [as close to a quote as my memory can manage]. I was quite surprised when he began buying airlines, that he was violating his own best judgement. His reasons to buy them are certainly contained in pressures within Berkshire and by its shareholders. This current selling of those airlines, at whatever losses, appears to validate his earlier opinion.
I believe the message WB was sending was “batten down the hatches.” I have never heard him so pessimistic about the future.  

I agree with those who believe the virus is a 12M issue, however, the economic destruction will last 5 years. In some state’s, unemployment is already at 20% and as a nation we may get to 25% before we bottom. As the government stimulus money fades, consumers will save to protect themselves from job losses and the economy will move forward at a much lower run rate. We will re discover ‘stagflation’ as productivity collapses and prices rise for essential products/services for the next 1-2 years.  I hope I am wrong, but the bankruptcies, job losses and pay cuts, and increased cost of doing business continue to pile up.

Future generations will live a much lower standard of living because the current generation running the country has mortgaged the entire future for instant gratification. 

Unfortunately, WB can’t say any of this because he knows how much impact it would have on the markets. He is a statesman (and knows how it would impact his current investments)...but for those who have watched him over the years, he was definitely sending a message of warning and caution. When one of the most successful/capitalized investors talks survival...you know things are going to get worse. Unless you think he has lost it...Personally, I am with WB....Batten down the hatches!
mpmassey profile picture
Most stupid actions I have seen in my 40 years of adulthood. I would not have believed all levels of govt would respond to a virus this way. Basically slit our collective throat to save us from the virus. Cure definitely worse than the disease. i have to believe we will never do this again if for no other reason than it takes $ out of the hands of politicians.
William Darusmont profile picture
Cure worse than the disease??? Seriously?
Talk to first responders, stop listening to Dumpty!
Mpmassey, it is an absolute nationwide psychotic episode. Worst decision making ever based on the wrong data, and decisions that are now going to change life permanently and unnecessarily so. INFINITE capacity for not just economic losses but all of the other human losses we will incur because we have literally sacrificed the nation to this. Not to mention the entire architecture for a complete authorization control state is in place. What’s revolting is watching Americans lower their head for the leash so obediently and WITHOUT QUESTIONING THE DATA!

If you look at not just confirmed cases but all cases (based on recent antibody tests), it’s a death rate of 0.2%~0.5%. Not the higher numbers used to descend us into this insanity.
Thanks for this. Nice to see that Warren isn’t the only guy who thinks in a reasoned, non-judgmental fashion. All those people who say how dare he sell the airlines? are Monday morning quarterbacks who don’t understand football. Not you.
What a great article that provided me with new insights. Past disruptions were so easy to see coming, time, and profit from. As I've said over and over again, this time around I can't use the evidence in front of me to plot a course forward. I feel better knowing that I'm not the only one and also maybe to relax a bit and let events unfold until a direction becomes apparent.

This is the best piece I've read on this site since joining. Thank you.
Jim Sloan profile picture
Thanks so much.
Exile of the Mainstream profile picture
@Jim Sloan @Iron Donut

I enjoyed it too. My take is here:

Slightly different to yours. But horses for courses.
Larry Hall profile picture
Your article was its usual interesting and compelling work of lyrical non-fiction. As for Mr. Buffett and BRK.B, I agree that your explanation makes sense. I do not really agree that he is still a great investor. The airlines have not been his/their only large mistake, and people on this thread have enumerated some. Failure to get into tech earlier is also a 'sin of omission.'

My reading of his non-buying and Charlie Munger's comments a few weeks ago about keeping faith with longtime shareholders (many of whom must be quite wealthy) is that BRK will be ever more conservative going forward.
Broekhuizen profile picture
Fully agree. That's exactly what concerns me as a 31 year old. That's one of the reasons I sold all my BRK.B and switched those funds to a S&P 500 (equal weight) ETF and Total Stock Market index. I won't outperform the market over the coming decades. But I'm not convinced Berkshire will as well.. Most likely the opposite.
Jim Sloan profile picture
Quite possibly true, although much of tech is simply outside his skill set, and to my observation the more recent tech is further outside the skill set of most of us. My millennials inform me of new things, but I often can't get my head around the value added, and I have some knowledge of science and get the inner mechanics better than they do. We'll see what emerges coming out of this. But yes, Berkshire is conservative. On the other hand, and I disagree a bit with Buffett here, it's likely to be the indexes because it won't see 20-30% of its companies burn to the ground. You have good points, though.
Jim Sloan profile picture
I think you'll do fine.
My father, (was) CIO for the Boston Co., always used to tell me that 'in the end. everything will be fine, so if it is not fine it is not the end'. I mention this only because much of WB's reasoning behind inactivity did not ring true and seemingly made up over only the last several months. If he needs all his cash for his worst case possibility, that will be the end of BH as we know it. It really is a combination of current events and some bad investment ideas over the last couple of years that has put BH in the condition it finds itself in.
Fuld Kronasson profile picture
Thanks for the color. It's obvious why he WAS the Boston Company CIO @dmau3
@Fuld_Kronasson he died 9 years ago.
William Darusmont profile picture
Yes! What gave him much of his performance since 2008? The failure of govt to act quickly then and WB with a huge cash position became the lender of last resort to GS and other big banks by making them write huge pfd private placements pn his terms. That is not the case this time as they jumped in quickly. So far he has only 'protected'? his own position in failibg OXY and further damaged his position in airlines. Also note Charlie Munger is 96 and in failing health, while Warren sips Coke with investors.
Time will tell...always does
carstars profile picture
I am taking his advice and investing in an index fund for my risk assets. I don't own operating businesses or write insurance so I can take a bit more risk with the cash/bond side of things. Interestingly there is a lager spread premium now between corporate and treasury. Even the 6-week odd spread between insured CDs and treasures now has narrowed a bit. One is compensated well for surrendering any bit of liquidity in this market.
Fuld Kronasson profile picture
Agreed @carstars@yahoo.com treasures are very illiquid and there be pirates.
Great excellent article Mr.Sloan as we all witnessing one of the greatest investor of all times telling us that there is noting attractive from his point of few in the market right now.
It's come to me rather surprising what he saying knowing that he also said" when everyone is selling and blood is flowing on the street wise intelligent investor should buy
securities as the best opportunity of the lifetime" ?
I guess as he aged his own opinion changed because as author of this articles says "fact changed". or he is saying that because he lost rather lot's of money in the business which always was rather risky from his own stand point of view besides there is no reward without risk and everyone who play market knows about it.
His recent investment in Apple brought him Billions even though he said that he does not understand that "Apple business"
So maybe just maybe if he and his friends will shake of from recent pandemic known as coronavirus he should see rather huge opportunity to invest in MSFT,GOOGL,AMAZON,FACEBOOK to recapture his lost money while he's still alive.
To tell people that there is nothing to invest nothing attractive at this present market is to deny risk taken investors their opportunity in this market which are tremendous like Disney,Six Flag,
SLB,VLO,VISA,CVS,RTX,SCHW,DD,BMY,CRSP,CHDN,FUN, just to mentioned of few.
Unless you're 90y young like mr Buffett or mr Munger are you should probably take position "wait and see" as author of this article suggest but if you young and beautiful you should take action my friend.
P.S.I really don't know why our present government took such a drastic action against our own economy and entire society while the past similar pandemic were unnoticed to them
while thousands of people around the world died from it???
So far this year more people died from Malaria,HIV,Hunger,Cancer and Abortion than from pandemic known as Coronavirus who nota bene been dying for years after years from above mentioned disases without particular notice from government around the world!!!
Are we witnessing desperate attack from GLOBOLISM MAFFIA who wants our obedience
in their destruction of the world as we know and still living ???
To do nothing at present situation while government abuse their power against people will
is crime from our side it's like committing moral suicide towards stopping our own existence, while they planning how to organize our life after our submission to them.
Hope that there is enough people there to stop their madness before too late.
Opening our economy despite present danger coming from today's pandemic seems to be matter of death or live for most of us as we can not give up our freedom and be treated like secondary citizens without right to protest for our well being and our future.
The question is not how to open back our economy but when and the answer is sooner than letter.
Lord have all us in your mercy as we no longer can afford and wait for vaccine,drugs which could help us to treat our tired and sick body while our mental condition deteriorates and become vulnerable not only to present pandemic.
Human being throughout evolution created this beautiful world we're living so I hope and believe that our generation will leave even better world for the next generation who will come after us.
The author of article mr Sloan says that SURVIVAL is the first principle of life and I agree with him but doing nothing is not going to help anybody.
I know Chinese proverb which says "patience human will boil egg in cold water" I think that mr Buffett and some of us do not have that much time and prefer to boil them anytime when twe need them???!!!
Good luck to everyone
I wish lot's of good health to all of you.
Jim Sloan profile picture
So much to respond to here. I too think some government actions have been questionable - mainly lack of a coherent general policy.
On stocks, I would watch Disney. Too many of its businesses, brilliantly run in the past, are going to need some outstanding overall thinking and management to get going again.
Broekhuizen profile picture
Great article. Thanks for your summary and insights!

However, I was a bit surprised that you mention that Buffett was as strong as ever. To me he looked like it was time that he handed over the reins to Abel or Jain.
Jim Sloan profile picture
None of us get physically much stronger after 60, but he looked physically quite strong enough and mentally as sharp as ever. To me.
Mr Briggens profile picture
Buffett was clear that he was not sure whether the future holds inflation or deflation but he's preparing for either.

What's astonishing to me is that folks presenting themselves as investors seem to be criticizing Buffett for not spending down his cash pile in late March with the dip to 18,000 on the Dow. Do you really put the closer in the game in the first inning?

I did snag a few bargains in late March but am way more interested in what Q2 earnings look like. I am building my cash position. We may or may not start to claw our way out in 2nd half of the year. More likely it's next year IMO.

Mr. B
Jim Sloan profile picture
I was like you. I bought 9 stocks, most of which I had always liked, on March 24. Yesterday I sold one, up over 60% because it had pulled forward most of the immediate upside. I sold another because it was the industrial which, though it has modest debt, has vulnerability because of financing its customers. I'm watching the other 7.
Mr Briggens profile picture
@Jim Sloan

I am becoming a much more patient investor. The days of going out on margin when the market dips are long gone. I tend to leg into positions over time and in smaller amounts. As I have built a portfolio over time, I will trim or eliminate positions that don't seem to be working out.

All that said, I do have some stocks like VZ and MRK with a less than zero cost basis after dividends.

Regardless of market conditions, I am happy building my portfolio over time and look to market down turns as opportunities. As stated, I am reserving judgement for the time being and plan to build cash for the next few months with the occasional exception.

I may wind up substituting some funds such as DSPIX for individual stocks in sectors I hate such as Consumer Discretionary. I have always hated that sector except for a few dividend stocks such as WSM.

All the best and thanks for the article.

Mr. B
This was a very very well written article, one of the best I’ve ever read on ‘Seeking Alpha’.
Jim Sloan profile picture
This is the second time in the past 12 months that BRK followed my lead. Buy $KR and hold oversize of cash.
Gary Kime profile picture
Call him and tell him to buy GOOG and FB!
Will do!
Jim Sloan profile picture
I bought GOOG March 24. Should have also bought FB, thought about it.
wokingfoo profile picture
I am curious on what the other stocks he sold in March/April. In 2016, Berkshire spent around $ 7 billion on the 4 airlines. He sold 6.2 billion in total, ~4 billion were in airlines (I think he lost 35-50% on each airline). So there is around 2.2 billion of something else. We will find out May 15th. During the whole presentation, I think Warren had repeated "I don't know" about 20 times. I trust him more because he does not know, rather than trusting someone who know everything, including the future.
Triumphia profile picture
What i don't understand is, on one hand he says he found nothing worth investing since the valuations are effectively 30% down and quite possibly the new 'normal levels' for the market, so he didn't have any use of his cash reserves, on the other hand, he sold off his airline shares at losses greater than 30%, so question is, if he doesn't need the cash, why did he book the unrealised loss, couldn't he stay invested at the new 'normal' levels>?
gla9 profile picture
why invest without a Margin of Saftety ?
He was very clear on why he sold the airlines. He thinks their future is very uncertain and they're bleeding cash and taking on massive debt and dilution. Sometimes you have to take losses, you don't have to make it back how you lost it. The first thing I always sell is a losing position when I want to raise cash. Trying to get back to even is a suckers game, cut your losses short and let your winners run.
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