Berkshire Hathaway annual general meetings (AGM) are never your typical AGMs. Yes, Berkshire Hathaway is an amazing company steered by a strong management team. But it is also overseen by two of the best value investors. Many go for Berkshire’s AGMs not just to learn more about the business, but to also absorb Warren Buffett’s and Charlie Munger’s words of wisdom, thoughts, and projections on current business and economic affairs. This year was no different.
Here are seven things I learnt from Berkshire Hathaway’s 2023 AGM.
1. Buffett’s confidence in his successor. Buffett is a veteran in his field and succession planning is of critical focus and importance. Investors worry that Greg Abel, Buffett’s immediate successor, may not be able to fill such large shoes and live up to expectations. However, Buffett appeased investors by displaying his fullest confidence in Greg Abel’s ability to succeed him, with Ajit Jain along his side as an advisor. Buffett added that Abel is good at many things that he is not, further demonstrating his confidence in Abel to continue Berkshire Hathaway’s upward trajectory.
2. The faith in renewable energy. Abel and Buffett emphasized the significance of Berkshire’s foray into renewable energy generation as Berkshire Hathaway Energy shifts towards a greater reliance on renewable energy sources. They have outlined a comprehensive strategy that aims to discontinue operations of the remaining 14 coal units by 2049 and phase out all natural gas units by 2050. Additionally, the company is actively pursuing measures to reduce its carbon footprint by 50% in 2030, measured against its 2005 levels.
While Buffett acknowledged the tremendous investment potential in renewable energy, he also expressed concerns about the fragmented nature of the renewable energy market, which poses certain challenges. Currently, there is a lack of unified legislation for renewable energy generation across the United States, with different state laws governing the sector. Consequently, Berkshire faces additional compliance costs to ensure adherence to these varied regulations, resulting in a slower pace of progress in their renewable energy initiatives. Nobody put it better than Buffett himself, ‘The capital is there, the people are there, the objective is obvious, we just don’t seem to be able to do it in peacetime.’
3. Don’t let emotions lead your investment decisions. Buffett shared that he has made plenty of bad investment decisions but he ‘cannot recall a time that he has made an emotional one.’ Making poor investment choices is just part of every investor’s learning journey. Poor investment choices allow investors to learn what cannot be simply taught. However, the influence of emotions in investment should be removed, if not minimised. Emotions can cloud judgement and lead to biased decision making, pushing investors to focus on short-term gains or losses instead of taking a long-term perspective. It is crucial for investors to consistently evaluate the fundamental strength of a company and its valuation before making investment decisions. Even investing in great businesses at the wrong price is a bad investment.
4. Forcing an extremely diversified portfolio is pointless. There is such a thing as overdiversifying of one’s portfolio or what Charlie Munger likes to call ‘deworsification’. He commented, ‘If I only have three [good investment opportunities], I’d rather be in my best ideas instead than my worst.’
Holding too many investments can dilute potential returns and make it challenging to monitor and manage one’s portfolio effectively. Moreover, it is not easy to find many good investment opportunities and finding these opportunities takes time. When an investor actively pursues diversification for the sake of diversification by investing in businesses with weak fundamentals or acquiring good businesses at the wrong price, they inadvertently expose their portfolio to avoidable risks. Hence, a less diversified portfolio consisting of a few fundamentally strong businesses, purchased at the right price is always better than overdiversification.
5. The U.S. dollar remains the world’s reserve currency. The U.S. dollar has always been the world’s reserve currency. However, recent trades made in other currencies by countries such as China, Russia, and Saudi Arabia early this year have challenged the position of the U.S. dollar in the global trade ecosystem. When the question of the possibility of future de-dollarisation was posed to Buffett, he responded saying that he sees no other option than the U.S. dollar being the world’s reserve currency. However, he cautioned by adding that there is no way to identify the point at which the use of the U.S. dollar has been stretched too thin before ‘it gets out of control’. Buffett advises that investors should proceed cautiously, and that Berkshire Hathaway is as prepared as it can be for this possibility.
6. Expect to make less as markets become more saturated. Munger advises that value investors get used to yielding lower returns on investments. There is an increasing number of people joining the pool of value investors, each more intelligent than the next. Everyone wants a slice of the pie. Hence, as more intelligent people compete for a particular investment opportunity, profits get smaller and smaller.
7. There will always be new opportunities created by others making dumb decisions. Despite the previous point’s validity, Buffett does remind us that there will always be an abundance of new investing opportunities. He attributes this to an ‘increasing number of people doing dumb things’ within the businesses they operate. These mess-ups cause shareholders to lose confidence in good businesses and sell their shares away. Resultantly, share prices of these businesses fall to an undervalued level. These price points and the ability of these companies to bounce back from setbacks prove extremely attractive to the value investor.
The fifth perspective
The 2023 Berkshire Hathaway AGM served as a significant platform for stakeholders to gather and discuss key matters concerning the organisation. Buffet and Munger’s insights into successful investing, coupled with their unwavering integrity, creates brilliant advice for even the most seasoned of value investors. Yet again, attendees had left the AGM armed with timeless investment principles. As Buffet turns 94 in August and Munger 100 at the beginning of next year, many wait in anticipation for Berkshire Hathaway’s AGM 2024, excited to learn even more from the two investors who have and will continue to shape the investment landscape for generations to come.
You can watch a replay of the 2023 Berkshire Hathaway annual meeting here.
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