As we wait for Warren Buffett’s 2024 Berkshire shareholder meeting (on May 4th, 2024), I thought I’d review my notes from last year. Here is an easy-to-read recap of everything that was addressed by Buffett and Charlie in 2023.
Image 1. A promo poster for the live stream
Morning session:
On Ajit Jain: Ajit Jain is responsible for the treasure chest (“float”) of $165 Billion built up over time. This shows up on the liabilities side, but it’s actually used to grow assets. Better than any bank because there’s no interest or withdrawals.
On Geico and BNSF losing market share: Ajit says Geico did well. Geico close to 90% now has telematics for pricing decisions. Buffett says Ajit started Berkshire Hathaway Specialty which is doing great.
On AI: Buffett says AI can do a lot of things well and that it can’t be uninvented now. Charlie is a little skeptical of hype on AI. But said its impact on robotics is big.
On Commercial real estate: Buffett says all banking activities have consequences. We’re now seeing consequences of letting someone borrow at 2.5% and now with higher rates, handing it off to someone else.
Value investing during AI: Charlie says you need to get used to making less money because of increased competition. Buffett says there will be plenty of opportunities. Talks about other tech innovations. Opportunities will arise from other people doing dumb things.
On AIG: Ajit and Buffett optimistic about the deal they did. Buffett says the rest of the insurance operation has very little debt and that helps them.
Succession plans: Buffett discusses his wills with all his children since they are all over 60 now. Munger’s succession plan is to just hold the damn stock.
BNSF crude oil and tribal land spillage: Greg’s team acknowledges mistakes and learned lessons. Buffett asks Greg and Greg says 1000+ derailments a year. Buffett says they are a large operation and mistakes are bound to happen.
On Energy: Buffett talks about MidAmerican purchase and that Greg’s been talking about that a lot. It’s not easy when crossing state lines. Greg says energy transformation is going on. It’s state by state in the US. They own 3 US utilities. State by state plans. Reduce carbon footprint by 50% by 2030 relative to 2005. Pacific Corp, bought in the 2000s, is now in 6 states. Buffett says our government is not ideal in solving such problems. After WW2, they reordered the industrial enterprise that created efficiency with government contracting private industries. Buffett says the government needs to reengineer the energy system of the US. Says it’s a very hard problem in times of peace. China has one country, but the US has 50 states in this domain.
After Greg and Ajit: Buffett says Greg will succeed him. Greg will decide on his successors. Ajit will give him his best advice.
On the USA: Reiterates that country has had a great run. There are big challenges, for example, with nuclear power. One problem now is partisanship that’s moved towards tribalism and mobs. Democracy needs to work better.
Does he worry about bad successors: He doesn’t worry. He thinks the next generation will have a long time while Buffett’s shares are diluted. Charlie doesn’t fret about it either. Berkshire regards shareholders as owners of the company. Buffett says they will survive if they are a plus to the country.
On leadership abilities of Greg and Ajit: Buffett says when Ajit started, he didn’t know much about insurance. But now, he’s one of the best. They used to talk everyday. Buffett never looked at what school someone went to. However, Buffett said, Ajit did go to good schools.
Buffett talks about Ben Rosner who bought a submarine once and how he bought a retail company once from him for $6M.
On Alleghany Corp: Ajit says there’ll be no changes in strategy or management. On the property casualty business, there have been issues related to pricing. Margins have been healthy in 2023.
Advice to companies on moat: Buffett says they don’t talk to Wall Street and asks management to create their own destiny. He says they are learning from companies all the time. About Japanese investments — he saw a movie called “Turn every page”. He turned every page on Moody’s. He read about the 5 biggest Japanese companies. He learned about them. As a group, they were earning 14% on what they paid for. They got financing for 0.5%. So it was a no brainer decision. They will try to own up to 9.9% of the companies. Buffett went to Tokyo to introduce Greg to them. He built trust with them. They are good investments. Greg says culture and history there was great.
On Apple being 35%: Buffett says it’s not 35%. It’s about 6% of their overall portfolio. Buffett indicates they like to own good businesses. Buffett says Apple is better than the railroads. So, he’s glad to own that much.
Question about China and US tech valuations: Charlie says tensions between US and China are stupid. He says we must have a lot of free trade with China. Look at Apple who’s had great success with China. Both sides need to stop this rhetoric. Buffett says both sides are superpowers. Leaders need to understand the situations better and stop playing too hard. This used to be the Soviet.
On TSMC: Buffett says it’s an important company in the world. Alleghany is participating in their Arizona plant. He says there’s a great moat with TSMC. But he feels better about the capital in Japan than in Taiwan.
100 year vision for Berkshire: Buffett talked about Ben Graham. Graham did everything for Buffett and didn’t expect anything in return. Graham wrote a book in 1949 and said to Buffett there were mistakes in it. Buffett checks Amazon occasionally to see the book’s rating. It consistently ranks on top. Buffett’s vision is to be a net positive for society. Munger again says Geico was where Graham made most of his money. Buffett says Graham wrote a postscript to the 1949 book.
On Car insurance: GM has had their insurance for years. It’s hard to come up with auto insurance. Ajit says the margins on auto insurance is quite low (I think he said 4%). State Farm is pretty big and no one’s improved on their system much.
On whether Greg would allocate capital: Buffett says Greg would do and operate in the same way as Buffett did.
What actions in future would concern Buffett: Buffett says he doesn’t have a second choice and he’s sure about Greg. Even without Greg, Berkshire will work well on auto pilot.
Afternoon session:
On banking: Buffett says fear is contagious and FDIC is good. Incentives in bank regulations are messed up. Fannie and Freddie were doing 40% of the mortgage. They were regulated by about 150 people. With FRC for example, non-govt guaranteed mortgages in jumbo amounts in fixed rates before changing to floating, it was in their 10-Ks. It was in plain sight! Everyone ignored it till it blew up. Some insiders sold as well. Munger likes it when banks don’t do investment banking or derivatives.
A true story: He wanted to bring in somebody for Berkshire, a banker. He went to high school with Charlie. The banker wanted to build a new building because they were profitable. Warren said he can build it as long as the building is smaller than the competitor. He lost motivation on it. Eventually, he didn’t end up running the bank.
A 13-year old attends his 6th Berkshire meeting: US debt is about $31 trillion. The Fed wants to print. Question is about de-dollarization. Buffett says — trust Jay Powell. Easy to go too far and people lose faith in currency. You can’t all be experts. So shouldn’t pretend to be like one. It’s a political discussion now. But we can’t just print money indefinitely. Munger says printing money to buy votes will be counterproductive. Munger admires Japan on what their Fed has managed. Buffett says your best defense is your earning power. If you’re the best doctor, you will succeed. But you won’t succeed by just holding dollars. The best investment is in yourself.
Question on Pilot, the truck-stop operator: Buffett doesn’t like the comparison to Travel America. Buffett says there are hundreds of locations on interstates. BP acquired Travel America. Buffett says he likes the new CEO of Pilot.
15-year old’s 4'th Berkshire meeting: The question is about mistakes he’s made. Buffett says write your obituary and figure out how to live up to it. Praise by name. Criticize by category. Don’t need to vilify anyone to make your point. Talked about Tom Murphy Sr.
Stay away from negative people. What if they’re your family: Buffett says minimize it. Macarthur family example where they walked out.
Retail question: It’s about margins retailers offer for the product. Buffett was reading about Bernard Arnaud’s Blue box certificates (?). Buffett cites the Coca Cola example. Reg. Fruit of the Loom, he won’t make money being just on Walmart. For Garanimals, you’re picking up something for the kid, and it’s reasonably priced, it makes sense to distribute it with just Walmart.
On Paramount which slashed dividends by 80%: Buffett says it’s a tough business.
High schooler asks a question about renewable energy and why Berkshire hasn’t invested much on it: In Iowa, Berkshire uses more wind-generated energy than other sources. Buffett says he’s happy with Berkshire’s record in this space compared to other companies. Munger says there are false claims where much is not known about the climate. Buffett says they spend about $7B on it and would love to be spending more. Munger says it makes sense to go to renewables even if there weren’t climate issues, just to preserve the hydrocarbons.
Question about oil on Permian Basin: Buffett and Munger like the business, although they don’t know the technical details of oil businesses. Occidental is doing a lot of good things. They’ve mastered a lot of tricky technology and they like Occidental a lot. Buffett says Occidental has other things too and that the price of oil is important too. There’s speculation about buying full control but Buffett says it’s not true. Buffett owned Texas Pacific Land Corp, which is mostly now part of Chevron. Chevron owns a lot of minerals through a license-fee model.
Question about Elon Musk: Munger says Musk overestimates himself but he’s very talented. Buffett said The Bill Maher program with Musk is worth watching.
Buffett can pay 50 to 100 billion for a business, but he doesn’t like bidding for public companies. Because their shareholders have to vote on that, and there are counterbids and so on. Delaware decides on it. So, he likes private companies. Tiffany’s or Harley Davidson for example. Sometimes good private companies don’t want to sell and only need some cash injunction. Currently he’s happy owning $130B of bills at 5.9%.
Corporate law advice for young lawyers to Munger: Munger’s son-in-law says it’s like a pie-eating contest where if you win, you get to eat more pie. Avoid those law firms. Life’s too short to eat nothing but pie. Buffett says Munger hasn’t practiced law since 1962. Buffett says Munger gave him 4 or 5 pieces of advice throughout his life. Buffett likes to work for himself rather than advise others, same as Munger.
15% Corporate minimum tax rate based on reported earnings: Buffett thinks he needs to know more but doesn’t think unrealized capital gains will be taxed as operating earnings. But he’ll live with this tax code and doesn’t feel over-taxed. They’ve been paying 15% anyway. If a thousand corporations paid the same tax as Berkshire, no one would have to pay income tax. But he also would like the government to control spending.
Funniest story about each other and hardest part of business: Buffett says there’s no hard part. He lives 5-minutes from work, so he hasn’t spent time commuting. In 1966, he was in Baltimore buying a department store, and needed a lawyer who did exactly what was told. Charlie told the lawyer, treat Warren like any other 90-year-old clad. Made the deal. Wanted to borrow 6M. The banker expressed disbelief in the company they were trying to buy. They have tried to sell that company ever since.
On Activision Blizzard: Microsoft has been very willing and helpful. The UK blocked it which Buffett thinks is a mistake. Buffett doesn’t know the resolution, same as Dominion Energy (?).
About incentives: Buffett says he’s had 5 bosses and used to work at JC Penny’s, Cooper Smith’s for 75c an hour, newspaper, then Ben Graham. But there’s nothing like working for yourself. Managers like working there. No need to spend time with analysts or banks. So, there’s a lot of freedom which is meaningful for managers. There are good reasons to sell to Berkshire. Buffett talked about National Indemnity. Jack used to get annoyed with his stakeholders, and Buffett wanted him to sell when Jack was in the heat, and he did. It worked out for all of them.
See’s and NetJets: Warren says See’s is 101 years old now and it has magic on the west coast. On the East Coast, people prefer dark chocolates. You must be wealthy to use NetJets. It’s like what Ferrari has done for cars. They sell about 12000 cars. A Chevy dealership in Austin would sell that much. NetJets will buy 100 planes this year and won’t sell any. Buffett took a jet to Tokyo. No competitor for NetJets. Charlie says NetJets is worth as much as an airline. Buffett said they put a coach section to entice Munger. Munger likes it.
Zero Emissions vehicles: Buffett and Munger haven’t liked the auto industry. For example, Ford thought he owned the world with Model C. But 20 years later, they were losing money. There were 19000 dealers then. Now with a higher population, there are 18000 dealerships. Munger doesn’t like huge capital and huge risk.
On QE and Fed’s balance sheet: Buffett doesn’t think the Fed’s a problem and they can’t solve the fiscal problem. He didn’t like the 2% inflation rate. That’s like devaluing a currency and it’s only beneficial to people with a lot of debt. The Fed’s balance sheet has gone to $2.x trillion now from $800B in 2008. It’s astounding how $100 bills have spread and Buffett doesn’t know where they all are. Buffett doesn’t think cash is trash. Munger doesn’t know where this is headed.
On Supply Chain challenges from China. Should companies and governments do this?: Munger says if it’s cheaper to build something in Mexico, it makes sense, but at the same time, you don’t want all manufacturing to be out of the country. Buffett says cost has moved production offshore. Net, the country is better off because of it. Munger says Adam Smith on free market capitalism was right. There were a few government safety nets. Munger says the Russian system of “They pretend to pay us. We pretend to work.” isn’t good. Net, the USA has done well. Buffett says we have 25% of the world’s GDP starting with just 0.5% of the world’s population.
On mark-to-market accounting for banks vs Berkshire: Buffett wants it done on the balance sheet and not on the income statement. Obviously, the income statement feeds into the balance sheet. But he still wants to explain to shareholders what really counts to Berkshire. That’s why he mentions that in the annual report. Some companies rely on earnings before everything (EBE), that’s not right. :)
On grandchildren: Munger lives his own way and wants grandchildren to observe and learn. He just stays silent when he doesn’t like their grandchildren’s behavior. Buffett says he’s happy with his children and Munger jokingly says he needed a lot of help!
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