Berkshire Hathaway 2023 Annual Meeting: Q&A Highlights
As most of you know, I am an avid follower of all things Berkshire Hathaway, including Warren Buffett and Charlie Munger. At 93 and 99 respectively, these two are true marvels. Year after year, they preside over Woodstock for Capitalists, otherwise known as the Berkshire Hathaway Annual Meeting. I attended pre-COVIID, which you can read about here. For the past several years, the meeting has been webcast an Yahoo, though this year CNBC took over. On Saturday morning, May 6th, I took in most of the Q&A…here are some thoughts:
At Resilient Asset Management, we put an inordinate emphasis on Estate Planning…for good reason(s). Succession Planning is Estate Planning for a business. For many years, the heir apparent at Berkshire was a bit of a moving target. As we now know, worrying about this when Warren at 70 was not such an issue as he had 22 years of runway at that point.
However, reality sets in for all of us at some point, even for Warren. Despite a somewhat late start, he has assembled the follow-on team to succeed him in managing Berkshire’s sprawling businesses, Berkshire’s gargantuan investment portfolio, and Berkshire’s Insurance Operations. Moreover, Warren made the huge leap to bring his successors on stage with him to answer questions from Shareholders – every business should be so well provided for.
In our own worlds, we should plan for succession…what I have found in my experience is that planning for the unthinkable generally leads to a very resilient financial posture. If you have not considered those untoward potentialities in your own life, either personal or business, follow the Oracle’s example and get on it.
Basic Corporate Finance
One of the earliest lessons I ever learned from the Berkshire Hathaway Annual Shareholder Letters was the value of Insurance Float. Insurance Float is simply the value of all the upfront premiums we all pay for the various insurance policies we take out in our everyday lives. Insurance companies look to payout less money in claims than they take in via premiums – most don’t…Berkshire does. The added kicker with float is that the Insurer gets “free” use of the premium dollars before its paid out in claims. Looking at it in a simplistic way, an insurance company can simply put the money in an interest-bearing account and earn a return on other capital as it waits to pay out claims.
Warren does a much better job of explaining this than I do; however, if you listen to his explanation of Berkshire’s balance sheet, you will hear an explanation of the constituent parts, including equity, debt, and float. Simply put, if you can earn a return on someone else’s capital, you have the makings of a very good business.
Silicon Valley Bank’s Collapse
Last year crypto was somewhat center stage as the financial sizzler of the year. Previously, stock options, derivatives, and real estate speculation filled the role. Regardless, Grampa Warren always provides an insight about which I was not previously aware. For the recent banking dramas, he reiterated the contrast between “Held to Maturity” and “Available for Sale” securities…the asset & liability mismatch was a major source of Silicon Valley Bank’s problems.
At the same time, he adroitly pointed out how because of technology – social media, instant messaging, and the like – contagion can set-in much quicker than in previous times, which introduces more risk into the banking system. Moreover, as banks enter other business lines outside traditional lending, their businesses increase in both complexity and associated risks.
So while I did not take any of what was said as a complete lack of faith in the banking system, I did gather that the nature of the banking system had changed somewhat from the previous iteration. And while still an investable sector, there are some added risk dimensions to consider.
The question about including emotion into one’s financial decisions. While this question was not necessarily political, politics is frequently included in one’s financial calculus. And given how tribal the current political environment has become, there is undoubtedly an emotional component to including one’s political views in their financial decisions.
It was very clear in both Charlie and Warren’s reply that emotion had never entered into their decision making. Simply put, this is advice we should all consider.
Basic Life Advice
While the intent of the question period is to answer questions relating to Berkshire’s business. Invariably, questions come up about personal finance and life in general. Here are some valuable takeaways:
- Spend less than you make
- Keep learning all your life
- Practice deferred gratification
- Write your obituary and then live up to it
- Avoid credit card debt
- Understand how toxic people operate and to recognize these behaviors
You can watch the entire Q&A session via CNBC’s website, I recommend it to you if you have time.