There were two main headlines from the Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B) Annual Meeting held in May:
- Buffett Sells Entire Stake in Airlines
- Berkshire a Net Seller of Stocks in First Quarter and April
These were interesting, but after seeing the event live on Yahoo Finance and reviewing a transcript of the Meeting, I think there are at least seven other headlines that deserve attention from investors.
Video of the Berkshire Annual Meeting by Yahoo! Finance
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Disruption in the Treasury Market Led Buffett to Hold Cash” data-reactid=”27″>Disruption in the Treasury Market Led Buffett to Hold Cash
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Some have criticized Berkshire Hathaway CEO Warren Buffett (Trades, Portfolio) for not buying stocks when the market tumbled on concerns about the Covid-19 outbreak. Could he not find worthwhile opportunities?” data-reactid=”28″>Some have criticized Berkshire Hathaway CEO Warren Buffett (Trades, Portfolio) for not buying stocks when the market tumbled on concerns about the Covid-19 outbreak. Could he not find worthwhile opportunities?
Financial advisors usually recognize that investors have unique circumstances. Critics of Buffett don’t see that his position differs greatly from that of the typical investor. He has different potential risks and different potential opportunities.
As one of the largest writers of catastrophe insurance in the world, Berkshire must be able to make good on potentially billions of dollars in claims. Hurricanes, earthquakes, typhoons, wildfires and other disasters can lead to big losses. Timing is unpredictable, and a single year can have more than one major loss.
Even worse, if big catastrophe losses occur at a time of stress in the financial markets, it might be difficult for an insurer to sell investments in an orderly fashion so that it can pay claims. A large portfolio of Treasury bills is the safest thing for Berkshire to hold, and it provides peace of mind to insurance buyers.
The Meeting transcript [at 1 hour and 33 minutes] shows that in the latter part of March, Buffett had become alarmed by a disruption in the market for Treasury bonds. At that time, chief financial officers were borrowing heavily on their lines of credit in order to have liquidity as the economy was plunging.
Lenders responded to this loan demand by liquidating large amounts of Treasury securities from their investment portfolio. This led to volatile trading in Treasuries and threatened the ability of borrowers to access credit.
“And we came very close to having a total freeze of credit to the largest companies in the world who were depending on it.”
[01:35:41 of transcript]
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Here’s where Berkshire had a unique potential opportunity. During the financial crisis of 2008-09, Berkshire had been able to take advantage of a credit freeze by lending at high rates to prominent corporate borrowers, including Goldman Sachs, General Electric and Harley-Davidson.” data-reactid=”37″>Here’s where Berkshire had a unique potential opportunity. During the financial crisis of 2008-09, Berkshire had been able to take advantage of a credit freeze by lending at high rates to prominent corporate borrowers, including Goldman Sachs, General Electric and Harley-Davidson.
In March, the emerging credit freeze suggested the possibility of repeating Berkshire’s lending success. During the Meeting, Buffett said one mistake he had made during the 2008-09 crisis was moving too fast. Had he waited for the momentum of that crisis to unfold, he said, he could have made better deals. [02:18:55]
But the opportunity to lend to good borrowers did not arrive this time. Fortunately for the country, said Buffett, the Federal Reserve stepped in and bought Treasuries aggressively. [1:35:41] Volatility eased, and creditworthy borrowers were able to get the funds they wanted.
Maybe things will change, and lending possibilities will emerge. No one knows how well the economy and financial system will do in the near future, Buffett says, so he still thinks it’s worth holding cash and T-bills.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Greg Abel is Clearly Buffett’s Successor as Berkshire CEO” data-reactid=”41″>Greg Abel is Clearly Buffett’s Successor as Berkshire CEO
Greg Abel, Vice Chairman of Non-Insurance Operations at Berkshire Hathaway
In 2018, Berkshire announced that Ajit Jain, now 68, had been named Vice Chairman of Insurance Operations and Greg Abel, now 57, Vice Chairman of Non-Insurance Operations. The news led analysts to conclude that one of these would succeed Buffett as CEO.
In his 2014 Letter to Shareholders, Buffett had said that “the incoming CEO should be relatively young so that he or she can have a long run in the job.” That should have quelled speculation that Jain, already in his 60s, would succeed him, but writers persisted in saying that it would be Jain or Abel.
Also in the 2014 Letter, Buffett said that “Managing Berkshire is primarily a job of capital allocation, coupled with the selection and retention of outstanding managers to captain our operating subsidiaries.”
Buffett made comments during this year’s Meeting that could only mean that Abel is to be the next CEO. While lauding Jain for having one of the best minds in the world, Buffett said:
“But his [Jain’s] job is not capital allocation. It’s evaluating insurance risks…”
[3:15:22 of transcript]
In contrast, Buffett noted that Abel, and executives Todd Combs and Ted Weschler are “extraordinarily good buyers in terms of capital allocation.” [2:56:15] And in introducing Abel at the Meeting, Buffett noted that he manages a business that has more than $150 billion in revenue across dozens of industries and has more than 300,000 employees.
Abel clearly meets Buffett’s criteria to be the next CEO.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="FAANG Stocks Not a Bubble, Buffett Says” data-reactid=”67″>FAANG Stocks Not a Bubble, Buffett Says
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Before the Annual Meeting was broadcast, Yahoo Finance aired an interview with Buffett that had been conducted in mid-March by their Editor-in-Chief, Andrew Serwer.” data-reactid=”68″>Before the Annual Meeting was broadcast, Yahoo Finance aired an interview with Buffett that had been conducted in mid-March by their Editor-in-Chief, Andrew Serwer.
Serwer asked Buffett if he thought that the so-called FAANG stocks – Facebook (NASDAQ:FB), Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), Netflix (NASDAQ:NFLX) and Google (Alphabet) (NASDAQ:GOOG)(NASDAQ:GOOGL) – were a “bubble.” He said no.
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