For those of you who frequently visit Omaha for Buffett’s Annual Shareholders Meeting, this year was the first time it didn’t happen in person. Buffett did a virtual Q&A this year with Becky Quick instead of the traditional way where visitors would approach the microphone to ask questions. He also did not have his partner Charlie Munger there with him either.
Since it was virtual this year, Buffett got through the Becky’s questions in 4 hours instead of the usual 6 hours. The full video can be found on the Yahoo! Finance channel here:
Buffett’s Four Key Points of the Meeting.
- Now is the time to buy stocks! Buffett believes in America.
- Buffett stated that he has effectively sold of all his airline positions. This includes Delta, American Airlines, Southwest Airlines, and United Airlines.
- America will recover from Covid-19. It’s a matter of when, not how. Passive investing in an index fund will be worth it for the average investor 20-30 years down the road.
- Oil may be down for a long time as we see a supply shock and slowdown in oil production.
You can’t choose where you are born. You can’t choose your sex or identity. But if you were to pick one time to be born. You wouldn’t pick 1720, you wouldn’t pick 1820, you wouldn’t pick 1920. You would pick today and you would pick America.
He doesn’t know if stocks will go up tomorrow, next week, next month. But taken a cross section of the market, you’ll most likely do well over the next 20-30 years. A bet on the market is a bet on the great working people of America.
Buffett purchased $426 million in equity securities and sold $6,509 million in equities securities in April 2020.
Investing in More Diverse Boards and CEOs
In a motion by the New York City Comptroller to Berkshire Hathaway, the Comptroller proposed to add a standard where Berkshire would take into consideration a company’s diversity before investing in them. They brought up support using Harvard Business Studies indicating that boards and CEOs with minorities and women had outperformed better in the long run. And in the future when Berkshire considered investing in a company, they would first look at the diversity of the Board and CEO.
In addition, this motion also extended into selecting the next CEO for Berkshire Hathaway. In that event, if Berkshire were to seek out an external CEO, that decision would also follow this criteria for diversity.
Buffett made a statement in the beginning saying he felt in sync with this motion.
However, after tallying the votes:
- 65,925 shareholders voted FOR
- 485,824 shareholders voted AGAINST.
- 3,766 shareholders voted to ABSTAIN.
Buffett Sells His Airline Stocks
Buffett doesn’t believe that the airlines have done anything wrong. He purchased the 4 biggest airline industries knowing they would provide fair earnings. The CEOs are well managed. However, the airline business has changed in a drastic way, through no fault of anyone. However, because of the pandemic, the airline industries are taking on a large amount of debt in borrowings in order to survive. Buffett states that a “low probability event” happened which hit the airlines, hotels, travels, and tourism. As such, the world has changed for airlines. Buffett feels this is a time to exit the airlines for the time being. Airlines may take longer to recover in this situation.
“When we sell something, we sell the entire stake. Very rarely do we trim a position.” – Buffett
If they stay in airlines, they’ll sustain billions of dollars of operating costs and who knows how long before airlines recover.
We don’t know the lethality of this virus. Not without knowing the true denominator (the true number of cases). There are too many areas where cases are inflated and areas where cases are under-reported. He doesn’t believe any of his businesses have been truly affected by the virus and to his knowledge, none of the Berkshire businesses are currently seeking government loans.
Berkshire’s Underperformance vs the S&P 500
A shareholder sent in a question asking why Berkshire has been underperforming against the S&P 500 and what Buffett is doing about it.
I found this surprising since I had always thought that Berkshire beat the S&P the last decade. I decided to input the data into PortfolioVisualizer.com to backtest.
As you can see from this graph, Berkshire has clearly beaten the S&P over the past two decades. However, upon closer inspection
it turns out Berkshire has underperformed against the S&P a few years if we look over the past couple of years. I’m assuming this is what the caller was looking at, the most recent performance.
I still agree that Berkshire is a great company to invest in over the long run. Despite Buffett’s and Munger’s age, they have a thoroughly vetted board of directors that can assume the roles and responsibilities of Berkshire in their absence. Additionally, the two junior portfolio managers, Tod and Ted, will be able to support Berkshire in their stock pick investments.
Buffett on Oil
There’s a good chance oil may be down for a long time. Even his company, Geico, has seen lower vehicle usage by at least 15%. On top of that, airlines have been locked down and the supply of oil has been piling up. Production has been reduced as we’ve seen Russia and Saudi negotiate. This was evident when the oil futures market went into negative prices the other day. He doesn’t know when oil will be up again but it will be a gradual climb. We probably won’t be seeing airlines packed next year, which is also why he dumped his airline stocks.
At the end of the day, Buffett reiterates the average investor be passively invested into an index fund. There were a couple of questions regarding investment advice and Buffett’s response has always been and always will be: to invest in what you know and you shouldn’t have to pay someone else for investment advice.