Berkshire Hathaway 2019 Shareholder’s Meeting

​This past weekend, I attended my 22nd Berkshire Hathaway Shareholder’s Meeting.    Following are my notes.  My opinions are in parenthesis.

·         Another record crowd with over 40,000 people
·         Tim Cook was there this year supporting one of his major shareholders
·         Charlie Munger (CM) gave his example of opportunity cost. “You don’t get to simply pick the best spouse.  You have to pick the best spouse who will have you”
·         Berkshire Hathaway (BRK) is providing $10B in financing to Occidental Petroleum for their potential acquisition of Anadarko. It will be preferred shares paying 8%.  (not bad in this low return environment).  This will bring in an additional $800M a year for BRK.
·         BRK now has roughly $100M a day coming in that needs to be put to work.  (Sounds like a great problem to have but can actually be stressful when your job is to put money to work).
·         Q1 net profit was $21.7B but this figure is very misleading thanks to a new accounting rule that requires companies to run not only realized gains/losses through the P&L but also unrealized gains/losses.  (BRK has $200B in equities which means if the market moves by 10%, they have to report that $20B swing in their earnings. Crazy rule in my opinion).
·         Operating earnings were $5.6B +6% y/y but they did not have Kraft/Heinz included due to a disagreement between KHC and their auditors so BRK reported 0 for the quarter.  (If you exclude KHC in both periods, I estimate operating earnings were +8%)
·         Share buy backs were $1.7B in Q1 (tiny)
·         Warren Buffett (WB) received many questions on share repurchases.  If BRK is sitting on over $100B in cash, why not buy back your own stock?  WB said he will only do that when it is beneficial for existing shareholders (if only other companies looked at it this way.  Most companies buy back shares when prices are high and stop buying when prices are low.  Terrible for shareholders) 
·         WB is willing to spend up to $100B buying back BRK shares. (although he does not come out and say it, WB does not think BRK shares are undervalued at this point.  This is the reason he is not buying back stock in a big way.  He likes to see the stock 25-30% undervalued before buying.  Recently, he has been buying shares when it dips below $200.  Probably a great entry point for the rest of us too).   
·         BRK has 390K employees
·         WB said CEOs need to be careful about speaking for the company with their own personal views.  BRK has never contributed money to a politician or a political party because WB feels this is the shareholder’s money, not his to steer where he sees fit. 
·         WB said he is a card-carrying capitalist and does not think we will see socialism in this country in 2020, 2040, or 2060.
·         WB said they paid too much for Kraft but the right price for Heinz.  Kraft/Heinz is still a great company generating high returns on invested capital but if you pay too much, even for a great company, your future returns will be low.
·         They talked about the difficulty in competing with on-line furniture retailers like Wayfair who are willing to sell at a loss in order to have high revenue growth.  A lot of investors these days are happy to invest in companies that are losing money as long as revenue growth is high.
·         BRK bought shares of Amazon in Q4. These purchases were made by one of his investment managers, not WB himself.  (WB gives them total freedom to manage their portion of the portfolio.  Ted and Todd each manage $13B and will eventually takeover the portfolio when WB is no longer around).
·         They will not lever up BRK with debt to try to enhance returns.  They have seen too many high IQ people destroyed with leverage. 
·         Charlie Munger (CM) said he gives himself a pass for missing out on Amazon but feels like a horse’s ass for not identifying Google earlier. “We saw it used in our own operations (GEICO) and we just sat there sucking our thumbs” (I found it interesting that they clearly love the businesses of Amazon and Google but they speak in past tense when it comes to investing in them)
·         WB said BRK has the best Property and Casualty insurance company in the world because of their large float and balance sheet strength.  They can do things other insurance companies can’t.
·         They got a question from someone about delayed gratification and how can we all develop that to save, invest and become wealthier.  WB said don’t go overboard with it.  It’s great to have enough money to not have to worry about money, but beyond that it does not bring additional happiness.  If someone is unhappy with a $10 million, they will be unhappy with $100 million too.
·         Some shareholders want his investment managers to join him on stage and answer questions.  WB “We are not an investment advisory business.  What they do is proprietary and sharing what they do and how they do it helps the competition and is not in the best interest of BRK shareholders. (I totally agree)
·         “If the world goes to hell, BRK is a great place to be because we know how to behave in a panic” CM
·         BRK ended Q1 with $110B in cash and $200B in stocks
·         When asked what they value most in life.  The two things money can’t buy, Time and Love.  This is why they wanted to be wealthy, not to buy a bunch of toys, but to have control over their time so they could spend it doing what they enjoy.
·         “The normal path for success is to specialize.  Nobody wants a doctor who is half Dentist and half Proctologist”. CM
·         Former IBM CEO Thomas Watson used to say “I’m no genius, but I’m smart in spots and I stay around those spots”
·         There are a large percentage of BRK shareholders who have most of their net worth in BRK stock so this makes WB very focused on avoiding investments that may cause permanent loss of capital.
·         According to CM, the primary cause of the wealth gap has been massive money printing by central banks which drove stock markets higher and this made the rich richer.
·         WB received a question from a House of Lords Member asking if he would consider investing in the UK.  WB said he would love to invest in UK and Brexit concerns would not stop him.  WB said call me with the figures of the business you want to sell and if it’s of interest he will fly over and make a deal.  However, he is not interested in traveling there for a sales pitch. (WB can normally make a decision in 15 minutes)
·         When asked about whether or not they are concerned about Auto manufacturers getting into the auto insurance business.  WB said the odds of success for them getting into the insurance business are about the same as the odds of success of BRK getting into auto mfg.
·         WB has discussed the law of large numbers many times and that it is very difficult for BRK with a market cap over $500B to generate the high returns they had in the past.  He said if he was managing a $1M portfolio, he is confident he could deliver 50% annual returns without leverage. (I was ready with my notepad in hand to hear how he would do it, but no such luck)