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The Berkshire Beat: May 5, 2023
Previewing Berkshire Hathaway's annual shareholder meeting, other company news, and my must-reads of the week!
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This weekend, tens of thousands of Berkshire Hathaway shareholders will descend on Omaha, Nebraska, for a three-day bash otherwise known as the company’s annual meeting. At most businesses, annual meetings are dreary affairs that draw few guests and even less interest from the wider world.
With Berkshire, though, it’s a very different story…
Each year, the headliner is the same: a Saturday morning/afternoon Q&A session with Warren Buffett and Charlie Munger in which they field questions on just about every topic under the sun for hours on end. All year long, fans anxiously await these precious hours of unfiltered thoughts and opinions from two of the greatest investors of all time. Buffett and Munger pull back the curtain a bit on their investing philosophy, macroeconomic outlook, and even general life advice.
CNBC will stream the entire affair at www.cnbc.com/brklive. And, to make the whole thing feel even more like the Super Bowl of Investing, there will also be a pre-show (starting at 8:45 a.m. CT), halftime show, and post-show — all anchored by Buffett whisperer Becky Quick.
Berkshire vice chairmen Ajit Jain and Greg Abel will only be available to answer questions during the morning session, which runs from 9:15 a.m. CT to 12 p.m. CT. So, if you’ve got a burning question for Berkshire’s insurance savant or Buffett’s hand-picked successor, be sure to tune in early.
After a one-hour break for lunch, Buffett and Munger will return to the stage for an afternoon session from 1:00 p.m. CT to 3:30 p.m. CT.
But, for those diehards who make the trek to Omaha, the “Warren and Charlie Show” is only part of the fun. Berkshire will turn the CHI Health Center Arena into a shopping mall of sorts, full of companies owned (either partially or fully) by the conglomerate. You can sip on a Coca-Cola, munch on See’s Candies, or dig into a Dairy Queen blizzard. Or try on a new pair of Brooks running shoes. Or tour a private plane owned by NetJets. Or… Well, you get the idea.
For one weekend, Berkshire brings its entire stable of companies together under one roof with special discounts and offers available only to shareholders. It’s a pretty sweet deal. And more than lives up to its name as “Woodstock for Capitalists”.
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Other news and notes out of Omaha…
This year’s annual meeting should be (mostly) a celebratory affair. In 2022, Berkshire Hathaway outpaced the S&P 500 by 22.1%, bagged an elephant in Alleghany Corp., and made big bets on Occidental Petroleum and Chevron (along with lots of other stock purchases during the first half of the year). Then, after a slow start to 2023, Berkshire upped its stake in Pilot and the sogo shosha — and even hit a new 52-week high earlier this week. Buffett also presciently reduced his company’s exposure to the banking sector just ahead of the current crisis.
Speaking of the optimism surrounding Berkshire, a new Bloomberg MLIV Pulse survey reveals that 53.2% of professional investors and 54.4% of retail investors expect Berkshire to beat the S&P 500 over the next five years. Just 13% of professional investors and 8.1% of retail investors think that Berkshire will trail the benchmark index over that same period.
Notice, I said it would mostly be celebratory. I certainly expect a pointed question or two about the recent travails at GEICO, for instance.
Adam J. Mead, author of The Complete Financial History of Berkshire Hathaway and, has generously removed the paywall from his April 2022 Deep Dive on Berkshire and made it available to all readers. While this writeup might be a year old, it nevertheless provides invaluable insight into how one noted Berkshire expert analyzes and values the company. Highly recommended.
And some late-breaking earnings news from Berkshire’s stock portfolio:
Paramount Global announced its Q1 2023 earnings on Thursday morning and… ouch. The media giant missed expectations on both the top and bottom lines, spurring a frantic sell-off of more than 28%. PARA 0.00%↑ also cut its dividend by nearly 80%. All in all, a brutal day for the studio.
Thankfully, the mood was happier over at Apple. iPhone revenue came in much stronger than expected, more than offsetting declines for Mac and iPad. “It was quite a good quarter from an iPhone point of view,” Tim Cook told CNBC. Apple also raised its dividend by 4% and authorized $90 billion for additional share repurchases.
Markel ❤️ Berkshire Shareholders
Warren Buffett and Charlie Munger often lavish praise on Berkshire Hathaway shareholders. Whenever they’re asked about splitting the stock, they say that such a move would only degrade the quality of Berkshire’s shareholder base — which has been carefully cultivated to attract buyers with a patient, long-term approach.
“We can’t imagine a better constituency than is in this room,” Buffett said in 1994. “We don’t think we can improve on this group.”
Munger agreed. “This is a very outstanding group of people. Why would anybody want a different kind of group?”
And, while some might dismiss these rah-rah comments as meaningless flattery, plenty of others feel exactly the same way.
Including Tom Gayner, CEO of Markel.
In 1991, shortly after joining the insurance company, Gayner had an interesting thought. If Markel wanted to attract and retain the very best shareholder base possible — one built for the long haul and not susceptible to short-term panic — then the best place to find such investors would surely be at Berkshire’s annual meeting.
“The people who are most likely to understand what we’re doing are people who are already in Berkshire,” he told Bloomberg Radio in 2021. “If you own Berkshire, you’re already qualified [to be a Markel shareholder].”
That very first year that we were there, there were six people that were willing to sit down and drink coffee and eat bagels with Steve Markel and I. We didn’t have a formal presentation. I think we just talked and answered their questions. And that went on for maybe two-and-a-half, three hours or something like that.
Soon enough, Markel’s Omaha Brunch became an annual tradition and, for many, a cherished part of annual meeting weekend. It’s gotten pretty popular, too. Long gone are the days of only six attendees. In 2019, the crowd ballooned to 1,200-1,300 people.
“There are more Markel shareholders in that room [in Omaha] than typically come to our annual meeting,” Gayner laughed.
Other awesome things that I read (and listened to) this week:
“The meetings with Buffett, who’s famously picky about food, ended without any of the big Tokyo dinners for which the trading houses are known. There was no going out for drinks. It was all business — with the discussions trained on what could be a turbulent economy over the next few years. The Japanese executives, who had been nervous about meeting one of the world’s most respected investors, left with a sense of relief … They’d given the ideas. He’d listened carefully. Where it goes from here remains to be seen.”
“Mr. Buffett’s liberalism is of the classic Adam Smith variety: Private initiative, properly regulated, leads to social good. That used to be just about everyone’s view, but no more. Corporate boards are now assembled like political platforms, with consummate attention to satisfying multiple interests. Berkshire chooses directors on the basis of ‘business savvy’ and owner — not ‘stakeholder’ — orientation. In short, Mr. Buffett remains a full-throated believer that boards exist to represent shareholders.”
Todd Combs: Meeting Munger, Buffett, and Joining Berkshire (NFM i am home)
I will have much more on this hour-long Todd Combs interview in coming weeks. But, in the meantime, here are a few highlights from his podcast appearance:
“During the day, I’m 110% GEICO … I do the investing stuff at night to relax — and on the weekends.”
“Most people would probably be surprised how few people actually read annual reports and 10-Ks — let alone trade magazines and so forth.”
“We have a whole new line [of GEICO commercials] coming out soon called ‘Frenemy’. I don’t want to spoil it for our marketing department, but I just saw them this week and they’re absolutely fantastic.”
Warren Buffett Has Been Betting Big on Oil (Akane Otani // Wall Street Journal)
“‘Let’s say, for example, [Buffett] has a view that in the next ten years, oil prices will range from $60 to $150 a barrel,’ Mr. Pabrai said. As long as they mostly stay within that range, Berkshire’s stock investment would likely pay off — or at the least, return more than Berkshire would be able to get from putting that same money in U.S. Treasury notes, he said.”