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Berkshire Hathaway’s annual “Woodstock for Capitalists” was held on April 30th. After two years of virtual annual meetings, the energy was high for the return to in-person meetings, but attendance was below recent years. Warren Buffett, CEO and Chairman, and Charlie Munger, Vice Chairman, answered questions from shareholders for over five hours. Greg Abel and Ajit Jain joined in answering questions for the first part of the meeting.
After Buffett wrote in the annual letter that they “find little that excites us” in terms of stock purchases, they spent approximately $40 billion in a short period in the first quarter. Munger explained it simply that they “found some things we would prefer to own rather than Treasury Bills.” Buffett explained how the deal to buy Allegheny (Y) came out of the blue when he received a note from their CEO.
Buffett noted that purchasing roughly 14% of Occidental Petroleum (OXY) in two weeks was only possible because of the “casino” mentality that became pervasive in the market. That large of a purchase is even more remarkable when one considers that only 60% of the shares were available outside of index managers and a long-term shareholder.
The pair was asked multiple questions about inflation. Buffett said that it is “extraordinary how much we’ve seen.” He noted that it was likely a consequence of the government sending out lots of money in response to the covid lockdowns. Despite blaming those actions, he was quick to note that this was probably the lesser of two evils. Both men resisted making any forecast regarding future inflation, saying that nobody knows how much inflation there will be. To combat inflation, Buffett noted that the “best thing you can do is be exceptionally good at something.”
When asked about cryptocurrencies, Buffett noted a preference for “productive assets” versus something that depends on what the next person will pay for it. Further, he said that only one currency, the U.S. dollar, is accepted to settle debts. Munger was sharply critical in saying that he tries “to avoid things that are evil, stupid, and make me look bad relative to someone else. Bitcoin is all three.” Munger added that China was smart enough to ban Bitcoin.
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Though the share repurchases slowed in the first quarter, Berkshire bought back $3.2 billion of stock. Buffett said they would rather buy businesses but will repurchase stock when they think they are “improving things for remaining shareholders.” For Buffett, the decision is straightforward; if the share repurchases are not intelligent on an absolute basis, they won’t do it.
One question asked about the relative strength of Berkshire’s Geico car insurance business to Progressive (PGR) and the BNSF railroad versus Union Pacific (UNP). Abel answered that BNSF was very competitive, and he felt it had a great franchise and leadership team. BNSF focuses on the customer, but improving productivity would continue long term. Jain admitted that Progressive had done better than Geico recently based on their earlier adoption of telematics. Geico recently moved in that direction, and he expects to catch up with Progressive in a year or two.
Lastly, when answering a question about how to find your calling, Munger employed one of his famous mental models to make better decisions. Munger argues for using inversion for difficult questions. Munger borrowed this idea from the 1800s German mathematician Carl Gustav Jacob Jacobi. He believed that the solution to many vexing problems in mathematics could be solved if inverted. Munger’s answer was to “figure out what you are bad at and avoid all of it.”