Berkshire Hathaway’s annual shareholder meeting was held on May 4th. Chairman and CEO Warren Buffett addressed the reason for reducing its stake in Apple and stated that AI has “enormous potential benefits and enormous potential harms,” but the outcome is unknown.
Buffett hinted that Berkshire Hathaway will continue to hold Apple as its largest investment unless there is a dramatic change in capital allocation. He also suggested that the decision to sell Apple was motivated by the desire to avoid higher future tax rates due to fiscal deficits that the US government may impose.
Buffett expressed his limited understanding of other cultures and emphasized that Berkshire Hathaway’s focus will likely remain on investments within the United States.
Buffett revealed that Berkshire Hathaway is evaluating investment opportunities in Canada and expressed confidence in the potential benefits of investing in the country. However, he did not disclose specific companies of interest in Canada.
Buffett believes that India offers significant opportunities, but he is unsure of Berkshire Hathaway’s advantage or if their investments align with India’s interests. He mentioned that there might be more opportunities in the future.
Buffett also mentioned the attractive investments in Japanese trading companies, stating that Berkshire Hathaway has purchased them as quickly as possible. However, he indicated that such investments in other countries are unlikely to reach the same scale.
Buffett confirmed that Abel, the next CEO, will be fully responsible for investment decisions, stating that Berkshire Hathaway’s capital allocation will be entirely in his hands. Buffett joked that he may not sign any more four-year employment agreements, as his reading speed, physical abilities, and operational efficiency have declined.
During the Q&A session at the shareholder meeting, Buffett provided insights into Berkshire Hathaway’s first-quarter financial report. The company’s revenue increased by 5% compared to the same period last year, primarily driven by higher insurance premiums and railway income. Although investment income decreased by 64% from the previous year, it exceeded market concerns. Berkshire Hathaway’s cash reserves further increased to $189 billion, and the company repurchased $2.6 billion worth of stocks in the first quarter.
Buffett emphasized that Berkshire Hathaway is not in a rush to make trades for the sake of trading, and they will only invest in opportunities they consider favorable. He predicted that cash holdings could reach $200 billion by the end of the second quarter.
During the Q&A session, a film paying tribute to Buffett’s long-term friend and business partner, Charlie Munger, was shown. Munger is referred to as the “architect of Berkshire Hathaway.”
Buffett discussed the long-term holdings of Apple, Coca-Cola, and American Express, stating that these investments have been successful and will continue to be significant for Berkshire Hathaway. He emphasized that holding these stocks is like owning businesses rather than just stocks.
Buffett explained that the decision to reduce the stake in Apple was primarily due to tax considerations and not based on a negative outlook on the stock.
When asked about the possibility of investing in Chinese stocks, Buffett stated that their focus is primarily on investments in the United States. However, he recognized the global strength of some companies they invest in, such as American Express and Coca-Cola.
Buffett concluded the Q&A session by accidentally referring to Abel as Munger and acknowledging that it would take some time to get used to the transition.Power investments, such as in Utah, are considered fair as they bring returns. In terms of public utilities, private-owned power companies or public utility companies may have been more efficient than state-owned companies in the 1930s. However, now companies in this field require significant investments and capital, which private investors may not be able to provide. Berkshire’s energy investments have been satisfactory and will bring returns, although not necessarily making them extremely wealthy. The current work may be related to changes in the environment, and the investment costs are surprising, but Berkshire has the necessary funds and support for major projects. They do not want to waste investments and feel confident about investing in Utah. The investment in the power sector will not bring as high returns as other businesses, especially with the threat of wildfires and policy changes due to climate change. However, Berkshire is committed to facing all lawsuits and believes that legislation and reforms are necessary for progressive capital investment. Buffett admits that he knows nothing about AI, but acknowledges its importance. He expresses concern about the potential fraud and market growth associated with AI, but also acknowledges its potential for doing good. Geico’s operating costs are lower than Progressive’s, and Buffett defends Geico as the best model in the insurance industry. Jain, the head of the insurance business, acknowledges the need for improvement in technology and data analytics, aiming to be one of the best companies in the industry by the end of 2025. Buffett fully trusts his wife and children but does not seek their advice on stock purchases. He values Munger’s honesty and their partnership in making decisions. Jain emphasizes the importance of successors and the board’s focus on finding confident replacements. The impact of environmental changes on insurance, such as floods in California, is significant, and the business considers all possibilities in pricing and coverage. Buffett mentions that the next major transaction may be in the United States, while a “mystery investment” may be in Canada. Jain believes that the cybersecurity insurance business is complex due to difficulties in calculating losses and setting standards. Buffett recalls the challenges faced during the Kennedy administration and the difficulty of insuring against such events. Buffett also discusses the importance of renewable energy and the complexity of transitioning from fossil fuels to alternatives. Jain addresses the challenges in the Florida auto insurance market and hopes for a return to normalcy through legislative actions.What do we all need to hear the most?
Buffett: Now that you live in the United States, there are many opportunities here that many countries cannot find. I want to follow Munger’s advice and first focus on education and interacting with the right people based on your personal situation. I hope to find someone who can help me find the right direction in life. In the past 200 years, we have had the industrial revolution, followed by tremendous advancements in science, medicine, and education. We are fortunate to be born in such an era. The world you are in is the best it has ever been. Find your interests, find the job you want, find people to share your life with. Sometimes it takes a long time to find these things, but don’t forget your original intentions.
12:05 How do you view the fact that Buffett has not retired yet and the management of his subsidiary companies is reporting to Abel and Jain?
Buffett said that due to his old age, his reading speed, physical strength, and operational efficiency have all declined compared to 30 years ago. He also doesn’t know many of the management teams of his subsidiary companies anymore. He questioned why they would come to him if there are better people to report to. Buffett believes that the current operational structure “cannot be more perfect.” Abel understands the challenges of the businesses under his responsibility and can provide suggestions, while Jain has unparalleled wisdom in the insurance industry. The two vice-chairmen also have better energy and the appropriate way to communicate messages.
Jain mentioned that after announcing Abel as the successor CEO, the transition period went smoothly. Previously, the management teams of some subsidiary companies would call Buffett to report on their business, but now Buffett deliberately directs those calls to Abel and Jain to handle.
12:13 India’s economy has performed well in the past five to twenty years. Is Berkshire Hathaway actively seeking opportunities in India’s equity market? What will drive you to make large investments in India?
Buffett: I believe India has a lot of opportunities. However, the question is whether we have any advantages in our views of India, and whether our investments are what India wants us to be involved in. Maybe there are some areas we haven’t explored or paid attention to, and of course, it’s not up to me to explore. In the future, more opportunities may arise, and there may be opportunities now. The question is whether Berkshire Hathaway has the advantage to pursue these opportunities or make them a reality. Investments in Japan have been good, and India may also have such opportunities, but I am not sure because of the cultural differences.
12:19 If there are new architects joining Berkshire Hathaway, what kind of work would they have?
Buffett: If the board of directors wants to find a new director, some people may retire at the age of 65, although this does not happen very often. Our managers have to make frequent decisions. It is a difficult job in our existing system.
Some people have told us not to take the same plane or the same car. For example, Abel’s job responsibilities require him to inform the board of directors about what he has done and what will happen. All our directors have to decide whether Abel has made the right decisions.
We are looking for experienced and inspiring managers. We currently have a diverse group of candidates, all of whom are the best. We have already obtained the best group of managers for Berkshire Hathaway. Berkshire Hathaway’s culture ensures that we attract the best managers.
12:26 Your team believes that the best thing you have done in business and asset allocation is what? Especially after the pandemic.
Buffett: If someone retires at the age of 65, they cannot be the CEO of Berkshire Hathaway. In the next twenty years, we will provide some projects, and the board of directors and our management will make different decisions.
Regarding whether the board of directors will continue to take over, and who is the best candidate to succeed the management, Buffett mentioned that when he was in the textile business, he thought the manager who managed it was a good person. He thinks we may still find good managers like (former Berkshire Hathaway director) Tom Murphy. It depends on how the future company thinks.
After I leave Berkshire Hathaway, maybe the company will have to make the right decision every twenty years, and if the decision is wrong, it will have to be changed. That’s why we have a board of directors. We have the right people on the board who can make the right decisions and not take themselves too seriously, not using Berkshire Hathaway as a stepping stone.
12:36 Berkshire Hathaway currently holds over $180 billion in cash. What are you waiting for?
Buffett: This is a good question. None of the people on stage have a good idea of how to use this money properly in the current situation with a 5.4% interest rate. Now the interest rate is so high (don’t tell the Federal Reserve), and we only swing when it’s the right time. However, many people swing regardless of the timing because they think they can hit the target by swinging continuously. We don’t need as high returns as before, and we can’t find as many attractive targets now. There aren’t enough attractive targets to allocate that much capital, but we’ll see if there are any changes in the future.
12:38 The 6% commission standard for buying and selling homes in the United States is about to be abolished. How will this affect the real estate industry?
A month ago, the National Association of Realtors (NAR) reached a settlement agreement with a group of home sellers, agreeing to pay $418 million in compensation and abolish the commission standard to end a landmark antitrust lawsuit.
Abel mentioned that the entire industry will go through a transition period, and Berkshire Hathaway’s real estate service subsidiary and the entire industry will have to adapt to the new reality. However, real estate agents are still an important part of buying and selling transactions, and the consulting and guidance services they provide are still important. The future changes in commission will require negotiation rather than a fixed percentage. The impact of the settlement agreement will be limited to Berkshire Hathaway’s real estate service subsidiary.
Previously, it was reported that Berkshire Hathaway’s American Home Services Company (the real estate brokerage business) announced in late April that it would pay $250 million to settle a lawsuit alleging excessive commissions, the largest amount ever paid by a single brokerage company.
Buffett stated that in his experience buying and selling homes, he has never refused to pay the commission to real estate agents as a seller, regardless of the high price of the house, nor has he asked for a commission discount. Initially, he bought a mature company directly as Berkshire Hathaway’s real estate brokerage business, and the price was reasonable at the time. And real estate brokerage is a fundamental industry in the economy that will not disappear.
Buffett admitted that he was indeed surprised by the settlement agreement, but just like there have been surprising decisions in the insurance industry, they have to accept the facts. He compared it to the 9/11 terrorist attack, which no one could have imagined but still happened. They need to accept reality.
Abel added that the model of the real estate brokerage industry may change, but he has also bought houses in the UK, and buying a house outside of the United States is a completely different experience: “Our real estate agents invest time and capital to ensure smooth and satisfactory transactions. The US model may not be the most cost-effective, but the cost-effectiveness is good (you get what you pay for).”
12:48 Tesla’s autonomous driving technology claims to significantly reduce accidents. How will this technology affect car insurance, and what will be the future income?
Buffett: Autonomous driving may reduce accidents or costs. Some people have started using it, and future data will show what will happen. People have been discussing it over the past few years. When Uber started to rise, people also discussed it in the insurance industry. In some cases, past estimates have been wrong. Insurance is not an easy business as you think. If accidents can be reduced by 50%, it sounds good. We are looking for opportunities. Even if someone drives a car with many miles, they can still die in an accident. This is not an easily estimable figure.
Jain: Tesla’s technology improvements seem to reduce accidents. However, it doesn’t necessarily mean that the average number of accidents will decrease. It won’t be easy for the car insurance industry to completely transform.
12:54 Zero-emission vehicles may have been fully accepted. What are your thoughts on this, Buffett?
Buffett: Autonomous driving may reduce accidents or costs. Some people have started using it, and future data will show what will happen. People have been discussing it over the past few years. When Uber started to rise, people also discussed it in the insurance industry.
In some cases, past estimates have been wrong. Insurance is not an easy business as you think. The insurance business is “very interesting because you get the money up front and then you find out you did some foolish things. But it’s a very tempting business when someone gives you money and you hand them a small piece of paper. If accidents can be reduced by 50%, it sounds good. We are looking for opportunities. Even if someone drives a car with many miles, they can still die in an accident. This is not an easily estimable figure.
Jain: Tesla’s technology improvements seem to reduce accidents. However, it doesn’t necessarily mean that the average number of accidents will decrease. It won’t be easy for the car insurance industry to completely transform. Tesla has been considering the idea of directly providing insurance but hasn’t been very successful.
13:00-14:00 Q&A session goes into a one-hour lunch break.
14:15 Regarding Berkshire Hathaway’s future capital allocation decisions.
Buffett said that the board of directors of Berkshire Hathaway now has the power to brainstorm. When he is no longer in charge of Berkshire Hathaway, Abel will have the ultimate decision-making power over investment decisions. If I were a board member and had to make a decision, I would probably leave the capital allocation to Abel based on his situation. He understands the company very well. If you understand the company, you understand common stocks.
Buffett said that Berkshire Hathaway’s two investment managers (Todd Combs and Ted Weschler) have clear responsibilities, and they know what they are doing. If we want Berkshire Hathaway to achieve more benefits, strategic considerations are important. Abel has the ability to make strategic deployments.
14:25 Buffett and Abel discuss the criteria for evaluating acquisition targets.
Answer: When you have great people to manage things, you have a lot of self-selection. We will encounter people who are willing to do their best for us. We just don’t have enough talent for smaller acquisitions. Based on our experience in TTI, we have a good understanding of distribution businesses. TTI is an outstanding operating model. We will also make some small acquisitions, but they must fit into our current structure rather than investing just for the sake of it. We are more inclined towards share buybacks.
14:32 You previously mentioned that Berkshire Hathaway reduced its stake in Apple to increase cash. Where do you see future investment opportunities? How do you compare the current market conditions to the investment returns of 1999?
Buffett said that sometimes he feels full of opportunities and can put everything in when night falls, but sometimes a year goes by without finding meaningful and timely investment opportunities like the current situation. There may be better times than now. “Munger and I have missed many investment opportunities, but we don’t regret it, at least we don’t regret missing things we don’t understand. The real regret is missing opportunities that later proved to be very big. I can’t remember much about 1999 unless something particularly dramatic happened at that time, like in 1987, 2008, or 2015. Otherwise, I can’t remember. I just look at what I can do every day.”14:37 Someone asked Buffett, “Do you prefer the period of holding American Express and Coca-Cola stocks for decades, or something else?” Recently, Berkshire Hathaway increased its holdings in Chevron. What was the thought process behind these investments?
Buffett: There are many factors involved in these investments. I started buying stocks in 1942. Munger and I sometimes make decisions quickly, and we think about what factors allow us to make quick decisions. We believe these factors are clearly visible. Regarding the significant investment in Apple, one thing I learned from Munger is the importance of consumer behavior. If we were to buy a furniture store, we would quickly realize that it was a mistake, but this mistake would help us consider the process of asset allocation. We gradually learned about consumer behavior.
Buffett mentioned the investment in See’s Candies and said, “We didn’t know how to run a candy business, but we learned about consumer behavior through the investment process. We continuously learned about consumer behavior. The same applies to the investment in Apple. You can observe that customers are interested in your product. It’s a preference in consumer psychology. At that time, I saw that the value of Apple’s stock was lower than its actual value. For example, buying a second iPhone is different from buying a second car. The value of buying a second car might be twenty times higher than buying a second iPhone. At that time, I didn’t know how iPhone would be executed, but I knew that consumers liked it, and its value was significantly underestimated. And I knew that Apple’s CEO Cook was as outstanding as Jobs.
Talking about the iPhone, Buffett said, “It is one of the greatest products, and possibly the greatest product ever.”
Buffett said that if you have extensive experience in a certain business, you may have a sudden inspiration for investment. Some things don’t happen all at once, but you can do a lot of preparation. This is also the case with the quick decision to invest in Chevron.
Buffett said that he had been continuously studying the relevant industry of oil and natural gas, and he sometimes didn’t fully understand the tricks, but sometimes he came up with some insights, which he kept in mind until he met Vicki Hollub, the CEO of Chevron. Buffett said, “I am satisfied with the investment in Chevron at present. As for the media stock, Palaemon Global, I am responsible for this investment, and it has suffered significant losses, for which I take full responsibility.”
14:50 The question was raised regarding the decline in BNSF’s performance mentioned in the board letter. BNSF has invested more in freight and construction. What happened to the decline in the railway business today?
Buffett answered: Railways are essential for a country. The US government used to nationalize railways and has gone through multiple rounds of negotiations, even resulting in a nationwide railway shutdown. It is now almost impossible to build more railways. For example, if high-speed rail is built in California, they will worry about its impact on the environment. If such a thing is done nationwide in the US, there will be a significant opposition. It may not be the best business, but it is undoubtedly a necessary existence, and the alternative value is too high. We hold relevant railway businesses in a very tax-efficient manner. Buying BNSF is still a good investment. We hope to find better investment opportunities in other industries. Buying BNSF was the decision made by Abel at that time.
Abel mentioned that there were places where the railway business disappointed the shareholders, but compared to its peers, it was still acceptable. If we go back to 2021, the situation was completely different. In 2022, supply chain issues in the West were discovered. In 2023, all business costs and structures were improved accordingly. The team worked hard, reallocated costs and resources, and did a lot of things, realizing the need to reconsider demand. Our competitors include the trucking industry, and the structure of the trucking industry allows us to compete with them. We need to find ways to solve structural problems. Our team has been committed to the right structure.
15:03 Someone asked Buffett, “In late 2008, you mentioned that investing $1 million can guarantee a 50% annual return. How would you invest $1 million now?”
Buffett: When I read the book about transportation by Moody, I was in my twenties, and it’s hard to imagine a young person at that time understanding railroads in such depth. I don’t know if there is anything now that is like Moody’s handbook back then. If you can get a 50% annual return by investing $1 million now, that would be great. Some people can find investment opportunities because they are willing to explore and expand their knowledge in different areas. The human brain is complex. When we understand what the brain is good at, our potential can be fully realized. If you can’t find an investment opportunity in a field that suits you and interests you, the returns may not be good.
15:09 Munger mentioned that owning property rights would lead to better management. Many pension fund managers do not have the ability of Berkshire Hathaway and make decisions that do not align with shareholders’ interests. What measures should be taken in such cases?
Buffett: Berkshire Hathaway has excellent managers. First, consider it as a national asset, and then find more solutions. This should be considered by our board of directors. The human mind influences many behaviors. Some things are done, and then you don’t want to do them again, like when it comes to acquisition behaviors.
15:16 How to find true idols/mentors in life and how to make friends?
Buffett said that having a suitable idol in life is essential. Both he and Munger have someone who loves them unconditionally, even when they break some rules. You need to have a suitable hero to admire, depending on what kind of person you want to become. If you choose the right idol, you will be on the right track, not just in terms of making money but in life as a whole.
15:21 Regarding the investment disagreement with the chain truck stop company Pilot, Berkshire Hathaway was accused of investment manipulation and almost went to court, but a settlement was reached out of court.
Buffett said that our investment in Pilot is still good, but he doesn’t want to talk about it much. Later, he mentioned the characteristics of Pilot truck stops, saying that it is a characteristic of the American environment.
15:28 A question from an investor from China: How can compound interest investment be maximized?
Buffett: Luck plays a significant role. My best skill now is avoiding risks and dodging misfortune. When you are lucky, you must maximize it, although this luck doesn’t always happen immediately. If I had another life, my choices might be different, but I wouldn’t miss out on these effective things. In the later part of my life, there were significant changes. When my sister was still in school, she was told by our family that she had to get married while in school; otherwise, all the good men would be taken. It’s truly unparalleled to see the progress we have made. Now, there is certainly a better expectation than 100 years ago.
15:34 Buffett stated in the past that he would leave 90% of his inheritance to his wife, invested in low-cost S&P 500 index funds. Now that technology companies account for a quarter of the S&P’s weighting, is he considering shifting the inheritance allocation to equal-weighted index funds or similar investments?
Buffett said that in the process of periodically updating his will, his investment advice has not changed. He revises his will every three years and still advises his wife to allocate 10% of the inheritance to short-term government bonds and 90% to low-cost S&P 500 index funds. Considering the size of the trust fund that his wife will inherit, it doesn’t matter if her investment portfolio outperforms the S&P 500. The main thing is that she feels her financial situation does not require considering this.
Buffett said that he hopes to find better ways to use the best resources in solving the world’s most pressing problems. He said, “I think the inheritance funds can be used where the world needs it most. I think everyone in America should have a will. You need to know that all four former US presidents died without leaving a will. Imagine how terrible it is for these great people to leave without a will. For example, Lincoln, who was assassinated, it’s hard to imagine such a great person leaving without a will. It’s regrettable. Everyone has their weaknesses, their flaws. Don’t be too hard on yourself, but don’t completely relax either because you can change the future.”
15:44 Now that the genie of AI has been let out of the bottle, which Berkshire Hathaway business is at the greatest risk in the face of AI?
Answer: Any labor-intensive industry will be threatened by AI. Of course, you can gain more entertainment time in between. There are more issues in this regard. Artificial intelligence is being discussed at a deeper level. Speaking of genies, I have many to share. If we use them in social aspects, we may have better advantages. But if we use them for inappropriate things like using atomic bombs or other things, then there are problems. AI is being discussed in all jobs, in all industries. Every company is talking about which ones can be done more safely. Many things still have premature conclusions. It is currently unpredictable, and it’s too early to make accurate predictions. Of course, AI is absolutely incredible. The atomic bomb project was also discussed with great excitement back then.
15:50 The US Treasury market is now six times larger than it was in 2008. When will there be a point when the market can no longer absorb so much US debt supply?
Buffett stated that the best guess is that US Treasuries will continue to be accepted by the market for a long period because there are no better alternatives. When considering the scale of US Treasuries for a long time, it is important to consider factors such as inflation, crises that threaten the global economy, and the status of the US dollar as a reserve currency. “It is not the absolute amount of US debt that threatens the US financial system, but inflation and the future value of the US dollar that threaten the entire system. So I’m not concerned about how much absolute supply of US Treasuries there is, but rather concerned about the prospects of fiscal deficits. People currently focus on the actions of the Federal Reserve, but fiscal policy/deficits are the real issue causing crises,” Buffett said.
He also mentioned that the current situation is different from 2008 and 2009.
Buffett mentioned Paul Volcker, the former Chairman of the Federal Reserve, who faced high inflation pressure in the late 1970s and early 1980s. Volcker received death threats when he tried to lower inflation. Buffett said, “We cannot fully predict what decisions the Federal Reserve will make. Federal Reserve Chairman Powell is a very wise person, but he cannot control fiscal policy. He is urging people to pay attention to fiscal policy/deficits. That’s where the problem lies, that’s what triggers crises.”
15:58 If Berkshire Hathaway shareholders made demands, what demands would you make? Why?
Answer: This question applies to everyone, regardless of wealth. If you are lucky enough, make sure to help those around you also achieve such luck.
16:00 Q&A session ends! Buffett jokingly said that he hopes all of you will come again next year, and he hopes he will also attend.
He also recommended that everyone buy “The Tao of Charlie Munger.” A participant mentioned that every checkout channel for book sales was full of people.