Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 356

Buffett's meeting takeaway: extreme caution

Morningstar's US strategist, Gregg Warren, specialises in researching Warren Buffett's Berkshire Hathaway (BRK). In this two-part article, he provides a brief review of his major highlights from the annual meeting of BRK, followed by a short video summarising Buffett's presentation last weekend.

While wide-moat-rated Berkshire Hathaway's (BRK.A/BRK.B) annual meeting has always been entertaining, it hasn't generally been a big source of meaningful insights into the firm's operations. This year's event, which was a significantly smaller affair with no shareholders in attendance in Omaha and just CEO Warren Buffett and Greg Abel (vice chairman of Berkshire's noninsurance business operations) taking questions from a remotely located Becky Quick (of CNBC), who was collating all of the questions for the three journalists on the journalist panel, was relatively subdued. The meeting not only started later in the day, but Buffett spent much of the first two hours of the five-hour event speaking about his thoughts about the COVID-19 pandemic and its potential economic impacts, touching on everything from monetary and fiscal policy to consumer and commercial behaviour.

The main thing we took away from Buffett's preamble, as well as the question-and-answer segment, was that Berkshire (much as we heard from Charlie Munger in a Wall Street Journal interview in mid-April) is being extremely cautious right now, given all of the uncertainties surrounding the COVID-19 pandemic and subsequent shutdown/recession. Unlike Buffett's famous maxim to "be fearful when others are greedy and greedy when others are fearful", Berkshire actually dumped some stocks, did not pursue any deals, and let its cash balances expand during the first quarter.

While it was no surprise to see Berkshire dump the airlines, we were shocked to see that Buffett stopped buying back Berkshire's shares on March 10 and didn't repurchase any of the company's common stock between then and the end of April. Our general feeling has been that with cash reserves being guarded, distressed opportunities few and far between, and many of Berkshire's stock holdings either struggling with the COVID-19 pandemic or subsequent shutdown/recession, the best option for the company's excess cash may be Berkshire's own common stock.

Greggory Warren, CFA, is a financial services sector strategist for Morningstar. This article is general information and does not consider the circumstances of any investor.

Surprises from Berkshire's Annual Meeting

Click on the image of Gregg Warren to hear his reactions to Buffett's presentation.

 

8 Comments
Jim Simpson
May 14, 2020

Interesting that Berkshire have dumped airline shares.
My memory is that one of Warren Buffet's rules of investing was " never invest in airlines". He backed this up by saying that occasionally, in the middle of the night, he woke up with an idea that he should invest in airlines but he had a 1800 number that he rang and was talked out of it by a counsellor.

Chris
May 07, 2020

Buffett doesn't need to do anything at this stage of his life, he literally will be the person that captures essence of the phrases "he who dies with the most toys, wins" and "When Alexander saw the breadth of his domain, he wept for there were no more worlds to conquer.". There's nothing else to do now, even he has said that when he dies it's all going in an S&P500 index fund.

Not buying anything is probably due to two reasons: (1) at his age, he's probably gone all risk-averse and not wanting to make a mistake right at the end that people will remember him for more than what he did before it and (2) there is nothing to buy at the current prices that is attractive enough.

Sure, there might be something out there but people always want something for even cheaper than is being offered to them, even if it is a good price.

Alfa123
May 09, 2020

Buffett thinks like a businessman first and investor later.

Chris
May 14, 2020

Why are the two concepts separate ?

Alan Moffett
May 21, 2020

A business man cares about health of business on a long term basis ahead of financial rewards. A modern day investor in reality is a speculator who is more interpreted in the price action of security. He is not interested in overall business health, wants to make make quick buck and move on to next security.

This is the main difference between Warren Buffett and an average investor.

david
May 07, 2020

Very surprised with the airline purchase due to the majority of airlines around the world not making profits in the good times. No moat businesses as well.

Thurston Howell, IV.
May 07, 2020

Pretty sure it wasn't Buffett's idea to ever own airlines, rather his upcoming guys Todd and Ted. These worked well, until they didn't. When things went as they did, and future prospects and costs unknown, it was time to bail out, in full, as they don't like minority holdings. As usual, he bares full responsibilty, so you won't hear him blaming his juniors if my theory is right.

CC
May 07, 2020

I was shocked that Buffett ever bought airline stocks in the first place !!
That's something in the past he said he'd never do.


 

Leave a Comment:

     

RELATED ARTICLES

10 quick lessons from Buffett’s 2019 Meeting

It’s good Amazon and Buffett pay no dividends

10 highlights from Buffett's latest letter

banner

Most viewed in recent weeks

10 undervalued stocks if you're worried about volatility

Amid the coronavirus-induced turmoil, many quality names are trading at a discount to fair value, according to Morningstar analysts. A smaller list of companies also screen for earnings certainty.

Baseline outlook for economic recovery is too optimistic

We cannot throw our hands up in the air and say 'this time around, it's simply too hard'. Having no macro view is unhelpful, but many of the baseline scenarios are overly optimistic, says the former CEO of Westpac and now Chairman of Chi-X Australia.

Will our government embrace these three reforms?

COVID-19 is an opportunity for a crucial policy reset, but what does that really mean? Business is hoping for three big reforms, but there are massive barriers to be overcome.

Welcome to Firstlinks Edition 357

There is a remarkable concentration similarity between the Australian and US stock markets that has delivered poor results for Australians and great results for Americans (and global investors). As the share prices of five Australian banks have tanked, the prices of five US technology companies have surged. Each group now represents 20% of their respective indexes, but the journey has been a disaster for many Australians.

  • 13 May 2020

Don't invest just for yield: the smarter way to generate income

Investors often overlook the capital risk in high-yielding stocks. It's better to ensure capital grows and investors can sell a portion each year to make up for the shortfall in income from dividends.

8 reasons business has little to learn from 'The Last Dance'

Everyone seems to be watching The Last Dance, a fascinating sports documentary about the pursuit of excellence by one of the greatest athletes of all time. Let's not stretch the business analogy too far.

Latest Updates

Investing

The most amazing investing lesson of all

If you had to choose one concept to explain to a young person setting out on an investment journey, it should be compounding. While the results are not as spectacular, it's especially relevant when returns are lower.

Economy

What will stop the market returning to its highs?

Despite signs of optimism, market valuations are stretched and recovery is fuelled by government support. Some companies are doing well but stimulus cannot continue to prop up consumers for too long.

Shares

Value is under pressure again - but its day will come

The key to investment success from here is the ability to ignore the crowd and the hot stocks. We will then face a once-in-a-lifetime chance to buy cyclical and industrial stocks with significant upside.

Investment strategies

10 undervalued stocks if you're worried about volatility

Amid the coronavirus-induced turmoil, many quality names are trading at a discount to fair value, according to Morningstar analysts. A smaller list of companies also screen for earnings certainty.

Gold

6 questions SMSF trustees are asking about gold

SMSF trustees are concerned about stock market volatility and low interest rates, and they asked six important questions during this seminar on whether gold has a role in their portfolios.

Exchange traded products

LIC fees banned but other doors remain open

Treasury has finally banned commissions paid to brokers and advisers on LICs and LITs but the exemption from FoFA rules remains for other listed products in the 'real' economy, whatever that is.

SMSF strategies

Is it the end of cash for SMSFs?

The simple message to diversify is not new, but thousands of SMSF trustees focus only on equities and dividends. COVID-19 is encouraging SMSFs to consider different investment strategies.

Economy

Depression or recovery? The risk of time

It is always easier to see the challenges and risks while underestimating ingenuity and positive possibilities. It's likely to be the case this time, too, as long as we move quickly to open economies.

Sponsors

Alliances

© 2020 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use.
Any general advice or class service prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, has been prepared by without reference to your objectives, financial situation or needs. Refer to our Financial Services Guide (FSG) for more information. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.