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Sunday, 31 May 2020

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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.


 

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