The Oracle Speaks: Berkshire Hathaway's 2024 Annual Shareholders Meeting

“If you don’t live a life where you surround yourself — and limit yourself — to people you trust, it won’t be much fun.”

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On Saturday — like he has so many times before — Warren Buffett held court for more than five hours in front of tens of thousands of Berkshire Hathaway shareholders in Omaha — with many more watching from home via CNBC.

He took questions from all corners with no advance notice of topic or tone — making his quick recall and substantive answers all the more impressive. Sure, there was a distinct lack of acid-tongued zingers in Charlie Munger’s absence, but vice chairmen Greg Abel and Ajit Jain filled the gap with aplomb.

No one can ever replace Charlie, but Greg and Ajit proved once again that Berkshire is in the safest of hands.

Today, I’d like to take a closer look at ten moments from this year’s annual meeting that stood out to me as particularly important. (But, rest assured, I’ll come back to everything else from the AGM and 10-Q in future articles. I think we can all absorb information better if it’s spread out and not packed into one really long post.)

But, before moving on to the main event, let me send out a message to anyone from Jazwares who happens to be reading this: If you would ever like to sponsor an issue of this newsletter, I happily accept payment in Warren Buffett and Charlie Munger Squishmallows… 😜

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(1) APPLE: As shareholders rushed into the CHI Health Center Arena on Saturday morning, the crowd buzzed with surprising news: Berkshire Hathaway sold 13% of its massive stake in Apple during the first quarter.

Some will welcome this move due to the immense size of Berkshire’s position in AAPL 0.00%↑ and the company’s current valuation. Others probably feel shocked to see Warren Buffett make such a big change to a holding that seemed like a permanent part of the Berkshire empire.

(Personally, I didn’t mind the oversized investment in Apple. But I’m a dyed-in-the-wool coffee-canner, so your mileage may vary on that. Plus, this can’t really come as a complete surprise. After all, Berkshire sold a bit of Apple in Q4 2023.)

Once the news broke, an out-of-breath Becky Quick sprinted over to the CNBC stage to report that she had just spoken to Tim Cook and he confirmed to her that Buffett had warned him about the sale in advance. She also called an audible and asked Buffett about his Apple move right at the top of the Q&A session.

The Oracle did not come right out and say why he decided to pare back on Apple — though he mentioned possible tax considerations (a higher capital gains rate in the future) and that it helped to build up Berkshire’s cash pile.

But Buffett also went out of his way to dispel any notion that he has soured on Apple. He called the iPhone maker an “even better” business than long-time holdings Coca-Cola and American Express and that it was “extremely likely” to remain Berkshire’s largest common stock position going forward.

In the afternoon session, Buffett explained how a lifetime of studying consumer behavior — from his experiences with Hochschild Kohn, See’s Candies, and countless other companies — inspired his Apple investment. “I have no idea how the iPhone works,” he said, “but I know how much it means to people.”

He then added that the iPhone is “maybe the greatest product of all time”.

Reading between the lines, it’s probably safe to say that Buffett will trim more Apple shares in the future. But expect Apple to remain the keystone of Berkshire’s portfolio for many years — or decades — to come.

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(2) CASH MONEY: In Q1 2024, Berkshire Hathaway’s cash pile ballooned up to $182.3 billion. And that’s not all — Warren Buffett said that he expects this number to reach $200 billion 🤯 in the current quarter. (Perhaps hinting at more Apple sales.)

At this point, it’s less a cash pile and more a Scrooge McDuck-style money bin.

While some people angst over Buffett holding so much cash, I rest comfortably knowing that he has so much dry powder with which to attack the market. I’d rather Buffett remain patient and carefully pick out just the right pitch to swing at — because that inevitably means good things for shareholders.

Buffett noted that he is “quite satisfied” with Berkshire’s current cash position — though he’s still on the hunt for elephants and sizable repurchases. “When I look at the equity markets and the composition of what’s going on in the world, we find cash quite attractive.”

“I don’t think anyone at this table has any idea of how to use [$182 billion] effectively,” he added, “and therefore we don’t use it. We only swing at pitches we like.”

FYI: I don’t typically include cash from “Railroads, Utilities, & Energy” in this total, so you may see a bigger cash number — like $189 billion — elsewhere. Berkshire Hathaway Energy, BNSF, etc. need that cash for their own operations.

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(3) POUR ONE OUT FOR PARAMOUNT: A recent Financial Times article about the investing performance of Todd Combs and Ted Weschler likely forced Buffett’s hand on this one. With his investing lieutenants taking the slings and arrows for Berkshire’s wayward investment in Paramount Global, he held his hands up and shouldered the blame himself.

“I was 100% responsible for the Paramount decision,” said Buffett. “We’ve sold it all and we lost quite a bit of money.”

(We don’t know Berkshire’s exact cost basis on Paramount, but it was probably in the low-$30s. With PARA 0.00%↑ trading between $10-15 so far this year, it’s a big loss.)

Many believed this to be a Ted or Todd pick, but I was never entirely convinced. Mostly because Buffett absolutely blasted Paramount at last year’s annual meeting — and it seemed out of character to publicly attack one of his manager’s investments like that. Plus, the whole Byron Trott connection with Shari Redstone.

On the bright side, no more updates on Paramount’s merger saga in The Berkshire Beat!

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(4) ABEL ALLOCATION: We don’t actually know a whole lot about how Berkshire’s massive stock portfolio will be handled in the post-Buffett era. And, since overall capital allocation decisions are necessarily tangled up in those of the stock portfolio, will Greg Abel be in charge of investments after Warren Buffett is gone?

“That decision will be made when I’m not around,” Buffett answered. “If I’m making that decision, I would probably … leave the capital allocation to Greg.”

I’m not entirely sure what to make of that answer.

I don’t think this means Todd Combs and Ted Weschler are being demoted in terms of authority over the stock portfolio, but rather a public acknowledgement of Abel’s skill as a capital allocator and that, as CEO, everything falls under his purview.

But, on the flip side, this comment makes it sound like something has changed: “I used to think differently about how that (the stock portfolio) would be handled, but I think the responsibility should be that of the CEO.”

Let me know how you interpreted Buffett’s answer down in the comments.

Well, anyways, let’s hope any final word on this is still years away.

“The capital allocation principles that Berkshire lives by today will survive Warren,” pledged Abel. “We’ll always look at equities as if we were investing in a business — whether 1% or 100%.”

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(5) Q1 2024 RESULTS: Okay, we’ve covered the four big surprises from this year’s meeting. Now, let’s move on to the meat and potatoes of operating results.

Berkshire Hathaway’s 39.1% increase in operating earnings was fueled by the remarkable performance of its insurance segment. Berkshire Hathaway Energy bounced back, BNSF continued to struggle, and the MSR segment remained flat.

Warren Buffett also spent $2.6 billion on share repurchases in the first quarter (including $1 billion worth of shares from Dr. Ruth Gottesman via the Einstein College of Medicine). And, if my back-of-the-napkin math is correct, he also bought back 455 more Class A equivalents between April 1-19.

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(6) BERKSHIRE HATHAWAY ENERGY: BHE’s net earnings shot up 72% in the first quarter, but the utility’s litigation headaches dominated the discussion. In particular, BHE subsidiary PacifiCorp faces mounting lawsuits related to wildfires in California and Oregon in 2020 and 2022.

“There’s nobody better situated than Berkshire to satisfy a large portion of the [electricity] needs of the country,” said Warren Buffett, “and we will do it at a rate of return that is not designed to make us rich or anything like that.”

“But,” he added, “we won’t do it if we don’t think we’ll get any return.”

In other words, if BHE continues to get hammered with damages (particularly non-economic ones for subjective losses like pain, suffering, and emotional distress), it will pull back on plans to plow billions of dollars of capital into western power systems.

Greg Abel vowed that PacifiCorp will keep fighting. “All that [wildfire] litigation will be challenged,” he said, “because the basis for it — at least we believe — there are places where it’s unfounded. And we’ll continue to challenge it.”

He also pointed out that, until now, BHE’s culture has been built around the goal to “keep the power on” through thick and thin. Abel acknowledged that, in today’s regulatory environment, that must change. BHE will now embrace the strategic de-energization of assets during high-risk times. (The lawsuits claim that PacifiCorp was too slow to shut off power during a windstorm — which caused the wildfires.)

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(7) BNSF BLUES: These continue to be tough times on the rails. BNSF earnings fell by 8.3% in the first quarter. “We should be earning somewhat more money than we are earning under present traffic conditions,” said Warren Buffett.

He’s right: Volume is not the big problem. Carloads actually increased by 6.6% in Q1 — boosted by intermodal — but average revenue per carload dropped by 9.9%.

Greg Abel called these results “disappointing as shareholders and disappointing relative to the other Class I railroads”. BNSF continues to lag its West Coast rival, Union Pacific, on important metrics like operating ratio.

Abel said that BNSF both overestimated demand and “needs to get [its] cost structure right”. He added that there hasn’t been a whole lot of growth in the railroad industry in recent years, so cost controls are paramount.

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(8) LIFE LESSONS: Warren Buffett’s investing track record speaks for itself. But it’s the many life lessons and timeless pieces of wisdoms that he sprinkles throughout these Q&A sessions that help explain why he remains so widely revered and admired.

Here are a few of the top contenders from Saturday…

• “If you don’t live a life where you surround yourself — and limit yourself — to people you trust, it won’t be much fun.”

• “When you get that [trust] in your life, you cherish those people and you sort of forget about the rest.”

• “Charlie and I missed a lot of things … We never worried about missing something that we didn’t understand. Why should we be able to predict the future of every business any more than we can predict what wheat yields are likely to be in the next year?”

• “You have to be in love with the subject,” said Buffett. “You can’t just be in love with the money.” Everyone should find out what his or her brain is best suited for — and then pound away at it. Buffett loved poring over thousands of pages of Moody’s manuals to find undervalued companies — but that is not for everyone.

• “If you’re lucky in life, make sure a bunch of other people are lucky, too.”

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(9) GOD BLESS AMERICA: While Warren Buffett did not wax lyrical about the American Tailwind, he did make sure to mention — once again — that Berkshire Hathaway could not have been built anywhere else.

“The opportunity in this country is basically limitless.” Buffett said that we are all lucky to be born when — and where — we were. “You’re entering the best world that ever existed. You want to find the right people to share it with and the [right] activities to participate in that fit you.”

He also brushed aside worries over a flooded Treasury market and/or the U.S. Dollar being displaced as the world’s reserve currency. “My best speculation is that U.S. debt will be acceptable for a very long time because there’s not much alternative.”

And, while Berkshire will look for a bargain anywhere, the richest harvest will always be found in the US of A. “Our primary investments will always be in the United States,” said Buffett. “If we do something really big, it’s extremely likely to be in the United States.”

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(10) PASSING THE BATON: A sense of mortality hung over this year’s annual shareholders meeting like never before. Charlie Munger is gone — and Warren Buffett made several jokes about his own advancing age. A lot of the questions (and answers) dealt with matters of succession and how Berkshire Hathaway will be run in the post-Buffett era.

Not exactly light and breezy subject matter, but Buffett handled it well.

“We’ll see how the next management plays the game out at Berkshire, [but] fortunately you don’t have too long to wait on that,” he said. “I feel fine, but I know a little bit about actuarial tables.”

“I would say this: I shouldn’t be taking on any four-year employment contracts like several people are doing in this world at an age where you can’t be quite sure where you’re going to be in four years.”

(Maybe I’m reading too much into it, but this sounded like a not-so-subtle swipe at the age of the current U.S. presidential candidates.)

Buffett looked sharp throughout the five-hour Q&A session, but he also went to great lengths to reassure shareholders that Berkshire — and its precious culture — will be left in good hands. He said that Berkshire’s operating execs already “prefer to talk to Greg [Abel] and Ajit [Jain]” instead of him. The number of phone calls from these managers to Buffett is now “awfully close to zero”.

“When you’ve got [access to] Greg or Ajit, why settle for me?” he asked.

In terms of who will one day replace the aforementioned vice chairmen, Buffett intimated that both men plan to work well into old age. In fact, he seemed to suggest that Abel, in particular, hopes to continue working at Berkshire for at least twenty more years. And that 65 would never be the retirement age for a Berkshire CEO.

As for who will replace Ajit atop the insurance operations, Buffett said: “We know what we will do [when Ajit retires]. We know it’s a good answer. But we [also] know that we won’t have another Ajit.”

Buffett wrapped up the marathon Q&A session with another poke at his age. “I not only hope you come next year,” he said, “[but] I hope I come next year.” 🤣