Warren Buffett is one of my investment heroes. On 4 May 2024, he held court at the 2024 Berkshire Hathaway AGM (annual general meeting).
For many years, I’ve anticipated the AGM to hear his latest thoughts. But this year’s session is especially poignant because Buffett’s long-time right-hand man, the great Charlie Munger, passed away last November and it is the first Berkshire AGM in decades where Buffett’s Batman did not have Munger’s Robin at his side. For me, there were three especially touching moments during the meeting.
First, the AGM kicked off with a highlights-reel of Munger’s notable zingers and it was a beautiful tribute to his wisdom. Second, Munger received a standing ovation from the AGM’s attendees after the highlights-reel was played. Third, while answering a question, Buffett turned to his side and said “Charlie?” before he could catch himself; Buffett then followed up: “I had actually checked myself a couple times already, but I slipped. I’ll slip again.”
Beyond the endearing sentimentality, the Berkshire meeting contained great insights from Buffett and other senior Berkshire executives that I wish to share and document. Before I get to them, I would like to thank my friend Thomas Chua for performing a great act of public service. Shortly after the AGM ended, Thomas posted a transcript of the session at his excellent investing website Steady Compounding.
Without further ado, the italicised passages between the two horizontal lines below are my favourite takeaways after I went through Thomas’ transcript.
Berkshire shares are slightly undervalued in Buffett’s eyes, but Berkshire has troubling buying its shares in a big way because its shareholders do not think about selling
Buffett: And our stock is at a level where it adds slightly to the value when we buy in shares. But we would. We would really buy it in a big way, except you can’t buy it in a big way because people don’t want to sell it in a big way, but under certain market conditions, we could deploy quite a bit of money in repurchases…
…We can’t buy them like a great many other companies because it just doesn’t trade that way. The volume isn’t the same because we have investors, and the investors, the people in this room, really, they don’t think about selling.
Apple is a very high-quality business to Buffett and Berkshire plans to own it for a long time
Buffett: And that’s sort of the story of why we own American Express, which is a wonderful business. We own Coca Cola, which is a wonderful business, and we own apple, which is an even better business. And we will own, unless something really extraordinary happens, we will own Apple and American Express in Coca Cola when Greg takes over this place.
Buffett sold a small portion of his Apple shares, despite it being a high-quality business, because he wants to build Berkshire’s cash position; he can’t find anything attractive in the current environment
Becky Quick: In your recent shareholder letter, I noticed that you have excluded Apple from this group of businesses. Have you or your investment manager’s views of the economics of Apple’s business or its attractiveness as an investment changed since Berkshire first invested in 2016?…
…Buffett: We will have Apple as our largest investment, but I don’t mind at all, under current conditions, building the cash position. I think when I look at the alternative of what’s available, the equity markets, and I look at the composition of what’s going on in the world, we find it quite attractive…
…I don’t think anybody sitting at this table has any idea of how to use it [referring to Berkshire’s US$182 billion cash pile] effectively. And therefore, we don’t use it. And we don’t use it now at 5.4%. But we wouldn’t use it if it was at 1%. Don’t tell the Federal Reserve that…
…It’s just that things aren’t attractive, and there’s certain ways that can change, and we’ll see whether they do.
Buffett thinks higher taxes in America are likely to come given current fiscal policies that are resulting in large fiscal deficits
Buffett: I would say with the present fiscal policies, I think that something has to give, and I think that higher taxes are quite likely, and the government wants to take a greater share of your income, or mine or Berkshire’s, they can do it. And they may decide that someday they don’t want the fiscal deficit to be this large, because that has some important consequences, and they may not want to decrease spending a lot, and they may decide they’ll take a larger percentage of what we earn and we’ll pay it.
Buffett thinks Berkshhire’s biggest investments will remain within the USA because it has a strong, productive economy and he understands the USA the best
Buffett: Well, our primary investments will always be in the United States… You won’t find us making a lot of investments outside the United States, although we’re participating through these other companies in the world economy. But I understand the United States rules, weaknesses, strengths, whatever it may be. I don’t have the same feeling for economies generally around the world. I don’t pick up on other cultures extremely well. And the lucky thing is, I don’t have to, because I don’t live in some tiny little country that just doesn’t have a big economy. I’m in an economy already, that is, after starting out with half a percent of the world’s population, has ended up with well over 20% of the world’s output in an amazingly short period of time. So we will be American oriented.
Munger only pounded the table twice with Buffett on investing matters, and they were for BYD and Costco
Buffett: But Charlie twice pounded the table with me and just said, you know, buy, buy, buy. And BYD was one of them and Costco was the other. And we bought a certain amount of Costco and we bought quite a bit of BYD. But looking back, he already was aggressive. But I should have been more aggressive in Costco. It wasn’t fatal that we weren’t. But he was right big time in both companies.
The energy needed for AI and data centres will double or triple today’s total energy demand by the mid-2030s, even though it took 100-plus years for total energy demand to rise to today’s level; utilities will need to invest massive amounts of capital to meet this demand
Greg Abel: If we look at the demand that’s in place for Mid American Iowa utility over the next, say, into the mid 2030s associated with AI and the data centers, that demand doubles in that short period of time, and it took 100 years plus to get where we are today, and now it’s going to double…If we then go to, say, Nevada, where we own two utilities there and cover the lion’s share in Nevada, if you go over a similar timeframe and you look at the underlying demand in that utility and say, go into the later 2030s, it triples the underlying demand and billions and billions of dollars have to be put in.
The electric utility industry is a lousier business compared to many others that Berkshire owns stakes in
Abel: The electric utility industry will never be as good as, I mean, just remotely as good as, you know, the kind of businesses we own in other arenas. I mean, you look at the return on tangible equity at Coca Cola or American Express or to really top it off, Apple. It’s just, it’s, you know, it’s just a whole different game.
Buffett thinks the impact of AI on human society – both good and bad – is yet to be seen…
Buffett: I don’t know anything about AI, but I do have, that doesn’t mean I deny its existence or importance or anything of the sort. And last year I said that we let a genie out of the bottle when we, when we developed nuclear weapons, and that Genie has been doing some terrible things lately. And the power of that genie is what, you know, scares the hell out of me. And then I don’t know any way to get the genie back in the bottle. And AI is somewhat similar…
…We may wish we’d never seen that genie or may do wonderful things, and I’m certainly not the person that can evaluate that, and I probably wouldn’t have been the person that could have evaluated it during World War Two, whether we tested a 20,000 ton bomb that we felt was absolutely necessary for them United States, and would actually save lives in the long run. But where we also had Edmund Teller, I think it was, it was on a parallel with Einstein in terms of saying, you may, with this test, ignite the atmosphere in such a way that civilization doesn’t continue. And we decided to let the genie out of the bottle and it accomplished the immediate objective. But whether, whether it’s going to change the future of society, we will find out later.
… but he also thinks AI could enable scammers in a very powerful way
Buffett: Fairly recently, I saw an AI image in front of my eyes on the screen, and it was me and it was my voice. And wearing the kind of clothes I wear, and my wife or my daughter wouldn’t have been able to detect any difference. And it was delivering a message that no way came from me. So it. When you think of the potential for scamming people, if you can reproduce images that I can’t even tell that, say, I need money, you know, it’s your daughter, I’ve just had a car crash. I need $50,000 wired. I mean, scamming has always been part of the American scene, but this would make me, if I was interested in investing in scamming. It’s going to be the growth industry of all time, and it’s enabled in a way.
Munger was Buffett’s best investment sparring partner apart from himself; Munger was also a trusted partner in so many other areas of Buffett’s life
Buffett: In terms of managing money, there wasn’t anybody better in the world to talk to for many, many decades than Charlie. And that doesn’t mean I didn’t talk to other people. But if I didn’t think I could do it myself, I wouldn’t have done it. So to some extent, I talked to myself on investments…
…When I found Charlie, for example, in all kinds of matters, not just investment, I knew I’d have somebody that. Well, I’ll put it this way. You can think about this. Charlie, in all the years we worked together, not only never once lied to me, ever but he didn’t even shape things so that he told half lies or quarter lies to sort of stack the deck in the direction he wanted to go. He was, he absolutely considered total of utmost importance that he never lied.
Climate change can be good for insurers if they’re able to price policies appropriately and reset prices periodically
Ajit Jain: Climate risk is certainly a factor that has come into focus in a very, very big way more recently. Now, the one thing that mitigates the problem for us, especially in some of the reinsurance operations we are in, is our contractual liabilities are limited to a year in most cases. So as a result of which, at the end of a year, we get the opportunity to reprice, including the decision to get out of the business altogether if we don’t like the pricing in the business. But the fact that we are making bets that tie us down to one year at a time certainly makes it possible for us to stay in the business longer term than we might have otherwise because of climate change. I think the insurance industry, in spite of climate change, in spite of increased risk of fires and flooding, it’s going to be an okay place to be in.
…Buffett: Climate change increases risks and in the end it makes our business bigger over time. But not if we, if we misprice them, we’ll also go broke. But we do it one year at a time, overwhelmingly…
…Jain: The only thing I’d add is that climate change, much like inflation, if done right, can be a friend of the risk bearer…
…Buffett: If you look at GeiCo, it had 175,000 policies roughly in 1950, and it was getting roughly $40 a car. So that was $7 million of volume. You know, now we have. We’re getting over $2,000. Well, all the advances in technology and everything like that, if we had been wedded this formula, what we did with $40, we’d have had a terrible business. But in effect, by making the cars much safer, they’ve also made it much more expensive to repair. And a whole bunch of things have happened, including inflation. So now we have a $40 billion business from something that was $7 million back when I called on it. So if we’d operated in a non inflationary world, Geico would not be a $40 billion company.
Buffett is looking at investment opportunities in Canada
Buffett: We do not feel uncomfortable in any way, shape or form putting our money into Canada. In fact, we’re actually looking at one thing now. But, you know, they still have to meet our standards in terms of what we get for our money. But they don’t have a, they don’t have a mental, we don’t have any mental blocks about that country.
Ajit Jain is very, very important in Berkshire’s insurance operations, but there are institutionalised practices in Berkshire’s insurance operations established by Jain that cannot be imitated by competitors, so the insurance operations will still be in a good place even if Jain leaves the scene
Buffett: We won’t find another Ajit, but we have an operation that he has created and that’s at least part of it. There are certain parts of it that are almost impossible for competitors to imitate, and if I was in their shoes, I wouldn’t try and imitate them. And so we’ve institutionalized some of our advantages, but Ajit is. Well, his presence allowed us to do it and he did it. But now we’ve created a structure that didn’t exist when he came in 1986. Nothing close to it existed with us or with anybody else…
…Jain: The fact of the matter is, nobody is irreplaceable. And we have Tim Cook here in the audience, I believe, who has proved that and has set an example for a lot of people who follow.
Biographies are a wonderful way to have conversations with great people from the past
Buffett: Sometimes people would say to me or Charlie at one of these meetings, you know, if you had only have lunch with one person that lived over the last 2000 or so years, you know, who would you want to have it with? Charlie says, I’ve already met all of them. You know, because he read all the books.
Figure out who you want to spend the last day of your life with, and meet them often
Buffett: What you should probably ask yourself is that who do you feel that you’d want to start spending the last day of your life with? And then figure out a way to start meeting them, or tomorrow, and meet them as often as you can, because why wait a little last day and don’t bother with the others?
Cybersecurity is now big business for insurers, but Berkshire is very careful with it because the total amount of losses are tough to know; Berkshire tries to not write cybersecurity insurance
Jain: Cyber insurance has become a very fashionable product these days over these last few years. It is at least a $10 billion market right now globally, and profitability has also been fairly high. I think profitability is at least 20% of the total premium has ended up as profit in the pockets of the insurance bearers…
…we at Berkshire tend to be very, very careful when it comes to taking on cyber insurance liabilities for the part of. Actually for two reasons. One is it’s very difficult to know what is the quantum of losses that can be subject to a single occurrence, and the aggregation potential of cyber losses, especially if some cloud operation comes to a standstill. That aggregation potential can be huge, and not being able to have a worst case gap on it is what scares us. Secondly, it’s also very difficult to have some sense of what we call loss cost, or the cost of goods sold could potentially be. It’s not just for a single loss, but for losses across over time, they have been fairly well contained out of 100 cents of the dollar. The premium losses over the last four or five years, I think, have not been beyond forty cents of the dollar, leaving a decent profit margin. But having said that, there’s not enough data to be able to hang your hat on and say what your true loss cost is.
So in our insurance operations, I have told the people running the operations is I’ve discouraged them from writing cyber insurance to the extent they need to write it so as to satisfy certain client needs. I have told them, no matter how much you charge, you should tell yourself that each time you write a cyber insurance policy, you’re losing money…
…And our approach is to sort of stay away from it right now until we can have access to some meaningful data and hang our hat on data…
…Buffett: I remember the first time it was happened, I think in the 1968 when there were the riots in various cities, because I think it was the Bobby Kennedy death that set it off for the Martin Luther King death. I’m not sure which one. But in any event, when you write a policy, you have a limit in that policy. But the question is, what is one event? So if somebody is assassinated in some town and that causes losses at thousands of businesses all over the country, if you’ve written all those thousands of policies, you have one event, nor do you have a thousand events. And there’s no place where that kind of a dilemma enters into more than cyber. Because if you think about it, if, you know, let’s say you’re writing $10 million of limit per risk, and that’s fine, if you lose 10 million for some event, you can take it. But the problem is if that one event turns out to affect 1000 policies and somehow they’re all linked together in some way and the courts decide that way.
The transition from fossil fuels to renewable energy will take time and currently, it’s not possible to transition completely away from fossil fuels
Abel: When you think of a transition that’s going on within the energy sector, we are transitioning from carbon resources to renewable resources, as was noted, but it will not occur overnight. That transition will take many years. And as we use, be it renewable resources such as solar or wind, they are intermittent, and we do try to combine it with batteries. But at this point in time, time, we cannot transition completely away from the carbon resources…
…Buffett: But solar will never be the only source of electricity because, well, Greg may know more about this, but I’m barring some real breakthroughs in storage and that sort of thing. Right?
Abel: Yeah. Generally a battery right now to do it in an economical way is a four hour battery. And when you think of the time without the sun being available, that’s a challenge. Now there’s a lot of technology advancements and that’s stretching out and you throw dollars, a lot of things, you can accomplish things, but the reality is that there’s a careful balance of the reliability and also balancing.
Buffett knows, sadly, that there’s not much gas left in the tank for him (and also seemed to take a dig at old politicians who are overstaying their welcome)
Buffett: We’ll see how the next management plays the game out at Berkshire. Fortunately, you don’t have too long to wait on that. Generally, I feel fine, but I know a little bit about actuarial tables, and I just. Well, I would say this. I shouldn’t be taking on any four year employment contracts like several people doing in this world in an age where you can’t be quite that sure where you’re going to be in four years.
Berkshire has special cultural aspects that would be really attractive for the right kind of person
Buffett: We’ve got an entity that if you really aspire to be a certain kind of manager, of a really large entity, there’s nothing like it in the world. So we’ve got something to offer the person who we want to have…
…Abel: The culture we have at Berkshire and that being our shareholders, being our partners and our managers of our business, having that ownership mentality, that’s never going to change and that will attract the right managers at every level. So I think, as Warren said, we have a very special company in Berkshire, but it’s that culture that makes it special, and that’s not going to change.
A great manager cannot fix a terrible business, but will thrive when handed a great business
Buffett: The right CEO can’t make a terrible business great. Tom Murphy, who was the best, he was the best business manager I’ve ever known. And Tom Murphy, you know, he said the real key was buying the right business. And now Murph brought a million other attributes to it after that.
But, you know, Charlie said, what was this? He had a saying on that. But basically, we could have brought in Tom Murphy and told him his job was to run the textile business, and it would have done a little bit better, but it still would have failed. And one of the reasons I stuck with the textile business as long as I did was that I liked Ken Chase so much, and I thought he was a terrific guy, and he was a very good manager. If he’d been a jerk, you know, we’d have quit the textile business much faster, and we’d have been better off. But. So the answer was for him to get in the tv business, like Murph had done and ad supported.
You know, Murph figured that out early, and he started with a pathetic operation, which was a VHF in Albany, New York, competing against GE and everything. And he was operating out of a home for retired nuns, and he only painted the side that faced the street. He had one car dashing around town, and he called it news truck number six. But from that, he built an incredible company, and he built it because he was the best manager I’ve ever met. But beyond that, he was in a good business. And the key will be to have Tom Murphy and then hand them a bunch of good businesses, and he or she will know what to do with it.
Having the resources and the will to act when everyone else does not is a great advantage
Buffett: We’ve gotten from 20 million of net worth to 570 billion. And, you know, we. There aren’t as many things to do, but we can do a few big things better than anybody else can do. And there will be occasional times when we’re the only one willing to act. And at those times, we want to be sure that the US government thinks we’re an asset to the situation and not liability or a supplicant, as the banks were. We’ll say in 2008 and nine, they were all tarred with the same brush. But we want to be sure that the brush that determines our future is not tarred. And I think we’re in the. I don’t think anybody’s got a better position to do it than Berkshire…
…It wasn’t that people didn’t have money in 2008. It’s that they were paralyzed. And we did have the advantage of having some capital and eagerness even to act, and a government that, in effect, looked at as us as an asset instead of a liability.
If autonomous driving takes off and the number of traffic accidents fall, car insurance prices will fall, but on the other hand, the cost of repair of accidents has also skyrocketed, so the overall impact on car insurance prices may be somewhat muted
Buffett: Let’s say there are only going to be three accidents in the United States next year for some crazy reason that anything that reduces accidents is going to reduce costs. But that’s been harder to do than people have done before. But obviously. But if it really happens, the figures will show it, and our data will show it, and the prices will come down…
… If accidents get reduced 50%, it’s going to be good for society and it’s going to be bad for insurance companies’ volume. But, you know, good for society is what we’re looking for so far. You might find kind of interesting. I mean, the number of people killed per 100 million passenger miles driven. I think it actually, when I was young, it was like 15, but even post world war two, it only fell like seven or thereabouts. And Ralph Nader probably has done more for the american consumer than just about anybody in history because that seven or six has now come down to under two. And I don’t think it would have come down that way without him…
…The point I want to make in terms of Tesla and the fact that they feel that because of their technology, the number of accidents do come down, and that is certainly provable. But I think what needs to be factored in as well is the repair cost of each one of these accidents has skyrocketed. So if you multiply the number of accidents times the cost of each accident, I’m not sure that total number has come down as much as Tesla would like us to believe.
It’s not easy to solve climate change because it involves developed economies (including the USA) telling developing economies they cannot live in the same way today that the developed economies did in the past
Buffett: All of climate change, it’s got a terrible problem just in the fact that the United States particularly has been the one that’s caused the problem the most. And then we’re asking poorer societies to say, well, you’ve got to change the way you live, because we live the way we did. But that really hasn’t been settled yet. It’s a fascinating problem to me, but I don’t have anything to add to how you really slice through the world.
The prototype of a Berkshire shareholder is a person with a wealthy portfolio, and an even wealthier heart
Buffett: I know she is the prototype. She may have more zeroes, but she’s the prototype of a good many Berkshire Hathaway shareholders. It’ll be the first thing we talk about when we come back. But some of you may have noticed whenever it was a few weeks back, when Ruth Gottesman gave $1 billion to Albert Einstein to take care of all of us, and Ruth doesn’t like a lot of attention drawn to herself. But here’s how they felt at Albert Einstein when they announced that Ruth Gottesman had just made a decision to take care of all of the costs of education at Albert Einstein, and it’s going to be in perpetuity. So let’s just show the film.
Albert Einstein College of Medicine personnel: I’m happy to share with you that starting in August this year, the Albert Einstein College of Medicine will be tuition free.
Buffett: And that’s why Charlie and I have had such fun running Berkshire. She transferred a billion dollars to other people. She happened to do it with Berkshire stock, and, you know, they offered rename the school after and everything like that. But she said, Albert Einstein. That’s a pretty good name to start with. So there’s no ego involved in it, no nothing. She just decided that she’d rather have 100-plus, closer to 150 eventually, of students be able to start out debt free and proceed in life. And she did it happily, and she did it without somebody asking, you know, name it, you know, put my name on for all four sides of neon lights, and I salute her…
…There are all kinds of public companies and wealthy public companies throughout America, and there are certainly cases where in one family, somebody has made a very large amount of money and is devoting it to philanthropy, or much of it to philanthropy, such as the Walton family would be the number one thing in Walmart. And certainly Bill did the same thing, Bill Gates did the same thing at Microsoft. But what is unusual about Berkshire is that a very significant number of Berkshire shareholders located all over the United States, not just in Omaha, but the number of different Berkshire holders who have contributed $100 million or more to their local charities, usually with people not knowing about it. I think it’s many multiples of any other public company in the country. It’s not more multiples than those put a whole lot into philanthropy, and I don’t know the details of the family, but clearly there’s a huge sum of money that the Walmart family, I’m sure, has done all kinds of things philanthropic and will continue to do it.
But I don’t think you’ll find any company where a group of shareholders who aren’t related to each other. So many of them have done something along the lines of what Ruth did a few weeks ago, just to exchange a little piece of paper that they’ve held for five decades, and they’ve lived well themselves. They haven’t denied their family anything, but they don’t feel that they have to create a dynasty or anything, and they give it back to society. And a great many do it anonymously. They do it in many states to some extent…
…But I have to say one thing that was astounding is that the same day we bought a billion dollars worth of Berkshire class a stock from Ruth. So that. And I guess we were actually buying it from the school at that point because he’s just given them. And then. So the transaction was with them. But Mark Millard in our office bought a billion dollars from them, but he also bought $500 million worth of stock from somebody else that nobody will ever have heard of and in a different state. And I won’t elaborate beyond that, but we have had a very significant number of people, and there’s more to come…
…It sort of restores your faith in humanity, that people defer their own consumption within a family for decades and decades, and then they could do something like. And they will. I think it may end up being 150 people to pursue different lives and talented people and diverse people to become a dream of being a doctor and not have to incur incredible debt to do it, or whatever may be the case. There’s a million different examples…
…It sort of restores your faith in humanity, that people defer their own consumption within a family for decades and decades, and then they could do something like. And they will. I think it may end up being 150 people to pursue different lives and talented people and diverse people to become a dream of being a doctor and not have to incur incredible death to do it, or whatever may be the case. There’s a million different examples.
If you understand businesses, you understand stocks
Buffett: If you understand businesses, you understand. You understand common stocks. I mean, if you really know how business works, you are an investment manager. How much you manage, maybe just your own funds or maybe other people. And if you really are primarily interested in getting assets under management, which is where the money is, you know, you don’t really have to understand that sort of thing. But that’s not the case with Ted or Todd, obviously.
Getting extraordinary results in the long-term is not easy, but getting decent results is, if your behaviour is right
Buffett: We’re not positioned though, however, to earn extraordinary returns versus what american business generally earns. I would hope we could be slightly better, but nobody’s going to be dramatically better than some over the next century. It gets very hard. It gets very hard to predict who the winner will be. If you look back, as we did a few meetings ago, as the top 20 companies in the world at ten year intervals, you realize the game isn’t quite as easy as it looks. Getting a decent result actually is reasonably, should be reasonably easy if you just don’t get talked out of doing what has works in the past, and don’t get carried away with fads, and don’t listen to people who have different interests in mind than the interests of our shareholders.
Distribution businesses are not wonderful businesses, but they can perform really well if there’s a great manager at the helm
Buffett: For example, many of the items that the manufacturer just, they don’t want to tie up their capital. If you have a million-plus SKUs – stock keeping units – it’s like selling jelly beans or something like that. And you’re serving a purpose to a degree, but it isn’t your product, in effect. I mean, you’re just a good system for the producer of the equipment to get it to the end user without tying up a lot of capital, being in a business they don’t want to be in. We understand, but there’s no magic to it. With TTI, you had a marvelous man running things, and when you get a marvelous person running something, to some extent, there’s a lot of better people underneath…
…The distribution business is not a wonderful business, but it is a business, and it’s a business that, if it’s big enough, it’s one we would look at and we would buy additional
Buffett and Munger were able to make decisions really quickly because they had built up a tremendous knowledge base over time
Buffett: Charlie and I made decisions extremely fast. But in effect, after years of thinking about the parameters that would enable us to make the quick decision when it presented itself…
…I think the psychologists call this apperceptive mass. But there is something that comes along that takes a whole bunch of observations that you’ve made and knowledge you have and then crystallizes your thinking into action. Big action in the case of Apple. And there actually is something, which I don’t mean to be mysterious, but I really can’t talk about, but it was perfectly legal, I’m sure, you know, that. It just happened to be something that entered the picture that took all the other observations. And I guess my mind reached what they call apperceptive mass, which I really don’t know anything about, but I know the phenomenon when I experience it. And that is, we saw something that I felt was, well, enormously enterprise…
…You know, why do you have this, the person you met? You know, there are all these different potential spouses in the room, and then something happens that you decide that this is the one for you. You know, I think Rogers and Hammerstein, that some enchanted evening, wrote about that. Well, our idea of an enchanted evening is to come up with a business, Charlie and me, and there is an aspect of knowing a whole lot and having a whole lot of experiences and then seeing something that turns on the light bulb…
…Abel: Warren, he mentioned Oxy [Occidental Petroleum], which I think is a great example where you made the original decision basically on a weekend with some thought. But as the more you learned about Oxy and the asset position they had, their ability to operate in an exceptional manner, and then a strong CEO around capital allocation. I think your confidence, which was reflected in continuing to acquire more shares, is sort of that type of process.
Buffett: Yeah, it’s exactly to the point. I just learned more as I went along. I’d heard of Occidental Petroleum. Occidental Petroleum happens to be a descendant, not a descendant, but it’s a continuation of City Service, which was the first stock I bought. And, of course, I knew a lot about the oil and gas business, but I didn’t know anything about geology. I knew the economics of it. I had a lot of various things stored in my mind about the business, but I never heard of Vicki until, I guess, it was a Friday or Saturday, and we met on Sunday morning. We made a deal, but that was one sort of deal. And then as time passed, all the kinds of different events happened. You know, Icahn came in. I mean, there are a million things you couldn’t predict at the start, and I formed certain opinions as I went along, but then I learned more as I went along. And then at a point when I heard an investor call that Vicki was on, it put things together for me in a way. It didn’t mean I knew I had a sure thing or anything like that. I don’t know what the price of oil was going to be next year. But I knew that it was something to act on. So we did, and we’re very happy we did, and we still don’t know what the price of oil is going to be next year. Nobody does. But I think the odds are very good that it was – but not a cinch – that it was a good decision, and we’ve got options to buy more stock, and when we get through with it, it could be a worthwhile investment for Berkshire.
Buffett invested in Apple after learning about consumer behaviour from his prior investments
Buffett: People have speculated on how I’ve decided to really put a lot of money into Apple…
…One thing that Charlie and I both learned a lot about was consumer behavior. That didn’t mean we thought we could run a furniture store or anything else. But we did learn a lot when we bought a furniture chain in Baltimore. And we quickly realized that it was a mistake. But having made that mistake, made us smarter about actually thinking through what the capital allocation process would be and how people were likely to behave in the future with department stores and all kinds of things that we wouldn’t have really focused on. So we learned something about consumer behavior from that. We didn’t learn how to run a department store.
Now, the next one was See’s Candy. And See’s Candy was also a study of consumer behavior. We didn’t know how to make candy. There were all kinds of things we didn’t know. But we’ve learned more about consumer behavior as we go along.
And that sort of background, in a very general way, led up to the study of consumer behavior in terms of Apple’s products. And in that case, while I watched what was happening at the furniture mart, in terms of people leaving the store, even though we were selling Apple at a price where we weren’t even making any money, but it was just so popular that if we didn’t have it, people left the store and went to Best Buy or someplace. And if you know the Blumkins, they can’t stand anybody leaving the store, so they behaved accordingly…
… Maybe I’ve used this example before, but if you talk to most people, if they have an iPhone and they have a second car, the second car cost them 30 or $35,000, and they were told that they never could have the iPhone again, or they could never have the second car again. They would give up the second car. But the second car cost them 20 times. Now, people don’t think about their purchases that way, but I think about their behavior. And so we just decide without knowing. I don’t know. There may be some little guy inside the iPhone or something. I have no idea how it works. But I also know what it means. I know what it means to people, and I know how they use it. And I think I know enough about consumer behavior to know that it’s one of the great products, maybe the greatest product of all time. And the value it offers is incredible.
Nobody knows what oil prices would do in the future
Buffett: We still don’t know what the price of oil is going to be next year. Nobody does.
Demand growth for the rail industry is going to be pretty flat, but it is an essential business for the American economy
Buffett: The reality is that the rail industry, if you go back many, many years, it’s flat. There’s not a lot of growth in the industry. There’s opportunities become more efficient, effective, and our margins can go up. But the reality is the demand is going to be flat…
…As I mentioned in the annual report, railroads are absolutely essential to the country. That doesn’t mean they’re on the cutting edge of everything. They’re just essential to the country…
…If you shut down the railroads of the country, it would be incredible, the effects, but. And they would be impossible to construct now.
Buffett is clear that part of his success is down to luck too
Buffett: I mean, it is absolutely true that if I had to do over again, there’d be a lot of different choices I would make, whether they would have ended up working out as well as things that worked out. It’s hard to imagine how they could have worked out any better…
…You still need luck, you know, you don’t want to. Anybody that says I did it all myself is just kidding. They’re delusional and, you know, actually living a country with a life expectancy is pretty darn good, you know, so that alone is a huge plus. I was born, if I’d been born, my sister’s here, and she was born female, and she’s just as smart as I was and everything. But even my own family, who really did, particularly my dad, love us all equally in a terrific manner. But he still told me that – this is tender – I was born ten years after the 19th amendment was passed, but he basically told my sisters that “Marry young while you still have your looks.” And he told me that “the world, that power in you is new in nature and you really could do anything.” Well, I found there were a lot of things I couldn’t do, but the message given to females and males was incredibly different by the most well meaning and loving of parents.
It’s sometimes to important to simply trust a smart person even if you have no idea what’s going on
Buffett: If you haven’t read it, it’s fascinating to go to Google and read the letter by Leo Szilard and Albert Einstein to President Roosevelt, written about a month before, almost exactly a month before the Germany and Hitler moved into Poland. And it laid out well, Leo Szilardd knew what was going to happen or had a good hunch of what was going to happen in terms of nuclear bomb development. And he couldn’t get through to Roosevelt. But he knew that a letter signed by Albert Einstein would. So it’s probably the most important letter ever written and you can read it, which is just fascinating to me, but that started the Manhattan Project. That started it. Just everything flowed out of it. And I’ll bet anything that Roosevelt didn’t understand it, but he understood that Albert Einstein sent a letter and he probably knew what he was talking about and he better get, he better start the Manhattan Project. It is just unbelievable what happens in this world.
Buffett thinks the more important thing to worry about with the US economy would be inflation and fiscal deficit, not the amount of US debt
Quick: Randy Jeffs from Irvine, California. The March 25, 2024 Wall Street Journal reported that the Treasury market is about six fold larger than before the 2008-2009 crisis. Do you think that at some point in time the world market will no longer be able to absorb all of the US debt being offered?
Buffett: The answer, of course, is I don’t know. But my best speculation is that US debt will be acceptable for a very long time because there’s not much alternative. But it won’t be the quantity. The national debt was nothing to speak of for a long, long time. It won’t be the quantity.
It will be whether in any way inflation would get let loose in a way that really threatened the whole world economic situation. And there really isn’t any alternative to the dollar as a reserve currency. And you get a lot of people who give you a lot of speeches on that, but that really is the answer. And Paul Volcker worried about that back before 1980, but he had threats on his life. And I happened to have a little contact with him at that time. He was an amazing, amazing fellow that in effect decided that he had to act or the financial system would fall apart in some way that he couldn’t predict. And he did it and he had people threatening his life and do all kinds of things, but he was the man for that crisis. But it wasn’t the quantity of US debt that was being offered that threatened the system then. It was the fact that inflation and the future value of the dollar, the cash-is-trash type thinking that turned, that was setting up something that could really affect the future of the world in terms of its economic system. And Paul Volcker took it on…
…I don’t worry about the quantity, I worry about the fiscal deficit. But I’m not a worrier, just generally, I think about it, but I don’t sit and get up and work myself into a stew about it in the least. But I can’t help thinking about it…
…I think media enters into this and the focus is on the Fed and they just love it because things are always happening and economists are always saying what’s going to happen with the Fed and everything else. But the fiscal deficit is what should be focused on. And Jay Powell is not only a great human being, but he’s a very, very wise man, but he doesn’t control fiscal policy. And every now and then he sends out a kind of a disguised plea for please pay attention to this because that’s where the trouble will be if we have it.
If you’ve been lucky in life, help pull up others too
Quick: On March 4, Charlie’s will was filed with the county of Los Angeles. The first codicil contained an unusual provision. It reads, “Averaged out, my long life has been a favored one, made better by duty, imposed by family tradition, requiring righteousness and service. Therefore, I follow an old practice that I wish was more common now, inserting an ethical bequeath that gives priority not to property, but to transmission of duty.” If you were to make an ethical bequest to Berkshire shareholders, what duties would you impose and why?
Buffett: I’d probably say read, Charlie. I mean, he’s expressed it well, and I would say that if you’re not financially well off, if you’re being kind, you’re doing something that most of the rich people don’t do, even when they give away money. But that’s on the question of whether you’re rich or poor. And I would say, if you’re lucky in life, make sure a bunch of other people are lucky, too.
Disclaimer: The Good Investors is the personal investing blog of two simple guys who are passionate about educating Singaporeans about stock market investing. By using this Site, you specifically agree that none of the information provided constitutes financial, investment, or other professional advice. It is only intended to provide education. Speak with a professional before making important decisions about your money, your professional life, or even your personal life. I currently have a vested interest in Apple and Tesla. Holdings are subject to change at any time.