Highlights From Warren Buffett And Berkshire Hathaway’s 2023 Annual Meeting

Berkshire Hathaway’s (BRK/A, BRK/B) annual “Woodstock for Capitalists” was held on May 6^th. After last year’s attendance was below recent years, it was a packed house on Saturday. Warren Buffett, CEO and Chairman, and Charlie Munger, Vice Chairman, answered questions from shareholders for over five hours. Greg Abel and Ajit Jain joined in answering questions for the first part of the meeting.

After the traditional movie to open the meeting, featuring Jaime Lee Curtis this year, Buffett briefly reviewed first-quarter earnings. He provided the closest thing to earnings guidance that he has ever uttered. Buffett noted that it is a “different climate than it was six months ago,” so the majority of Berkshire’s businesses are likely to have lower earnings in 2023 than the previous year. The good news is that higher yields should lead to higher investment income in 2023, and insurance underwriting does not “correlate with economic activity.” In other words, the insurance businesses should do better than in 2022. With the tailwind from the insurance segment, Buffett expects Berkshire’s 2023 operating earnings to be better than last year.

As one would expect, given the recent banking failures, the pair was asked multiple questions about the U.S. banking system. Buffett summarized the challenge of a bank crisis by saying that “fear is contagious, always.” In a rare move, he directly criticized some of the banking practices of the failed First Republic Bank (FRC). Buffett mentioned that First Republic offered non-government guaranteed jumbo mortgages, and the “world ignored it until it blew up.” While he gave his opinion that the depositors at U.S. banks are safe even beyond the FDIC guarantee, he wouldn’t commit to how regional bank shareholders would fare. Munger summarized the situation in his classic style, adding that “a bunch of bankers trying to get rich doesn’t lead to good things.”

Buffett took the opportunity to contrast banking with Berkshire’s insurance business. The insurance business produces float, created by the premiums paid by those purchasing insurance. The insurance company gets to invest the float until the insurance claims are made. In addition, unlike bank deposits, the float can’t be withdrawn and doesn’t earn any interest. Buffett said, “It’s like having a bank with no employees, no interest, and no ability to withdraw the money in a hurry.” Berkshire’s float is now approximately $165 billion, an increase of roughly $1 billion year-to-date. Buffett did say that “banks can be a perfectly good investment.” He noted that in addition to owning banks in Berkshire’s publicly traded stock portfolio, Berkshire had a wholly-owned bank at one time with plans to acquire more before legislation forced them to sell it.

Buffett typically refrains from giving much detail about Berkshire’s publicly traded stock holdings but spoke about Occidental Petroleum (OXY). According to Bloomberg, Berkshire is Occidental Petroleum’s largest shareholder, with a 23.6% stake. Buffett said he doesn’t know what the price of oil will be, but he likes Occidental Petroleum’s position in the Permian basin and management. He left the door open that Berkshire could purchase more shares but said it would stop short of making an offer to control the company. Here are more details about the possible reasons for Berkshire’s investment in Occidental Petroleum.

When asked about the possibility of future dividends, Buffett noted that Berkshire paid a dividend once, which was a mistake. He said Berkshire could distribute cash in a significant way via stock buybacks if the stock became undervalued. In addition, he would prefer to have the money on hand to make substantial acquisitions if any attractive targets became available. For those worried about the stock dropping precipitously when Buffett and Munger can no longer manage the firm, Buffett’s statement that Berkshire “will buy $50 billion of our stock if it makes sense” should provide some comfort. Share repurchases accelerated in the first quarter, as Berkshire bought back $4.4 billion of stock.

When asked about the prudence of Apple (AAPL), comprising over 35% of Berkshire’s publicly traded stock portfolio, Buffett noted that Apple was not 35% of Berkshire’s portfolio because the firm has many wholly owned subsidiaries. He added that a previous sale of Apple shares was done partially for tax reasons but was “still a mistake.” He went on to say that Apple was a “better business than any we own.” Munger chimed in on the subject with a more direct response that we “ignore most notions of our experts about de-worsification of portfolios.” Here is more analysis of Berkshire’s publicly traded stock portfolio.

Lastly, when answering a question about the opportunities for value investing in an era of disruptive technology, Munger argues that value investors will have a more challenging time now that so many intelligent people are competing for the same opportunities. Buffett was more optimistic that there would be “plenty of opportunities.” He believes technology has continuously changed, but human nature remains the same. Buffett said that opportunities come from “other people doing dumb things,” and they will continue to do more dumb things in the future.