The annual shareholder meeting of Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) has become easily the most popular formal corporate gathering in the world. In normal times, thousands of investors flock to Omaha to see CEO Warren Buffett and vice-chair Charlie Munger talk about Berkshire, investing, and the business world.
For the second straight year, the pandemic prevented Berkshire from holding an in-person meeting. However, by moving the event to Los Angeles, Munger was able to join Buffett on stage, making the mood of the event a lot more upbeat than Buffett's largely solo performance in 2020. Below, we'll look at some of the most memorable things Buffett and Munger talked about at the May 1 shareholder meeting.
1. Stock market leadership is fleeting
Buffett believes in the power of capitalism and in the role the U.S. plays in leading the global economy forward. He pointed out that among the world's biggest companies, five of the top six are American, with only oil giant Saudi Aramco breaking up the list led by Apple, Microsoft, Amazon, Alphabet, and Facebook.
Yet Buffett also warned investors not to be complacent. Pointing to the similar list from 1989, the Berkshire CEO noted that not one of the 20 top companies 32 years ago are still among the top 20 today. That includes powerhouses like ExxonMobil and General Electric, which have diminished greatly in importance in the intervening decades. Buffett suggested, "Make your own guess: How many companies on [today's] list are gonna be on the list 30 years from now?" Indeed, some could fall off a lot sooner than that.
2. Buffett and Munger disagree on the S&P 500 vs. Berkshire
Buffett has frequently advised investors to keep things simple and invest in an S&P 500 index fund. Indeed, when he dies, Buffett will leave a fund for his spouse, and 90% of that money is set to go into such an index fund. "I've never recommended Berkshire to anybody," Buffett said, as he has always wanted to avoid any appearance of giving an inside tip on the stock of the company he runs.
But Munger has a different view. "I personally prefer holding Berkshire to holding the market," he said, arguing that Berkshire's set of businesses and investments are in his view "better than the average" across the stock market.
3. Buffett: Airlines have "done better because we sold"
The move Berkshire Hathaway made to sell off airline stocks Delta Air Lines, Southwest Airlines, United Airlines Holdings, and American Airlines Group in the spring of 2020 was discussed at length during 2020's meeting, with Buffett justifying his sales by observing that "the world changed for airlines." Indeed, Buffett foresaw huge industry disruptions like contracting fleet sizes and reduced capacity.
What Buffett didn't foresee, though, was the massive government support that airlines got. Indeed, looking back, the Berkshire CEO believes that airlines might well not have gotten that support if he'd remained a shareholder. "They might very well have had a very different result," he noted, "if they'd had a very rich shareholder that owned 8% or 9%." Even now, though, Buffett wouldn't want to get back into his airline positions, pointing out that his position in American Express (NYSE:AXP) and his ownership of aerospace components specialist Precision Castparts give him plenty of exposure to the industry.
4. A minor mistake from Buffett
Some have questioned why Buffett trimmed his stake in tech giant Apple. The Oracle of Omaha admitted that was probably a mistake. "Charlie in his usual low-key way let me know it was a mistake," he added.
But Buffett did note that because of stock repurchases from Berkshire and Apple, Berkshire shareholders still saw their proportional stake in Apple increase. Nevertheless, ordinary investors will find it nice to see that even someone of Buffett's stature can make the same sort of mistakes they make.
5. Why Buffett doesn't like SPACs
Special purpose acquisition companies (SPACs) were all the rage throughout much of 2020 and into the beginning of 2021. But Buffett expressed his dislike for their business model, specifically the requirement most SPACs have to find a business within two years. "If you put a gun to my head and said you've got to buy a business in two years, I'd buy one," Buffett said. "But it wouldn't be much of one."
Moreover, Buffett reminded investors that SPAC managers typically have plenty of upside through private investments in public equity once a deal gets done, but they lack the downside. In his view, that leads to too many transactions, bidding up prices of potential acquisition candidates and making Berkshire uncompetitive as a buyer.
6. Views on the impact of low interest rates
Buffett and Munger both commented on the Federal Reserve's extraordinary efforts on monetary policy. Buffett explained, "Interest rates basically are to the value of assets what gravity is to matter," with the implication that a future rise in rates could send asset values falling sharply. Meanwhile, the Berkshire CEO noted that the current rate environment is tough, as "If you tell me I'm gonna have to lend money to the government at minus 2% a year, you're just telling me how I'll go broke."
Munger was more succinct in describing the risks involved with aggressive monetary and fiscal policy. "There's a good chance that this extreme conduct is more feasible than anybody thought," Munger said, "but if you keep just doing it without any limit, it'll end in disaster."
7. Munger on Bitcoin
Responding to a shareholder questions about Bitcoin (CRYPTO:BTC), Buffett decided to dodge the question. His motivation: avoiding making the hundreds of thousands of viewers who own the cryptocurrency unhappy.
Munger didn't hold back, however. "I hate the Bitcoin success," the vice-chair said. "The whole damn development is disgusting and contrary to the interest of civilization."
8. A Buffett dig at Elon Musk
Another shareholder question was addressed to Berkshire's insurance business head Ajit Jain, asking whether he'd write an insurance policy for Tesla's (NASDAQ:TSLA) CEO and SpaceX founder Elon Musk for his proposed missions to Mars. Jain quickly said no.
Buffett demurred, however. "It would depend on the premium," the Berkshire CEO said, "and I would probably have a somewhat different rate if Elon was on board."
9. Buffett and Munger smack down Robinhood
The popular Robinhood investing app has introduced millions of newcomers to investing. Buffett and Munger, however, were deeply critical of the brokerage company.
Buffett noted that Robinhood has "become a very significant part of the casino group that's joined the stock market in the last year and a half." Although there's nothing illegal or immoral about it in his eyes, the Berkshire CEO added, "I don't think you build a society around people doing it."
Munger went further: "It's just god-awful that something like that would draw investment from civilized men and decent citizens. It's deeply wrong. We don't wanna make our money selling things that are bad for people."
10. Berkshire's dynamic duo has learned some lessons in the past year
Near the conclusion of the Q&A period, Buffett and Munger were asked what lessons they've learned from the past year. Buffett quipped: "My biggest lesson has been to listen more to Charlie. He's been right on some things that I've been wrong on."
Munger answered: "If you're not a little confused by what's going on, you don't understand it. We're in sort of uncharted territory." Yet Buffett added that no matter how crazy things have been, "Stranger things are going to happen in the future." That's redoubled Buffett's commitment to ensure that Berkshire will stand the test of time for the long haul.