Key lessons from 2022 Warren Buffet and Charlie Monger at the Shareholders Meetings
As I attended the Berkshire Hathaway’s shareholders meeting from April 28th to April 30th, I came back from Omaha with the usual conviction that Warren Buffet and Charlie Monger (the two leaders) have built an investment corporate culture that will outlive many of their competitors. These meetings are also known as the Woodstock of Capitalism as they attract some of the leading financiers in the world. For those new to the Shareholder Annual Meetings, Warren Buffet and Charlie Monger host in Omaha, Nebraska every year between 20,000–40,000 shareholders traveling from all over the world and take questions for 6 hours. The two leaders of Berkshire Hathaway have a personal net worth of approximately US$ 100 billion each, and Berkshire Hathaway has a market cap of $708.16 Billion. This makes Berkshire Hathaway the world’s 7th most valuable company in the world.
This was the first in person shareholder meetings since 2019 due to the Covid 19 Pandemic, and there was great excitement about the event as the shareholders try to get an idea of what the future looks like when both leaders will no longer be with bus. What emerged from these meetings, confirmed that Vice Chairman Greg Abel will be taking a larger role in the company going forward. However, there is no sign that Buffet and Monger are going to quit any time soon. A few days after the Omaha meeting, the shareholder overwhelmingly voted in favor of keeping Warren Buffet as the Chairman of Berkshire Hathaway. Having said that, for the second time at the annual meeting Warren and Charlie were note on the stage alone. They were joined by Ajit Jain and Greg Abel which confirms that a slow transition to the new leadership has started.
First Quarter Earnings: Unsurprisingly, the company’s net earnings came in worse than previous quarters in 2021 and totaled $5.46 billion, down more than 53% from $11.71 billion in the first quarter of 2021. Berkshire’s operating earnings (the most meaningful indicator) were slightly higher at $7.04 billion. The shortcomings were influenced by a significant drop in the company’s insurance underwriting business and by the slowing U.S. economy, which in Q 1 contracted for the first time since the onset of the Covid-19 pandemic. Buffet stressed during the in-person meeting that “the gains and losses in any given quarter are meaningless to investors who have little or no knowledge of accounting rules”. So, if you analyze the financials more closely, Berkshire’s operating earnings increased year over year.
Market Trends and Risk: Warren Buffet repeatedly mentioned that nobody knows where the markets are going, and key to Berkshire Hathaway sustained success will be to invest in good companies, managed by good people with outstanding expertise and good business models. Both Warren Buffet and Charlie Monger were prudent in performing market forecasting, and instead stressed the importance of investing in companies where you see yourself as an owner and a partner. With the usual humility, Warren Buffett reminded the audience that “We have not been good at timing, but we’ve been reasonably good at figuring out when we were getting enough for our money.” Just as a matter of reference, from 1965 through the end of 2021, Berkshire shares have generated a compound annual return of 20.1% against 10.5% for the S&P 500.
Inflation Concerns: A lot of discussion took place around inflation and recession risk during bilateral meetings as well as during the main event on Saturday. Overall, there seems to be consensus that the sustained inflation in the US could cause a light recession. In April inflation was at a 40-year high, with 8.3% annual increase in April. This is slightly lower than the 8.5% recorded in March. This rate will raise the amount of capital that companies need to finance their operations. Buffet stressed that the main cause of the inflation was the large economic stimulus which was implemented since the beginning of the Pandemic. In times of crisis, Buffett reiterated, invest in yourself to reach an even greater level of exceptional skills.
Invest in what you know: Invest in your core knowledge and passions continues to be a recurring theme at these meetings. And once again, Buffett and Monger stressed the importance of investing in areas of your expertise where you know you can contribute to sustained success. Buffett has often been criticized for missing some opportunities of disrupting tech companies, and he continues to admit that this is true but that Berkshire refused to invest in areas outside of the conglomerate expertise domain, as this is an effective risk management tool. When managing shareholder money Berkshire will always focus on capital preservation and will be missing on lucrative opportunities as this is part of the capital preservation priority.
Greater focus on sustainability: While Buffet has been critical of the ESG movement and climate change, he continues to invest in sustainability across the renewable energy (in 2021 Berkshire invested in excess of $30 billion in green energy), transport, and construction sectors. Berkshire has built a unique culture of under-reporting, and when asked for opinions on the ESG new disclosure and reporting regulations, Buffett declares that Berkshire & Hathaway has been a front-runner as their disclosure on sustainability is ahead of any Fortune 500 company. Berkshire argues that it is unnecessary for it to publish additional climate-related disclosure since the Board receives on a quarterly basis on risk exposure including climate risk. While there is still resistance to culture towards a more climate and ESG focus, with 69% of US corporation now committed to net-zero emission by 2050, I believe Berkshire will gradually adapt towards more sustainability.
Final thoughts: The key message I took home from Omaha was “invest in yourself” as this is the quickest way to build excellence and long-term success. Cash is king and particularly in times of crisis, unlike Ray Dalio (the CEO of BridgeWater Hedge Fund) who thinks that “cash is trash”. Invest in yourself and invest in what you know was reiterated by Warren Buffet throughout the entire shareholder meeting and was also the answer to a question from a young participant that asked “what stock should I invest in?”….Buffet answer was “you are the best stock and you should invest in your future value”.