9 Takeaways From Warren Buffett and Charlie Munger

Part 1 of 2, with a focus here on the morning session of Berkshire Hathaway's 2022 Annual Shareholders Meeting.

Photo by micheile dot com on Unsplash

At the end of April every year I get excited for the Berkshire Hathaway Annual Shareholders Meeting. No, I’m not a shareholder of either Berkshire Series A or B (Series A is a little above my budget), but the wisdom I gain from listening to Warren Buffett and Charlie Munger is invaluable.

And it’s not just stock market or financial market wisdom either. In their annual shareholders meeting every year, they talk about life. How to be successful. How to be a contributing member of society.

It is televised annually for the world to see. It should be required viewing for everyone, from high school to retirement.

In this newsletter — the first of two parts — I will give my takeaways on what Buffett, Munger, and others discussed at the 2022 meeting. Be on the lookout for part 2 later this week.

The shareholders meeting lasts for an entire day, with both a morning and afternoon session, so I thought it would be best to split up my takeaways in two posts to make sure I capture — in adequate detail — all of the key highlights from my perspective.

Here are my key takeaways from their morning session.

1. Optimism and hope for America

It is easy to get caught up in the doom and gloom of contemporary society. Many people make a living peddling it, whether it’s the media or independent writers like this guy on Medium. I recently wrote a piece on why “American Decline” is overblown.

Warren Buffett would likely agree. He opened the 2022 meeting with optimism and hope, despite a war in Ukraine, skyrocketing inflation, a bearish stock market, and geopolitical and domestic tension globally.

Buffett emphasized that overall the American system has worked very well. He noted that “it’s unfair in many ways”, and he’s advocated for tax fairness, but he stressed how the goods and services provided by America today are unprecedented. It’s a much better world than it was even in his youth from his perspective.

So when people criticize America or the 21st century world, they should put their criticisms in perspective. Think about what the world was like just 100 years ago. Democracy and capitalism are not perfect by any means, but both systems have lifted far more people out of oppression and poverty than any other systems attempted by mankind.

2. Check in on your operators, especially if they are old

In a moment of jest, but some truth, Buffett noted his age (91) and Munger’s age (98). Buffett joked (in some seriousness) that “when the people running the company are old, you should be able to see them in person.”

He then told a sad story about someone in their organization who had been suffering from dementia, but had been a great employee. This anecdote was used to convey the message that it’s good to check on people every once in a while, especially if they’re older.

It reminded me of an article I recently wrote about age limits in Congress. It’s amazing how many octogenarians run America. While many of them may be high functioning — like Buffett and Munger — there are also many people who need to enjoy their glory years and relax.

Even the 91 year old Buffett recognized that.

3. Be an operator and do good in the world

At their core, Buffett and Munger are operators. Yes, they invest and move money, but they only invest in companies they truly believe in; companies that make sense based on their economic fundamentals.

They believe in investing in companies that do good in the world and contribute to society in a positive way.

Of particular scorn for Munger are the innumerable trading algorithms that trade against each other for no particular reason other than exploiting a market inefficiency or capturing a spread. Although there are good arguments that this enhances market liquidity, Munger mostly views it as speculative and highly risky behavior that has detrimentally affected markets in the 21st century.

From their perspective, there are more sustainable benefits to being an operator and doing good in the world. If you do this, the money will come.

4. The best stock to invest in is yourself

A young woman asked Buffett and Munger if they had a favorite stock to invest in right now. She emphasized the difficult market equity conditions, and rising inflation and interest rates.

Buffett laughed and said that he had one better for her.

Be exceptional at your craft.

The example he gave was becoming the best doctor or lawyer in town. Basically, something to fall back on that people will call you for in good times and bad. If you can be the best at something that’s in demand, then inflation, interest rates, and bearish stocks will have little impact.

Investing in yourself is the best hedge against volatility.

5. Imagine you owned a farm…

Buffett and Munger continued to use examples of tangible things, none more so than the farm. Perhaps it was their way of fighting back against the metaverse and increasingly digital world.

My favorite farm example of Buffett’s was related to companies repurchasing their stock. This has been scrutinized and criticized by many in recent years, but nobody can deny its benefit to existing shareholders.

As Buffett said, imagine the acreage on a farm you own increasing without you purchasing more land yourself. That’s the huge benefit of share repurchases. They give existing shareholders more farmland without asking them for more investment.

6. Disdain for index funds

Throughout the first session of the day, Buffett directly and indirectly threw shade at index fund managers. He doesn’t like them as stockholders as much as he likes regular people. Index fund managers are not invested in the same way that the average person is, mainly because they are paid by others to invest and are not necessarily thinking like an owner.

An index fund manager thinks about their assets under management and the percentage commission he/she will derive. More assets, more commission. That’s their incentive.

The average investor, on the other hand, is looking to make a return on whatever money they put up to purchase Berkshire Hathaway stock. They are invested like an owner.

One issue in particular really seemed to irritate Buffett. An index fund manager asked to have a special meeting with Buffett ahead of the next annual meeting, to which Buffett replied, “What makes you special? Why shouldn’t I have special meetings with each one of my shareholders?”

It sounds like this guy got the meeting, but Buffett at least tried to emphasize the equality of all shareholders, even if in reality that’s not how it works in practice.

7. Nuclear risks

The conversation took a dark turn when talking about the biggest risks to Berkshire Hathaway’s insurance business. The head of that business, Ajit Jain, gave a harrowing account of the inherent difficulties with projecting losses following a nuclear event. With a madman at the helm of the largest nuclear arsenal in the world today, this once remote possibility is suddenly far more real.

As Jain said, it’s likely that governments will force insurance companies to pay up without much if any government support. So Berkshire and other insurers could be looking at pretty big bills if Putin presses a few buttons.

8. Cyber, an area of surprising government and business collaboration

One area where Buffett commended the United States government was with regards to cyber. He viewed its partnership with corporate america as extremely beneficial and healthy. Together, they’ve been able to protect American business interests, including Berkshires. Cyber is a continued focus area for the company and the U.S. government, which is good news for investors and consumers alike. When government and commerce have been in unison in other areas in the past, great innovation has followed.

9. Charlie Munger still hates bitcoin

I don’t agree with Buffett and Munger on everything. They may be billionaires many times over, with sustained success stretching decades, but when it comes to crypto, I think they are both wildly offbase. Munger in particular rails on bitcoin and crypto at every opportunity.

I think it’s probably difficult for two captains of industry to conceptualize an entirely new market that does not exist in the physical world. I wouldn’t call either of them luddites — they’ve seen the promise in Apple for years, for example — but they do not have very open minds when it comes to bitcoin. While I will be the first to tell you that bitcoin is not digital gold, I strongly believe that some version of cryptocurrency is the way of the future.

Onto the afternoon session

Be sure to check out our breakdown of the afternoon session next. And if you watched the morning session, let us know your thoughts.