Letters from Omaha: Lessons from Warren & Charlie at the 2023 Berkshire Annual Meeting
From L to R: Youssef Haidar (Windsor), Adam Watson (Chatham), Paul Manders (London), Joe DiBrita (London), Steve Lockner (KW), Adam Szypula (Toronto), Zach Davidson (Toronto) and Rob Watson (Chatham).
Last weekend eight of our team members, representing all five of our offices, were in attendance for the annual Berkshire Hathaway Shareholder Meeting. We joined a crowd of over 30,000 people from all over the globe who were in town to hear from The Oracle of Omaha.
For most, it was our first trip to Omaha. We were all excited to hear the wit and wisdom of Warren Buffett (92) and Charlie Munger (99) and they certainly did not disappoint. It was also an excellent opportunity to get together for a few days in an informal setting which was a great team building experience.
The whole event had a groovy, ‘70s theme which was right on brand given the world hasn’t seen inflation numbers like this since the last time platform shoes were in vogue.
What stands out about Omaha is how nondescript the city is. It’s a typical, Midwestern US city with almost no names on any of the buildings. It’s roots in agriculture and heavy industry are still very apparent and can be seen alongside it’s growth into telecommunications and, more famously, insurance.
This is far from a knock against the city, rather it’s a high compliment. As more and more shareholders began to come into town, it became obvious that this seemingly bland exterior was part of its charm. We commented at one dinner the likelihood that some fellow patrons have a net worth into the 8-to-9 figure range, yet you wouldn’t have known it. There were no limos or tailored suits. Warren and Charlie were the only ones we saw in ties all weekend. It was a humble crowd, dressed mainly in golf shirts, and slacks (even some in shorts).
Lacking the flash and pizazz of a New York, Los Angeles or Miami, the city of Omaha pairs perfectly with Berkshire’s diverse, seemingly boring (but cash gushing) companies and their unique culture. You’re not a “shareholder” of Berkshire Hathaway, you’re viewed as an “Owner Partner”.
You quickly realize that Berkshire shareholders have become a self-selecting group who have bought in to Warren and Charlie’s vision as shared in their many shareholder letters and the Berkshire Hathaway Owner's Manual.
The Meeting & Our Takeaways
We’ll dive into some of our thoughts on the meeting below, however if you want to hear straight from the horse’s mouth check out the Warren Buffett Archive or YouTube. CNBC, the official media partner of the event, does a great job editing down 5+ hours of Q&A into ~2-5 minute clips covering the key themes of the meeting.
I can’t recall any time in the history of Berkshire that we made an emotional decision. You don’t want to be a no emotion person in all your life, but you definitely want to be a no emotion person making investment or business decisions.
Our day kicked off bright and early, and by 6:00am we were in line with other shareholders/fans. Even at this hour, we were still behind a few thousand folks who were more ambitious than us. Once we got our seats, the day started at 8:30am with their “secret” movie. You won’t find this online as it’s an in-person exclusive but it showed Warren and Charlie have been answering the succession question since the early-90s.
The action then got underway with Warren and Charlie being joined on stage by heir-apparents: Ajit Jain and Canadian Greg Abel. It was shocking how silent the crowd got as the 4 of them welcomed us. The meeting then got underway starting with an overview of earnings before moving to a Q&A that would take up most of the day.
What stuck out to Adam Watson was just how massive and diversified Berkshire is as a company. The point was really brought home by walking around the shopping exhibits in the arena. If you wanted a dilly bar from Dairy Queen, clothes from Fruit of the Loom, a modular house, fractional ownership in a private jet, or insurance (for just about anything) Berkshire is home to all these businesses and more. His comment was that the stock is basically its own ETF or mutual fund in terms of exposure to multiple sectors of the economy all within 1 ticker.
Adam was also impressed by Berkshire Hathaway Energy’s recent green energy investment in West Virginia. They are building a fully carbon neutral aerospace factory while employing local West Virginians to move their power grid away from the dying coal industry. It was a great example of the potential for outside the box collaboration to solve complex problems.
Warren also talked about how he’d happily put Berkshire’s energy record up against any utility in the US.
Discipline over the years will keep adding to Berkshire's Value.
Joe was shocked at the amount of “fin-fluencers” in attendance and the overall mix of the crowd.
Warren and Charlie’s message of owning quality companies for the long-haul, reinvesting earnings into high-return opportunities and keeping things simple (Warren usually accepts or declines takeover proposals in phone calls lasting less than 5 minutes) are truly timeless.
It was something we sort of knew, but to go out during lunch and see ring lights/iPhone stands for live streaming alongside people who could easily be their grandparents (or great-grandparents) really brought home just how widely this enduring message resonates.
Something the whole team and especially Adam Szypula thought was of interest was the “Insurance-Investment Income” section of Berkshire’s earnings. While accounting may not be the most exciting of topics, there are some incredibly important implications for investors discussed here.
Warren and Ajit keep ~$125 billion in short-term bonds/cashable securities as part of their “fortress balance sheet”. Not that long ago, the rate they were getting on this war chest ~0.04%. However, with interest rates rising rapidly over the past 12 months, this has led to some dramatic changes. In the last week of April, they put ~$3 billion to work in T-bills yielding 5.90%.
Speaking in percentage terms can be abstract, but convert this to dollar figures and the numbers become truly eye-popping in a hurry.
What produced us not that long ago, on a 12-month basis, $50 million, now will produce us around $5 billion per year.
Warren commented this was one of the many signs that the world has changed dramatically in the past 6 months. Despite a build up of inventory as supply chains get fixed (leading to discounts for buyers) and a widely expected slowdown in the economy being very likely to hurt top line revenues, this pickup in investment income will help insulate Berkshire’s income statement.
Adam Szypula runs into a celebrity at Gorat's for a steak dinner.
Paul really enjoyed the constant talk about Berkshire’s unique culture.
There was no shortage of references towards helping both community and country and this on full display in the West Virginia partnership mentioned above. Warren and Charlie aren’t looking to make more income, their focus is on building sustainable businesses and reliability for stakeholders. Of course, Warren continued to highlight that the best investment is yourself.
Warren and Charlie also continually spoke about the power of having great partners and surrounding yourself with positive people.
At 92 and 99, both Warren and Charlie have plenty of wisdom to share outside the world of investing.
Paul Manders & Rob Watson across the street from the Berkshire Hathaway headquarters.
Zach came away very impressed from the whole experience. The reverence for Warren and Charlie was very evident from the quality of questions being asked. Questions came in from all over the world with some from investors as young as 13 who were attending their 6th meeting. It says a lot about a company and its culture to gather a crowd like that.
It’s always interesting to look at companies and sectors they are investing in as well as sectors are they avoiding. Looking back on their track record, Berkshire has bought about 80 companies and invested in roughly 210 stocks for a total of 300 businesses.
What stands out is how Warren and Charlie readily admit that, while their overall batting average might not be terrific, they sure have connected on a few. In the past they’ve said much of their success comes from 12 great outcomes. This means a roughly 4% "big success rate" or that only 1 in 25 companies work out for Berkshire on a big scale!
Munger also mentioned that 15 great decisions more than made up for other investments that did not work out. For being the greatest investors in the world, they both humbly admit they’ve made a lot of mediocre calls, but holding on to their winners and letting them compound has been the key to their success.
This is all to say that investing is very hard! Sticking with winning positions takes discipline. Everyone is susceptible to investor biases, and it's tough to recognize them in real time to avoid mistakes. It also helps to look for alignment of incentives and for quality management teams with significant "skin in the game" when evaluating businesses.
Those who are smart don't need it. Those who aren't smart shouldn't use it. - Charlie Munger on Leverage
Zach Davidson (front) with the famous GEICO gekko. This was one of the many booths in the shareholders exhibit.
Buffett is famous for popularizing the “Circle of Competence”. While the technical aspects of Berkshire’s many businesses are outside Warren and Charlie’s "circles", they’ve proven remarkably adept at capital allocation. They claim this is largely due to their understanding of consumer behaviour and they credit their investment in See’s Candy as being the major breakthrough here. Even in their nineties, they continue to learn more about this every day.
This led to a discussion on their concentrated position in Apple. They highlighted that if you have a $1,500 iPhone and a $35,000 second car and you need to get rid of one, for majority of consumers it’s the second car. That speaks to the power of the brand/franchise. It also tied into another great quote from later in the day:
You’re going to have better margins if customers ask for your products by name.
Finally, as the day wore on and the sugar high from the Cherry Coke and See’s Peanut Brittle wore off, Adam Watson was impressed by the stamina shown by the two nonagenarians. Their back-and-forth banter reminded more than a few of us of Statler and Waldorf! Warren's recall is also as strong as ever. This was on full display as he vividly recalled stories dating back 70+ years to compare them to the world of today.
For instance, when discussing the Electric Vehicle (EV) space, Warren quoted GM’s 1932 Annual Report for information that paralleled today’s market. He also spoke about how just because you have a good idea or notice a growing trend, that doesn’t mean it’s a good investment. You need to pick the winners in advance and invest in them at attractive prices to get the real benefit.
Here are some quick soundbites on other topics covered during the meeting. If you’d like to read our full notes please email Fairway-Wealth-Management@nbc.ca for a copy. It was a wonderfulexperience so please feel free to give us a call to chat further. We're also happy to talk about our great experience meeting the world famous Savannah Bananas in the Kansas City airport!
Major Mistakes to Avoid in Life & Business
- “Write your own obituary and then try to live up to it.” – Warren
- “You just want to make sure you don’t make any mistakes that take you out of the game or come close to taking you out of the game. You should never have a night where you’re worried about investing, assuming you have any money to invest. You should spend a little bit less than you earn.” – Warren
- Full Answer
100-year vision for Berkshire
- When starting out, there was no large vision of what Berkshire would become. His vision is the same now as it was then: Owned by shareholders and society is happy it exists.
- The Intelligent Investor was published in 1946 and remains in the Top 20 of Finance books sold on Amazon. He sees no reason why Berkshire can’t be the same.
- Full Answer
The US Dollar as the Global Reserve Currency
- “As global reserve currency, US can do a lot of dumb things and get away with it, but not an unlimited amount.”
- You need to do the unpopular thing sometimes (cited Paul Volcker as an excellent example).
- Full Answer - Warren: There's no option for any reserve currency other than the U.S. Dollar
- Full Answer - Warren: Cash is not trash
- “Old fashioned intelligence works pretty well.” – Charlie
- Full Answer
Future of Value Investing
- “Value investors are now going to have a harder time now there’s so many of them competing for diminished opportunities. My advice to value investors today is get used to making less.” – Charlie
- Full Answer
Bank Runs & Culture
- “If you think deposits are sticky, you’re living in a different era. Long lines and counting out withdrawals slowly won’t cut it anymore. Bank runs can happen in seconds.” – Warren
- “Bankers should get into the profession like engineers; aim should be to avoid trouble, not to get rich” – Charlie
- Full Answer - Charlie: I don't think having a bunch of bankers trying to get rich 'leads to great things'
- Full Answer - Warren: We don't know where the shareholders of banks are heading
- “Elon takes on the impossible and it’s hard. We prefer the easy and possible.” – Charlie
- Full Answer
If you've made it this far and just haven't had enough of Buffett and Munger, below are some suggestions on where to go next. YouTube is an excellent resource and you can find a lot just by searching "Warren Buffet/Charlie Munger on (insert your topic of interest)".
Warren’s Movie Recommendation: Turn Every Page: The Adventures of Robert Caro & Robert Gottlieb
Podcast: Business Breakdowns - Berkshire Hathaway: The Incomparable Compounder (Apple Podcasts & Spotify)
The Essays of Warren Buffett: Lessons for Corporate America: This is an authorized summary of Warren’s letters to shareholders, condensed and organized by category. If you want to get Warren’s wisdom in a more approachable and structured format, this book does an excellent job of that.
Adam Szypula lucked out and got the last copy for sale (and an autograph from author Lawrence Cunningham) at the meeting!
Warren Buffett's Letter to Shareholders (1977-2022): If you want a deep dive (and I mean deep) you can always go straight to the source. The length of the letters vary by year (2015 is a 30 page tome) but the 2022 letter was a more modest 10 pages.