Unlike every year, this year only Warren along with few executives started annual meeting of Berkshire Hathaway, There used to have thousands and thousands of people in Omaha for this meeting.
Warren started with saying, it particularly doesn’t feel like an annual meeting because my partner of 60 years, Charlie Munger, is not sitting up here. And Ajit Jain also not present in the meeting.
Here is the key takeaways of the annual meeting-
1. United States history of 231 years tells us we have made more than hundreds trillion in household wealth but not steady progress.
In 1803 we purchased for $15 million, we made the Louisiana purchase, that was equal incidentally to about a quarter, about 800,000 plus square miles
We paid with 200,000 ounces of gold, valued at 15 bucks an ounce, and that, we mine over 40 million ounces of gold that comes to about $60 billion worth. But what was going to be price of 8 Lacs square mile of land, I guess little over 3 cents an acer
2. On Coronavirus & Stock market
In the last time it was absolutely packed. and there were 17000 or 18,000 members in this hall it’s been a flip of the switch in a huge way in terms of national behavior, the national psyche
I don’t know anything In school, I was a disaster in biology
Comparing corona with Spanish flu- I think you can almost rule out it being as lethal as the Spanish flu was. But it’s very, very transmissible.
Germs don’t have borders when something like the current pandemic happens, it’s hard to factor that in, and that’s why you never want to use borrowed money
We learned it a few months ago in terms of the virus. Anything can happen in terms of markets, I don’t know what’s goanna have today tomorrow and a year even nobody knows, Bet on America
Now, I would never take real chances with money, of other people’s money under any circumstances. Talking about shutdown and earning of Berkshire
Being on cash is a position- We have corona (a problem) it doesn’t mean there cannot be other problem next day. It can – Warren while answering question on having huge cash position in berkshire hathaway balance sheet
Change in behavior due to corona-
Because of shutdown Americans will have now changed their habits it’s been seven weeks since I’ve had a haircut. It’s been seven weeks since I put on attire.
What history tells us -
1987, October 11th markets went down 22% in one day
In 1914, they closed the stock market for about four months
After 9/11 closed the market for four days
On September 3rd, 1929, the Dow Jones average closed at 381.17, and people were very happy and buying stocks on margin that worked wonderfully
If somebody had given me $1,000 on the day I was born, and I’d bought the Dow Average, my $1,000 would have become $170 in less than two years, in terms of having a broad range of America market down 83% in two years
That literally killed roughly 6% of the males in the country who were between 18 and 60. So imagine 6% of your working prime age males in a country are wiped out in four years.
But we’ve moved in the right direction, we’ve got a long ways to go
3. Risk and return-
30-year Treasury bond, which yields 1.25% now.
Equities are going to outperform that bond.
Bond are going to outperform Treasury bills.
T-Bill going to outperform that money you’ve stuck under your mattress.
You can’t buy risk-free bonds the yardstick for me is always the U.S. Treasury and
When somebody offers you quite a bit more than the U.S. Treasury, there’s usually a reason. There’s much more risk.
4. Accepting the mistake- selling the airline-
We have sold entire stake in all 4 airline companies that we have bought for over USD 7-8 billion
We were getting a billion dollars roughly of earnings. Now we weren’t getting a billion dollars of dividends
I think airline business changed in a very major way, and it’s obviously changed in the fact that there are four companies are each going to borrow perhaps an average of at least 10 or 12 billion each
Coronavirus happened to hurt particularly the travel business, the hotel business, cruise business
On 100% stake sell in airline? We buy business and if something goes wrong we sell them entirely we don’t trim position
5. On Succession-
We would also like to recognize that the executive pipeline includes diverse candidates including Mr. Ajit Jain, another board member.
Ajit is not in the capital allocation business. He is the best He’s got one of the best minds in the world.
I wrote his father if you’ve got another son like this, send him over from India because,
Well on the world.” No Ajit is one of a kind but his job is not capital allocation. It’s evaluating insurance risks and that is a rare
He possesses a rare talent and he has a huge capital backing to do it. So he’s an incredible asset.
6. Guru of Value investing recommending Index fund-
I haven’t changed my will and it directs that my widow would have 90% of the funds in index funds and I think its better advice than people are generally getting from people that are getting paid a lot to give other advice.
You don’t make a lot of money advising an S&P 500 index fund. if the index funds reflect the market and one side has high fees that think they can pick out stocks and the other side has low fees, I know which side is going to win over time.
7. On default by America-
No. If you print bonds in your own currency, what happens to the currency is it can be a question because you don’t default.
If I could issue a currency Buffet bucks and I had a printing press and I could borrow money, I would never default. So what you end up getting in terms of purchasing power can be in doubt, but in terms of the US government, downgraded the United States government, I think it was some years back. That to me did not make sense
The country is going to grow in terms of its debt paying capacity but the trick is to keep borrowing in your own currency.
8. On credit card Industry-Just close credit card rather investing money,
My general advice to people, we have an interest in credit cards. But I think people should avoid using credit cards as a piggy bank to be rated
I don’t know how to make 18%.” if I, owed any money at 18% the first thing I do with any money I had would be to pay it off
If you’re willing to pay 18% or whatever, I’ll lend you money.”
9. Real estate vs Equity-
Advantage of equity- Maybe you bought a house that could be rented to somebody, but you didn’t really have the chance to buy in with 10 different people who were developing businesses, and who were presumably putting their own money in
Disadvantage of equity-people bring the attitude to them too often that because they are liquid and quoted minute by minute that it’s an important that you develop an opinion on them minute by minute. Now, that’s really foolish when you think about
Stocks have this enormous inherent advantage of people yelling out prices all the time to you, and many people turn that into a disadvantage. And of course many people can profit in one way or another from telling you that they can tell you what this farmer’s going to yell out tomorrow or next… your neighboring farmer’s going to yell out tomorrow, or next week, or next month.
10. Psychology of price discovery in trading-
If you really had a farm, and you had this neighbor, and one day he offered you $2,000 an acre, and the next day he offers you $1,200 an acre, and maybe the day after that he offers you $800 an acre, are you really going to feel that at $2,000 an acre when you had evaluated what the farm would produce, are you going to let this guy drive you into thinking, “I better sell because this number keeps coming in lower all the time”? It’s a very, very, very important matter to bring the right psychological approach to owning common stocks.
Buying a stock as part of a business and comparing your profit with trader and speculator it’s really the wrong approach.
For warren long term mean 20-30 years, At this age he talk about holding it for 20 years, Just think of his optimism.
In hours long video meeting warren touched every possible aspects of the investing and shares lots of experience. He answered many question and accepted his mistake of investing in airline stocks stating world has changed for airline stocks. He lauded again and again that Never bet against the america Praises ex fed chairman powell and also praises prompt action of federal reserve handling COVID.
On succession warren given hint that both Ajit jain and Greg Abel is in race
Just to update- Besides having 100% ownership of many companies including insurance company lead by Ajit Jain berkshire equity holding worth about 200 billion in public listed companies. Major holding include apple, Bank of america, coca cola, American express wells fargo etc. Point to notice here is unlike 2008 when warren had invested in many financial companies, Now in current market He is not in hurry to buy shares, It shows he is not confident about market and economy.
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