Berkshire Hathaway’s annual meeting is never a routine event. It’s anticipated and observed so carefully that one would think it’s a religious ritual; for some it is. Tens of thousands attend the meeting and every word spoken is analyzed by millions of investors on Wall Street, on Main Street, and around the world. As usual, the keynote speaker this year was Warren Buffett, the company’s chairman, market guru, and one of the wealthiest people in the world. Charlie Munger, who works alongside him, also spoke at the event
Neither Buffett’s nor Munger’s investment decisions are always right, but that doesn’t stop investors from hanging onto their every word. Actually, both have very high batting averages. They spoke at length about specific sectors of the market, investing in general, the economy, and they even shared some philosophy about life in general.
A Penny For Your Thoughts
Buffett pointed out that even if an investor is able to predict which industry will thrive over the long term, picking a winning stock in it is very difficult - and he gave 1903 as an example. At that time, it was becoming obvious that autos would be the way of the future. There were more than 2,000 car companies at that time. While investors who believed that cars would transform the country had arrived at the correct conclusion, nearly all of those auto companies failed.
“There’s a lot more to picking stocks than figuring out what will be an incredible industry in the future,” said Buffett. “Picking winning stocks is not as easy as it sounds.”
Another point he made is that some of the speculators who buy and sell stock online commission-free are essentially just gambling, and the platforms that allow this kind of trading such as Robinhood are encouraging gambling.
Buffett said Robinhood has attracted (“maybe even set out to attract”) a large number of people who are trying to profit from short-term price movements in stocks such as Apple. “There is nothing illegal about this and there’s nothing immoral about this, but there’s nothing constructive about it, either. You don’t build a society around people who do this,” he said.
Considering all the criticism being leveled at the Fed in recent weeks, Buffett’s words of praise likely surprised investors. In particular, he said they did a tremendous job of propping up the economy, despite the unprecedented problems unleashed when the markets and state economies were collapsing because of the pandemic; he also offered kudos for their ability to keep interest rates very low.
But that didn’t stop him from criticizing some of their other policies. “We’re seeing substantial inflation now,” he said. “We’re raising prices, people are raising prices to us and it’s being accepted. We really do a lot of housing and the costs are just up, up, up - steel, lumber, and other things. Everyday costs are going up. The economy has become red hot and we weren’t expecting that.”
“The fact that it’s possible to pass on higher costs and have them stick is significant,” Zero Hedge points out, “because it indicates that the surge in prices will not be transitory.”
Fed Chairman Jerome Powell recently said that he expects inflation to increase temporarily, but then drop to the 2% range. Economists have warned that rising inflation could hurt stock prices as inflation erodes the value of future company profits; it also may lead to an increase in Treasury yields - another one of Wall Street’s concerns. (Several studies have found that investors’ inflation expectations are now at an eight-year high.)
Probably the harshest comments made during the meeting were Charlie Munger’s, when he questioned the ethics of some people who use cryptocurrencies.
“I don’t welcome a currency that is so helpful to kidnappers, extortionists, and so forth,” he said. “Nor do I like shoveling out extra billions and billions of dollars to somebody who just invented a new financial product out of thin air. I say modestly that the whole darn development is disgusting and contrary to the interests of civilization.”
Investors at the Berkshire annual meeting also posed questions about Berkshire’s revenues and income, and in that regard, Buffett defended his decision to sell shares in all the major airlines last year - even though those shares are significantly higher now.
Berkshire has a humongous war chest: $145.4 billion in cash and short-term investments. Obviously, this money could potentially be used to make one very large acquisition or several smaller ones. In fact, Buffett has been searching for such opportunities for several years, but so far hasn’t found any that meet his criteria and that also are reasonably priced.
A Look Ahead
According to Investopedia, shares of Berkshire Hathaway “A” (BRK.A) have the distinction of being the highest priced of any US company. The company is consistently in the Top 10 of companies ranked by market value, and it is also one of the largest companies in the world. Among the very famous brands in the company’s portfolio are GEICO, Duracell, Benjamin Moore, Dairy Queen, Kraft Heinz, and Coca-Cola.
The company’s “A” shares were recently trading at approximately $432,000, which was just below the 52-week high of $432,400, which is also the all-time high. In any given trading session, the shares nearly always fluctuate by hundreds of dollars and very often by many thousands of dollars. The low in the last 52 weeks was $251,000. At current prices the company’s market cap is in excess of $656 billion.
A few other takeaways from the meeting: Household income rose by the most in recorded history in March, in good measure courtesy of the latest government stimulus bill. A third of all household income now comes from the government. It may have been these statistics that prompted another comment from Charlie Munger that drew considerable attention: “Today’s Millennials will have a heck of a time getting rich compared to our generation” (Munger is 97, Buffett is 90).
“People have money in their pockets and they’re willing to pay higher prices,” Buffett said. “There’s more inflation now, quite a bit more, than people had anticipated just six months ago.”
Some analysts were surprised that both Buffett and Munger were so specific about rising inflation, particularly since it’s in direct opposition to the official word from government sources, and much (if not most) of the mainstream media keep promoting the idea that prices remain under control.
Keeping close tabs on Buffett and Munger is important because, as the heads of Berkshire, they have enormous influence on the market and their views could impact both near-term and long-term stock trends. Following their views closely and doing lots of homework will increase investors’ chances of finding winners on Wall Street. Of course, a little good luck never hurt anyone.