9 MORE Takeaways From Buffett and Munger — Part 2
From Berkshire Hathaway’s 2022 Annual Meeting
I forgot to highlight one of my favorite parts of any Berkshire Hathaway annual conference in Part 1. The “Berkshire bazaar of bargains.” There is a reason the event is known as the “Woodstock for Capitalists.” It would not be capitalism if Berkshire did not feature its own products throughout the day-long carnival.
My favorite product features are the See’s Chocolates and Diet Coke expertly placed on Buffett and Munger’s table. They are still crushing chocolate and Diet Coke after all these years. With 91 and 98 years on this planet respectively, maybe they know something we don’t.
1. What about their cash reserves?
One take I heard on TikTok was that Buffett and Munger warned everyone to hoard cash. The TikTok creator suggested this indicated economic calamity of sorts. Clearly she had not looked at Berkshire’s history of cash reserves.
From Buffett and Munger’s perspectives, it’s always good to have a large amount of cash. Otherwise, how can you strike when a deal arises or when you spot value in the market?
2. In Q1 2022, they were active in the market
As they discussed at the meeting and as noted by media outlets like the Financial Post, “Berkshire hasn’t been this significant of a net buyer of common stocks in any quarter in data going back to 2008.”
In particular, Buffett noted his recent purchases of Activision, which he saw as an arbitrage play, riding on the coattails of the Microsoft merger and predicting it will close. Berkshire now owns 9.5% of the company.
Who knew Warren liked video games!
Also, guess which Microsoft veteran was in the audience? Bill Gates. He goes to the meeting every year.
3. Separating CEO from citizenship
One of the best questions of the day was about Berkshire’s role in politics. Many CEOs have spoken out publicly about political issues, and companies like Disney have recently found themselves in political quagmires.
Buffett and Munger have historically stayed quiet on political issues barring a few exceptions. Buffett emphasized during the meeting this year though that he will shut up even more when it comes to politics moving forward.
He recognized that CEOs may have an obligation at times to take a stand, but acting like too much of a citizen with his own personal political beliefs could hurt Berkshire companies and its shareholders. Disney is experiencing that pain as we write.
It’s a difficult issue for CEOs and companies to navigate as American culture in particular expects companies to do more when it comes to civil rights, diversity, and even geopolitical issues.
4. Should the Chairman and CEO be the same person?
According to CalPERs and a few other Berkshire shareholders, the answer is no. In the meeting this year, they moved to remove Buffett as Chairman of Berkshire’s Board of Directors, arguing that the Chairman and CEO should not be the same person given the inherent conflicts.
As Buffett said though, the structure has worked well for Berkshire. It’s hard to argue with him. Over the last 57 years, Berkshire has generated compound annual gains of 20.1%, compared to 10.5% for the benchmark S&P 500 index.
Experts always say it’s impossible to beat the market. Not for Warren.
Although I would generally agree with CalPERs and others that the Chairman and CEO should be two different people, why stop Buffett now? He has never demonstrated a penchant for acting in his own self interest or any of the other ills that can be caused by one person holding these two titles. He has always returned significant value to Berkshire Hathaway shareholders.
The effort to oust Buffett as Chairman failed. He will continue as Chairman and CEO, two titles he has held since 1970.
5. Random nuggets
“Lobbyists are distasteful”, according to Buffett. He refuses to lobby for anything anymore The few times he has participated, he said he felt dirty during and afterwards.
Buffett recommended that everyone read Munger’s note on the Savings & Loan industry. I think he was referring to this right here.
Munger is more worried about China now than ever before. Their human rights abuses and gradual pullback from a capitalist system with more state intervention in the economy is cause for concern. It will be harder to do business there moving forward.
There is currently $2.2 billion USD in circulation as of this writing. As Buffett stated, that’s enough for all ~330 million Americans to carry ~$7,000 in cash. Of course, most of that money is probably overseas. You can check the updated figure when the Federal Reserve publishes its weekly report (every Thursday).
6. More Bitcoin discussion…
And more farmland analogies, as we discussed in Part 1. Buffett broke down his aversion to Bitcoin and cryptocurrencies by using this analogy.
If you offered him all of the farmland in the United States for $25 billion, he’d write you a check.
If you offered him 1% of all apartment houses in the United States for $25 billion, he’d write you a check.
But if you offered him all of the Bitcoin in the world for $25 billion, he wouldn’t take it. The current market cap is around $600 billion.
That doesn’t matter to Buffett. The problem with Bitcoin and other cryptocurrencies (from his perspective) is that they do not do anything. They only have value because other people give it value. It does not have intrinsic value.
Farms produce food. People need food to live.
Apartment houses provide shelter. People need shelter to live.
Nobody needs Bitcoins.
As I said in Part 1 in response to Munger’s critiques, I think this is a little shortsighted. The technology enables humans to send money quickly around the world with short settlement times, and helps those in poor countries with weak central banks access currency that is (actually) more stable than their fiat currencies.
Munger chimed in that China was right to ban Bitcoin. He stressed that it undermines the Federal Reserve system and fiat currencies generally.
Do you think Buffett and Munger are right? Let me know in the comments.
7. People are behaving more tribal
Buffett said he could not remember American society behaving this tribal since the Roosevelt administration. That’s FDR, not Teddy (Buffett isn’t that old).
Buffett grew up in a very Republican midwest household. Apparently if you didn’t say something nasty about Roosevelt, you might not get dessert. Buffett used that anecdote to illustrate tribalism incentives.
Of course you would denigrate Roosevelt if that meant getting dessert. Of course you would follow the political winds of your tribe if that meant being accepted.
8. Paying “independent” directors
Can someone be independent from you if you pay them? That’s the question Buffett and Munger were grappling with on stage. Although they weren’t too explicit about it, they seemed to dislike the idea of paying anyone who was supposed to be “independent” from Berkshire.
Buffett gave an example of a director (without naming him) who sat on boards of five different reputable American companies. This is what he did for a living – act as an independent director. He literally relied on his salary from these paid positions to live.
Usually directors do their job part time. They work in different industries and bring unique knowledge to a company, helping to keep the CEO and management in check on behalf of shareholders.
I agree with Buffett and Munger. I’m not convinced someone can effectively do this job independently if they are paid by the company they are trying to check.
Maybe unless they have the temperament, disposition, and successful track record like Buffett. There are only a few exceptional circumstances where it might be fine to let conflicts slide. Buffett remaining as Chairman and CEO of Berkshire is certainly one of them.
9. I hope you enjoyed the takeaways
Let me know your thoughts in the comments. See you at the “Woodstock for Capitalism” next year!