Greetings from Omaha ’24

Warm greetings to you from Fort Rain, where the yard is soggy but the grass is as green as green can be.  That’s probably not going to make it past the first round in a Greater Fort Wayne contest for a new city motto, but it’s no less true.  Last month was the rainiest April ever here, and the stock market was rather soggy as well, but May is off to a very green start.

George, Adam, and John traveled to Omaha last weekend for the Berkshire Hathaway annual meeting, colloquially known as Woodstock for Capitalists.  This was a reprise of our trip two years ago; expectations were high since we had such a good time then, and it did not disappoint.  Reportedly the attendance this year was 40,000, in an arena that holds 19,000 (there are numerous overflow rooms).  There was much speculation on whether attendance would rise or fall, given that Warren Buffett was without his right-hand man, Charlie Munger, who passed away on November 28 last year, just 33 days shy of his 100th birthday.  It could be that many wanted to pay “last respects” to Charlie, or it was a reminder that these guys apparently won’t live forever, as Warren is 93. 

The meeting on Saturday began with a video tribute to Charlie, touching on his early life, his importance to Berkshire, and the philosophies that defined what he stood for.  There was a section of highlights from past Berkshire annual meetings, laden with some of the best Charlie quotes, such as in 2000 about the internet and internet stocks:  you can mix raisins and turds, but there are still turds in the mix.  Warren added:  “that’s why they have me write the annual reports.”  One takeaway from all these quotes was that nearly all were from this century, and at least half were from the last 10 years…when Charlie was in his 90’s.  Warren said of Charlie, “I don’t know another man who peaked at age 99.”  He called Charlie the architect of Berkshire, whereas Warren was in charge of construction.  He was a remarkable mind, able to dive deep in to figure something out, and able to distill complex problems into action.  He epitomized the adage that the less you say, the more important the things you do say. 

CNBC was given the right to record and air the entire annual meeting, including (for the first time) the video.  If you want to watch it, you can find it HERE on YouTube, from 30:53 – 59:00.  Of course, you can watch the entire annual meeting, but if you were hoping for a much-condensed recap, you’re in the right place in this blog.

If you did happen to see any of it, you would surely notice that Warren does a fine job carrying the load without his wing man, but he very much misses him.  After answering one question, he turned to his wing man to help corroborate the answer by asking, “Charlie?”  Only Greg Abel, heir apparent and vice chairman, was beside him.  Surely there was a betting line on this happening at least once.  Greg joined Warren on stage in the afternoon, and in the morning, the two of them were joined by Ajit Jain, who runs Berkshire’s vast insurance operations.  Greg supported many of Warren’s answers, but was the definition of deferential.  One questioner asked which Berkshire businesses might be most at risk from AI.  The camera (which cast the stage presenters on numerous large screens around the arena) panned from the questioner to both Warren and Greg, whereas usually it just went straight to Warren alone, implying that Greg would take the question.  Warren began with, “well, I don’t really know anything about AI,” at which point the camera went to Greg by himself, before Warren continued his response for 2 minutes, after which Greg came to his rescue.  Warren had compared AI earlier in the meeting to the nuclear bomb, saying the genie is out of the bottle, and it has the ability to do both immense good and immense bad.  But clearly, there are ways that it can be used in business to improve efficiency, and Berkshire is in early innings of testing things.  They both believed AI would hasten the long-sought desire for people to spend less time working and more time on leisure.  Warren indicated his preference is to work, so that he can solve more problems and figure more things out.

Warren is easily the most-ever quoted, and most quotable, investment professional, and for good reason.  He’s usually right, but the value is in reminding folks of truths that often get forgotten.  Remember that, as a stockholder, you own a piece of a business.  It’s easy to get caught up tracking a company’s stock price, rather than the company’s fundamentals, so remember that the market is there to serve you, not instruct you.  Don’t get caught up in what other people say about you.  When you are criticized, just be honest, learn a lesson, and move on.  It’s human nature to appreciate being trusted.  If honesty gets you into more trouble than lying, that’s a virtue (Warren said Charlie never once lied to him in 60 years together).  I’m a fan of Apple, even though I don’t know how the iPhone works…there might be a guy in the phone for all I know.  Some people bend over backward for you, some bend over forward (??). 

One touching question was what Warren would do with Charlie if he had one more day with him.  He said he didn’t have the perfect answer for that, but the question you should be asking is whom you would like in the room on your last day.  Work backwards and nurture your relationships with those people now.  I’m a huge fan of Bob Goff, author/speaker/diplomat/reformed lawyer, who said the same exact thing a few years ago in his book, “Love Does.”  Similar is the question, “what do you want your obituary to say?” and work backwards from that.  It’s empowering to know we all have a say in the legacy we will leave for others and the world. 

While Greg Abel will be running Berkshire’s operations once Warren is no longer with us, there has been much speculation about who will be in charge of portfolio management at Berkshire.  The company has two seasoned stock pickers, Ted and Todd, whereas Greg’s background is as a CPA, then as CEO of Berkshire’s utility business.  Warren surprised the crowd by suggesting that Greg will be the lead portfolio manager, not just for the operating businesses, but the investment portfolio as well.

Berkshire reported before the meeting that the company sold 115 million shares of Apple in the first quarter.  Apple is by far the largest public stock holding at Berkshire, even after the sale.  The sale netted $20 billion of cash, and not coincidentally, the company’s cash hoard grew by that much in the first quarter, and is now up to $189 billion, the most ever.  Are there signals in the Apple sales and the cash hoard?  Almost assuredly.  Of course, Warren was diplomatic on why they sold so much Apple (Tim Cook was in the room, after all), saying nothing disparaging about the company.  His answer instead was that capital gains tax rates are due to rise at some point.  If he wanted to generate capital gains, he could have sold any other stock, of course, but he didn’t, so this answer is a smokescreen.  As for the cash, they have ALWAYS said that they only invest when they see opportunity, and they haven’t come upon a significant opportunity lately.  With t-bills yielding over 5%, they are satisfied earning that much in the meantime.  He is still gung-ho longer-term on stocks, and said nothing disparaging about the market now.  So which matters more, the action (or lack thereof) or the talk?  Depends on your time horizon; for the short-term, we would lean on the action.

The group talked at length about Berkshire’s operations—insurance, railroads, utilities—which is of some interest, but maybe not to those who don’t own the stock.  You must be a shareholder to attend the annual meeting, so everyone there is a shareholder.  We were struck repeatedly by the makeup of the crowd.  There were many seasoned investors, but also a very large populace in their 20s and 30s.  There have always been plenty of foreign shareholders who make the trip to Omaha, but the number seemed off the charts this year, both Asians and Europeans alike.  We wonder how randomly the ~20 questioners in the crowd are chosen, given that only 3 of the 20 were American residents, and 1 of the 3 was clearly a recent arrival given her thick accent.  Four consecutive questioners were from Germany.  One questioner was a fund manager in Canada who asked whether Berkshire is seeking investment opportunities in Canada.  The next question came from a fund manager in India, who asked the same about India.  The art of extrapolation is always dangerous, yet I couldn’t help but believe that the interest in owning U.S. stocks by foreign investors has risen dramatically, which corroborates what we have been hearing from other sources.  Then consider that, since the end of 2007, the S&P 500 has outperformed the MSCI World ex-US index +255% to +4% (yes you read that right, international stocks have gone nowhere in over 16+ years).  There is no objective way to assess whether a stock, or market, is “over-owned,” but the success of the Magnificent 7 stocks has surely given investors cause to wonder.  Granted, Berkshire is not a Mag7 stock, but it is the 7th largest company in the U.S. by market cap.

Now, if you’re seeking anecdotes for the economy, the Berkshire expo was alive and well, as always.  Most of the demo spaces were similar to 2 years ago—Burlington Northern, See’s Candies, Dairy Queen, Forest River (RVs), Clayton Homes, Justin Boots, Pampered Chef, Oriental Trading, Brooks, NetJets, Duracell, Nebraska Furniture Mart, and Geico.  The picture below highlights two in one, with George enjoying a Dilly Bar while walking by the Geico gecko.  We’ll pass judgment on the fact that it was 8:00 in the morning.  There were a few new exhibits, with the most prevalent being the Squishmallows space; Berkshire ended up owning its parent (Jazwares) when it bought Alleghany 2 years ago.  If you have a kid or grandkid, you probably have seen one.  The product has been popular for a few years, but last weekend?  At least 80% of bags people were carrying were stuffed to the brim with Squishmallows.  There was a couple who sat in front of us at the meeting; they each had a full bag stuffed between their legs, AND the 3 seats next to them were stuffed with bags.  I honestly don’t remember how they were able to carry them all out.

All in all, for anyone still reading this, the trip was a totally worthwhile endeavor.  The Berkshire meeting was the centerpiece, but we were able to catch up on life in general as well.  Adam regaled us with his card games (always introducing new games before we get the chance to become proficient) and magic tricks.  John took the group to a nearby outdoor fitness park which we named Muscle Beach.  George made us drink retsina wine at the Greek restaurant (inside joke).  An apt one-line summary would be how Warren concluded the annual meeting, saying “I not only hope that you’ll come next year, but I hope I’ll come next year too.”