On Saturday morning, some 12,000 people crowded around the Oracle of Omaha and an 11-ton mound of See's Candies at Berkshire Hathaway's (BRK.A 0.24%) (BRK.B 0.38%) first in-person shareholder meeting in three years.
Chairman and CEO Warren Buffett will be 92 in late August, and his longtime partner Charlie Munger will turn 99 on New Year's Day 2023. Having been born in the teeth of the Great Depression, Buffett has built a treasure trove of stories over the years. Through the end of 2021, Berkshire produced a compound annual gain of 20.1%, versus 10.5% for the S&P 500 with dividends reinvested. Wisdom and outperformance are two of the many reasons why millions tune into Berkshire Hathaway's annual meeting. Here are some preliminary takeaways from Buffett's opening remarks as well as the state of Berkshire right now.
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Mr. 300%
Between Nov 30. 2011 and Nov 30. 2021, Berkshire Hathaway underperformed the S&P 500 -- producing a total return of 251% compared to the S&P 500's total return of 266%. But so far in 2022, Berkshire is up 8% while the S&P 500 is down 13%. And now, Berkshire is officially outperforming the S&P 500 over the last 10 years, with a 300% total return versus less than 260% for the S&P 500.
BRK.A Total Return Level data by YCharts
Much of the outperformance is due to Berkshire's concentration in market-beating stocks like Apple, Coca-Cola, American Express, Chevron, and Occidental Petroleum. But it also has to do with value stocks finally beginning to outperform growth stocks.
Keeping a large cash position and protecting investors
Berkshire spent roughly $50 billion on equities in the first quarter -- and Buffett made news during Saturday's Q&A session by announcing that amount includes enough shares of Activision Blizzard to bring Berkshire's stake up to 9.5%. Even so, Berkshire maintained a hefty cash position of $106 billion at the end of the quarter.
By cash, Berkshire doesn't mean commercial paper or lines of credit. It means regular treasury bills. One of the reasons Berkshire invests the way it does and keeps a lot of cash is because it feels a duty to protect its partners (i.e., shareholders). "We have an extreme aversion to incurring any permanent loss with your funds. If I went broke it wouldn't really make any difference. ... The idea of losing, permanently, other people's money, people who trust us, that's just a future I don't want to have. ... We would die psychologically if we lost a lot of other people's money," Buffett said. "So, the one thing I can tell you about Berkshire Hathaway ... we wake up every morning and we want to be safer in terms of your eventual investment."
Included in the first-quarter equities purchase were 136.373 million shares of Occidental Petroleum stock at prices ranging from around $40 a share to nearly $60 a share. Commenting on the purchases, Buffett said, "Now we are back somewhat in our lethargic mood, but anything can change at Berkshire. But the one thing that won't change going back to Q2 is that we will always have a lot of cash on hand."
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Key Data Points
A dig at cryptocurrency
Buffett and Munger are famous for their negative views on cryptocurrency. And those views still hold true today. In the context of discussing Berkshire's cash hoard, Buffett put up a slide of a $20 bill. "This note is legal tender for all debts public and private, and that's what makes it money. Money is the only thing that the IRS is going to take from you. You can offer them all kinds of things, but this is what settles debts in the United States. You'll hear a lot about various kinds of money, but this is the only kind of money you're going to see throughout your lifetime," said Buffett.
"When people tell you they're issuing new forms of money, this is the only thing that will pay bills under some circumstances," Buffett added.
He expanded later on, saying that while he'd pay $25 billion for a 1% share of the country's farmland or apartment communities, he wouldn't pay $25 for all the cryptocurrency in the world. "That's the difference between productive assets and something that depends on the next guy paying you more than the last guy," he said.
No limits
That was also a comment on the government's actions to keep the economy operating during the Great Recession and then the early days of the pandemic in March 2020. "if the Federal Reserve hadn't done what it did in a very short period of time, things could have stopped," he said. "And I tipped my hat a couple of years ago to Jay Powell for acting as he did. You have to act with speed."
Buffett said that he once asked former Federal Reserve chairman Paul Volcker, "What are the limits of what you can do?" And Volcker responded, "We can do whatever we need to do." Buffet spoke favorably of the Federal Reserve but didn't shy away from the uncertainty that the economy faces.
"We want Berkshire Hathaway to be ... in a position to operate if the economy stops, and that can always happen," said Buffett.
All told, Buffett's opening remarks stressed the importance of financial discipline, and prudence, and held a cautiously optimistic tone about the future without shying away from the very real risks the economy faces.
