Berkshire Hathaway’s 2021 Shareholder Meeting
This past month included the annual Berkshire Hathaway shareholder meeting, held by Warren Buffett and his longtime investment partner Charlie Munger. For the second year in a row, the “Woodstock for Capitalists” event was held virtually due to the pandemic. However, unlike last year Charlie was able to join Warren on stage in Los Angeles, making for a more normal feel.
This year Warren and Charlie touched on a range of topics, including investment advice for new investors, mistakes over the past year, SPACs (special purpose acquisition companies), and confirmation of Berkshire’s CEO in waiting. We’ve included a few snippets from the meeting below.
Advice to new investors: “Be aboard the ship”
Warren pointed to the difficulty in selecting successful companies, especially when trading in a very active manner. He also emphasized his continued optimism in America and capitalism:
”Two items that I would like particularly new entrants to the stock market to ponder…before they try and do 30 or 40 trades a day in order to profit from what looks like a very easy game…on March 31st, I ran off a list of the 20 largest companies in the world by stock market value…led by Apple that’s slightly over 2 trillion…But [out of] the top-of-the-top six companies, five of them are American. So when you hear people say [what] America hasn’t done, it’s not working very well or something of the sort, in the whole world of the six top companies and value, five of them are in the United States.
How many of those companies are going to be on the list 30 years from now? Here they are, these powerhouses. And how many would you guys think would be on the list?
Now…look at the top 20 from 1989. Two things that should grab your interest…None of the 20 from 30 years ago, are on the present list. None. Zero. There were then six US companies on the list and their names are familiar…General Electric, Exxon, we have IBM Corp…they’re still around. Merck is down there… None made it to the list 30 years later, it was zero…a reminder of what extraordinary things can happen.
And at the bottom, the number 20 is gone from $34 billion to something [a] little over 10 times that. It tells you that capitalism has worked incredibly well, especially for the capitalist. But the world can change in very, very dramatic ways.
And I’ll just give you one other example you might ponder. This is, before you start getting too sure of yourself…the main thing to do is to be aboard the ship. A ship. They were all going to a better promised land, you just have to know which one was the one [to] necessarily get on. But you couldn’t help but do well. If you just had a diversified group of equities, US equities, that would be my preference, but to hold over a 30 year period.”
Buffett: “Still wouldn’t want to buy the airline business”
Buffett sold his airline positions amid the pandemic, a move criticized by many. While Warren admits to poor short-term timing, it is a long term decision he is more than comfortable with:
“Until both monetary and fiscal policy kicked in, well, we knew we had an incredible problem…I’m the chief risk officer of Berkshire. That’s my job. We hope we do well, but we want to be sure we don’t do terribly. …But we had a few people at various subsidiaries of Berkshire that wanted to go in for help from the government…’Well, we’re going to get killed by what’s happening with the regulations that are being put out and with stopping the economy.’
But the airlines, clearly what happened was not their fault in any way, shape or form. It wasn’t like 2008 and nine when people blamed the banks and hated to see them helped. Now airlines operate in bankruptcy.
They might’ve very well had a very, very, very different result if they’d had a very, very, very rich shareholder that owned eight or nine percent. And they didn’t have that when they went in, you might not have gotten the same result… But in any event, an industry that was really selling for less than a hundred billion dollars, lost a significant amount of money. They lost perspective earning power.
I do not consider it a great moment in Berkshire’s history…I think the airline business has done better because we’ve sold, and I wish them well, but I still wouldn’t want to buy the airline business.“
SPACs and Their Impact on Berkshire
SPACs (Special Purpose Acquisition Companies) have received a lot of press lately. They are a new form of acquisition to take companies public. Some of the larger SPACs receive billions of funding from investors and therefore compete with Berkshire on potential acquisitions. Warren gives some of his perspective below.
“Well, it’s a killer. These SPACs generally have to spend their money in two years as I understand it. So they have to buy a business in two years. If you put a gun to my head and said, you got to buy a big business in two years and I’d buy one, but it wouldn’t be much of one. I mean, if you’re running money for somebody else and you’re getting paid a fee and you get the upside and you don’t have the downside, you’re going to buy something.
I had a call from a very famous figure many years ago that was involved in it, and wanted to learn about re-insurance. And I said, ‘Well, I don’t really think it’s a very good business.’ And he said, ‘Yeah,’ and he says, ‘If I don’t spend this money in six months, I’ve got to give it back to the investors.’ So it’s a different equation that you have. If you’re working with other people’s money, where you get the upside and you have to give it back to him, if you don’t do something, and frankly, we’re not competitive with that. No, that won’t go on forever, but it’s where the money is now, and Wall Street goes where the money is and it does anything basically that works. And SPACs have been working for a while and you stick a famous name on it. You can, sell almost anything.
Nobody tells you when the clock is going to strike 12:00, and it all turns to pumpkins and mice. But when the competition is playing with other people’s money, or if they’re playing foolishly with their own money, but the big stuff is done with other people’s money, they’re going to beat us. I mean, we’re not… that’s a different game and they’ve got a lot of money, so we’re not going to have much luck on acquisitions while this sort of a period continues. But it’s happened before. This is about as extreme as we’ve seen it.”
Berkshire CEO in Waiting Confirmed
The next CEO of Berkshire Hathaway has been the subject of speculation for some time now, with both Warren and Charlie in their 90s. Warren has previously said it would be one of Berkshire’s current managers, though no name had been given. Many believed Greg Abel to be the CEO in waiting, given his oversight of all non-insurance operations and being young enough at age fifty-eight to lead Berkshire for decades to come.
Charlie (somewhat accidentally) spoke to this during the shareholder meeting, commenting that “Greg would keep the culture” when discussing the decentralized nature of Berkshire. Both Warren and Charlie see this organizational structure allowing the historic Berkshire culture and success to continue. CNBC later confirmed the succession planning strategy with Warren “The directors are in agreement that if something were to happen to me tonight, it would be Greg who’d take over tomorrow morning.”
Charlie: “I don’t think we’re getting too big to manage because we’re different from practically every other big corporation in the United States, in that we are so excessively decentralized. We have decentralized so much, and we have so much authority in the subsidiaries that we can keep doing it for a long, long time, as long as it keeps working. And I would say so far, that our decentralization has caused more benefits than defects, but nobody seems to copy us.”
Warren: “…decentralization won’t work unless you have the right kind of culture accompanying it.”
Charlie “Yeah. But we do…And Greg will keep the culture.”
Warren: “If we had a culture of people who were trying to make a lot of money for themselves in the next five years at the top, it would not have worked.”
Charlie: “No, of course not. And the culture is part of it, but assuming we keep the culture, it can go on quite a ways.”
Warren: “For a long, long time.”
Charlie “Long, long time. I think it may amaze everybody. And by the way, the Roman Empire worked as long as it did because it was so decentralized.”