"What gives you opportunities is other people doing dumb things ... In the 58 years
we’ve been running Berkshire, I would say there’s been a great increase in the number people doing
dumb things, and they do big, dumb things." - Warren Buffett, May 6, 2023
This past Saturday was the 2023 Berkshire Hathaway AGM from Omaha, NE. It was broadcast live on CNBC and I recorded it to watch playback. Honestly, I had a hard time getting through it with a busy family weekend and the beautiful weather outside. It is mostly a Q and A session with Warren Buffett (91) and Charlie Munger (99). Some of the answers were a bit long and drawn out. Here are some highlights:
Value Investing
Buffett said that the opportunity in value investing comes from others doing ‘dumb things’ as value investors get opportunities when others make bad decisions. “I would love to be born today and go out with not too much money and hopefully turn it in to a lot of money,” Buffett said adding that Charlie would as well.
Munger, on the other hand, stated that value investors should be comfortable making less because there’s more competition.
Elon Musk
Speaking on Tesla and Twitter boss Elon Musk, Buffett underscored that he and Munger “don’t want to compete with Elon.” Munger added that Musk takes impossible job while Warren and I are looking for the easy one. Elon Musk has become successful by “taking on the impossible job,” Buffett and Munger said.
“Elon Musk overestimates himself, but he is very talented,” Munger said, adding that the billionaire wouldn’t have achieved what he has in life if he hadn’t tried his unreasonably extreme objectives.
Apple
Highlighting that Apple just happens to be better business than any they own, Buffett clarified that it is not 35 per cent of Berkshire’s portfolio like a questioner suggested. “Our criteria for Apple was different than the other businesses we own —It just happens to be better business than any we own,” Buffett said. He added that the iPhone’s status among consumers makes it an “extraordinary product”.
US Banking Crisis
Speaking about the US banking crisis, Buffett praised the government's intervention in recent bank failures and said that the regulators averted what could have become an even bigger crisis.
About the failure of Silicon Valley Bank, he thought the government did the right thing in stepping in to guarantee bank deposits above the Federal Deposit Insurance Corporation guarantee of $250,000.
“It would have been catastrophic,” Buffett said if the government wouldn’t have acted. He further said that refusing to guarantee all SVB deposits risked a “run on every bank in the country” and, by extension, a threat to the global financial system.
Portfolio Diversification
Sometimes portfolio diversification is deworsification, according to Munger. Diversification has become a standard investing rule to help reduce risk and create a more resilient portfolio, but there is such a thing as overdoing it that investing educators don’t give enough attention to, he added.
“One of the inane things that’s taught in modern university education is that a vast diversification is absolutely mandatory in investing in common stocks. That is an insane idea. It’s not that easy to have a vast plethora of good opportunities that are easily identified. And if you’ve only got three, I’d rather be in my best ideas instead of my worst.”
Artificial Intelligence
Charlie Munger expressed his view on AI saying that the old-fashioned intelligence works pretty well over AI; though it will rapidly transform many industries. While Munger admitted that we’re going to see a lot more robotics in the world, he noted, “I’m personally skeptical of some of the hype in AI.”
Buffett, while he expects AI will “change everything in the world,” said he doesn’t think it will trump human intelligence.
Paramount Global
The media company is in the midst of an expensive transition from legacy businesses in cable TV and movies to a streaming future. Paramount shares dropped 28% on May 5 following a disastrous quarterly earnings report that included a large loss and a slash to the company’s dividend.
“It’s not good news when any company cuts its dividend dramatically,” Buffett said. He noted that the streaming business remains challenging, with numerous competitors keeping prices low. It’s easy to cancel a streaming subscription and hop to a competing service. “There are a bunch of companies who don’t want to quit,” Buffett said. “Who knows what will happen with pricing.” Berkshire became the largest holder of Paramount stock last year, with a stake of around 15%. Shares are down by about half since Berkshire began buying in the first quarter of 2022.
Estate Planning
When ask about estate planning, Buffett said that if your beneficiaries are only seeing your wishes for the first time after you have passed, then you have done them a disservice. Perhaps those that are executing your Will or beneficiaries of it should have some input as it is being prepared.
Have yourself a great week,
J. Todd Kennedy, CIM, FCSI
Senior Portfolio Manager
613-566-4582
toddkennedy.ca
This information is not investment advice and should be used only in conjunction with a discussion with your RBC Dominion Securities Inc. Investment Advisor. This will ensure that your own circumstances have been considered properly and that action is taken on the latest available information. The information contained herein has been obtained from sources believed to be reliable at the time obtained but neither RBC Dominion Securities Inc. nor its employees, agents, or information suppliers can guarantee its accuracy or completeness. This report is not and under no circumstances is to be construed as an offer to sell or the solicitation of an offer to buy any securities.