Berkshire Hathaway 2020 Annual Meeting
These are some of the moments we found most interesting in the 2020 annual meeting
Warren Buffett and the Annual Shareholder's Meeting
Every year we look forward to Warren Buffet's annual shareholders meeting. Due to the corona virus pandemic, this year was the first ever virtual meeting conducted by the company. It is because of this that we got a rare, fortuitous opportunity to listen from Buffett in the midst of such an event. This did not deter Buffett's ambition one iota however as he, at 89, answered questions and presented for more than 4 1/2 hours. The full video is given below:
Never Bet Against America
As expected, Warren Buffett had nothing less than optimism to say about our future. In his opener, Buffett described events in United States' past that questioned even whether our system was sustainable. Buffett then continued on to list other examples of turmoil that occurred in the United States short history and claimed that we today are better off now than in our past.
We were glad to see this come up. In events like the corona virus pandemic it is important for us to stay rational in managing our finances. Allowing our fear or greed to get the best of us could lend its hand to some disastrous decision making. We believe that over the long-term we will see a much ameliorated United States.
Good Time to Borrow Money
Warren Buffett suggested that now is a good time to borrow money and he said that Berkshire Hathaway had even done so themselves. At times there are opportunities where you want to pour in massive amounts of money and at other times there is an environment where you can borrow money for low costs. The two rarely coincide. For this reason Berkshire Hathaway has been known to borrow large sums of money even without an immediate purpose, knowingly that they will eventually be able to deploy it.
There is something to say to this however because we all shouldn't go out getting a loan right now. He also said that the use of personal leverage can be pernicious to an individual's finances. There are good debts and bad debts to have as well as good and bad reasons to have it.
Opinions on Buybacks
A question was asked about why Berkshire Hathaway seemingly favored companies with share repurchase programs. Warren Buffett keenly created a parable about three individuals who started a franchise and one wanted to sell their position having buybacks as the most reasonable choice. In the past he has likened buybacks as "hidden dividends" and during the meeting was no different. He suggests that it would be no different for politics to dislike buybacks then it would be for dividends. Buffett uses this evidence to say that although he doesn't see any unethical problems, he has seen some mathematical ones where companies arbitrarily spend money on buybacks without regard to price or value.
Uniquely, he has offered his opinion on why he didn't buyback Berkshire Hathaway stock during the dip. First of all, timing. The period of time where Berkshire was selling below levels where it previously bought back shares was very slim and it is hard to suggest to Buffett, without hindsight bias, that he should have known better. Secondly he said there were better option choices. We read this as opportunity cost. Although Berkshire Hathaway was selling at a discount he feels that he has a better delegation of his money than the buybacks at that moment and currently.
Faith in Banking
The 2008 recession and the corona virus pandemic are different scenarios. This time around banks are structured in a way to be much more durable and reliable. Buffett believes that the banking sector in general is less of his concern than other sectors and Berkshire's current stock portfolio is a pledge of that confidence. Between Bank of American (BAC), Wells Fargo (WFC), and J.P.Morgan and Chase (JPM) these stocks make up about a quarter of the overall portfolio. He issues a word of caution that although banks are building their reserves in the first quarter of this year and they will likely continue that into the second more aggressively in case the pandemic concerns and effects grow.
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