Notes from the 2023 Berkshire Hathaway shareholders' meeting
Warren Buffett: Investment income will be higher in 2023 than in 2022. Treasuries will yield about $5 billion in interest for the year, as opposed to the $50 million they were earning before.
It will be no great triumph if operating earnings go up considerably in the future. That's basically inevitable, with so much in retained earnings.
As of March 31, 2023:
- Shareholders' equity: $504 billion
- Float: $165 billion
- Cash: $127 billion
Float is like having a bank with no employees, no interest to pay, and no withdrawals to worry about.
Shareholders' equity is very expensive. Long-term debt has been cheap, but that's changing. Float has been free, and it finances the asset side of the balance sheet.
Class A equivalent shares outstanding:
- 1,624,958 - 2019/12/31
- 1,543,960 - 2020/12/31
- 1,477,429 - 2021/12/31
- 1,459,733 - 2022/12/31
- 1,450,152 - 2023/03/31
Silicon Valley Bank
Becky Quick: What would have been the consequences if the deposits at Silicon Valley Bank hadn't been covered by deposit insurance?
Warren Buffett: It would have been catastrophic. That's why the deposits were covered, even if they weren't FDIC-insured. It would have been just as catastrophic as it would be for the government to outrun the debt ceiling.
Audience question: How do you manage your emotions when investing?
Warren Buffett: I can't recall a Berkshire decision we have made emotionally. Even Jamie Lee Curtis couldn't make us do that.
Charlie Munger: We may have made emotional decisions in letting some managers stick around past their prime, but never in a way that would have really hurt results.
Becky Quick: GEICO and BNSF both lost ground to competitors in 2021. Did you do anything to correct their performance last year?
Ajit Jain: GEICO has been implementing telematics with new automotive policies. Technology is a "monumental challenge" internally as we try to streamline operations. We are targeting a combined ratio of 96. The trade-off is between profitability and growth, and we are focusing on profitability.
Greg Abel: BNSF is well-aware of "precision scheduling" at its competitors. BNSF is increasing efficiency while preserving safety. We prioritized getting recovered from the disruptions of 2020 and 2021 during 2022, and did not focus on performance metrics.
Warren Buffett: Todd Combs was Ajit's pick (and mine) to fix things at GEICO. There has been a remarkable improvement under difficult circumstances, particularly with matching rate to risk. There have been lots of new companies in the insurance industry in the last decade, and I wouldn't prefer to own any of them. Every one of them starts by saying they're a "tech" business, not an insurance company. And they've burned through enormous capital. In the meantime, Ajit Jain has spun up Berkshire Hathaway Specialty Insurance at no real cost to the company, and now it's at $12 billion in float.
Audience question: What are the positive and negative consequences of artificial intelligence?
Charlie Munger: We're going to see lots of robotics going into place, but I'm skeptical of AI -- there's still a lot of value in plain old regular intelligence.
Warren Buffett: When I'm told something can do all things, I get worried because you can't uninvent it. We invented the atom bomb out of necessity during World War II, but was it really a good thing for the next 200 years? AI can change a lot, but it can't change how people think.
Commercial real estate
Becky Quick: [Question about concerns in commercial real estate]
Charlie Munger: Berkshire has never had much of a role in commercial real estate. The advantages there belong to firms with a different taxation structure. The depletion of downtown areas will have real consequences ahead.
Warren Buffett: Lots of people succeeded in commercial real estate by borrowing at 2%, and now they're finding it much harder.
Audience question: How do you view the future of value investing?
Charlie Munger: Value investors should get used to making less. There are more of them, and they are chasing fewer opportunities.
Warren Buffett: Charlie has been saying that for as long as we've known each other. That there are new things coming along doesn't take away from the opportunities out there. What gives the value investor opportunities is other people doing dumb things, and now it's easier to get money to do dumb things. The big money now is in selling other people ideas, less than in actually doing the investing. "Small money" especially still has lots of opportunity.
Charlie Munger: Lots of smart people are trying to out-do one another.
Warren Buffett: But you don't have to play in their arenas. So many people are short-term-focused. Much opportunity still exists for people who can think long-term. I envy a young person who could set out today; wouldn't you?
Charlie Munger: I could do without turning in my big pile to start over with a small pile.
Becky Quick: [Question about AIG deal]
Ajit Jain: We are cautiously optimistic that our deal will turn out better than expected.
Warren Buffett: The enormous operating earnings strength of our other businesses backs up our insurance business in profitable ways.
Audience question: Families don't seem to be preparing their children for inheritances, do they?
Warren Buffett: I don't sign a will unless my children have reviewed it and signed off. If the will is being read and that's the first time the heirs are hearing about it, the parents have made a mistake.
Charlie Munger: At Berkshire, we've solved estate planning. Just hold on to the g*****n stock.
Warren Buffett: You've solved the investment problem with that advice, but it's important to handle the human problem right. Your children are learning from you from the day they're born. Don't think that a cleverly-drawn will is going to teach them their values. If you want to know how to live your life, write your obituary and then reverse-engineer it.
Becky Quick: A Federal judge says BNSF violated rules on transporting oil through tribal lands.
Greg Abel: BNSF did breach a settlement agreement. We've taken fixing the problem seriously.
Warren Buffett: Railroading is not an easy business, and the infrastructure we're using now was laid out in the 1800s. As a common carrier, we're required to haul things that we would rather not carry.
Audience question: [Question about the rise of new energy firms and opportunities]
Warren Buffett: We've probably spent more money on renewable energy than any other utility, but we've only scratched the surface. The US should be much further along, but we have so many different jurisdictions that we are hobbled by regulatory inconsistency. Berkshire does more than anyone to advance the cause.
Greg Abel: When we bought Pacificorp, we went from knowing how to do renewables in one state to having to figure out transmission across six states. We have $70 billion in known projects for the next ten years. It will be a long journey.
Warren Buffett: I don't know if our system of government is ideal for solving that kind of problem. In World War II, we brought experts to Washington and enabled them to reorder the industrial enterprise of the United States. Can we do that in peacetime across 50 states? We haven't created the unity of purpose and the machinery to duplicate that World War II effort. If you really have an emergency, then you can't really address it without changing the machinery. We should be up to the test.
Becky Quick: Who is in line to succeed Greg Abel and Ajit Jain?
Warren Buffett: Greg Abel will need someone to serve him in the same way he serves me now. Ajit Jain will weigh in on that selection. Everyone talks about the "executive bench", but that's baloney. You don't need that many people in this role. You need lots of good managers, but not in our roles.
Charlie Munger: We change top managers a lot less frequently than most companies. That's helped us enormously.
Audience question: I was a Salomon employee whose job you saved. What are the most important strengths for the US?
Warren Buffett: We're still such a young country. Charlie and I combined are two-thirds the age of the country. Oceans and good neighbors help, but our country's success is really a miracle. You can romanticize the past, but forget staying there -- our challenges are huge. Partisanship has moved things towards tribalism, and tribalism can lead to mob behavior. It is a better world today than we've ever had. Communications permits us to see some of the worst of the world, but things overall have never been better.
Charlie Munger: I think the road ahead to human happiness is to expect less. We don't need as many wealthy money managers as we have.
Becky Quick: Could a corporate raider change Berkshire after Buffett?
Warren Buffett: Greg Abel and the board will have a honeymoon period while my holdings are being liquidated, and over 10 to 15 years, with retained earnings, it's a $1.5 trillion company. Berkshire needs to be regarded as a national asset instead of a national liability.
Charlie Munger: I don't think it's useful to fret that far ahead.
Warren Buffett: Mostly, we've just played the hands in front of us. We've gotten a handful of them very right. Our shareholder base is the result of 58 years of treating shareholders as the owners of the company. If the challenges ahead aren't a threat to the planet, and if we stay close to the fortunes of the United States, we'll do well.
Stories about successors
Audience question: Tell us a story we haven't heard about Ajit Jain and Greg Abel.
Warren Buffett: If I could pick from the top ten insurance managers in the world, I couldn't do better than Ajit. I've never looked at where someone went to school to decide whether to hire them.
Charlie Munger: [Lengthy story about Ben Rosner]
Becky Quick: Why isn't Berkshire doing more on reinsurance?
Ajit Jain: Alleghany is already very successful in reinsurance. We expected to book a lot of property/casualty insurance at the end of 2022. A lot of capacity for that work came out of the woodwork and pricing turned unattractive. But April 1st came along with much higher prices and huge opportunity. We are imbalanced in our exposure right now; we are very disproportionately over-exposed to Florida property claims.
Audience question: [Question about long-term profits]
Warren Buffett: Build your own destiny. We're working for this shareholder base (as it is), not people focused on quarterly returns. We learned a lot when we bought See's Candies. We learned from buying Ben Rosner's company. We don't have to understand the technology behind a company to understand consumer behavior. We have a bigger business in our Apple holdings than in our entire energy business. I don't understand the iPhone, but I know how consumers behave. We don't know the future, but we can figure out how people behave. Watch the documentary "Turn Every Page". Other people were reading "Playboy", and I was reading Moody's. It's hard to get smarter, but we try to keep getting wiser.
Charlie Munger: Look at the Japanese trading houses.
Warren Buffett: They were paying dividends and buying back stock. And we could hedge the currency risk. I could understand the companies, too. We got to 5% ownership and announced it. Now, we're at about 7.4% and have committed not to go past 9.9% without their consent. Berkshire is now the biggest corporate borrower in Japan, and we're not done yet.
Becky Quick: Are Berkshire's shareholdings in Apple dangerously big?
Warren Buffett: Berkshire's portfolio is much bigger than its publicly-traded shareholdings. We can't own more than 100% of BNSF. We wish we could. The railroad is a good business, but Apple is even better. It's an extraordinary business, and we're thrilled to watch our holdings expand.
Charlie Munger: One of the inane things taught in business colleges is that vast diversification beats holding three or four of your very best ideas. A lot of people who are geniuses on an IQ test still aren't quite as smart as they think they are. They're dangerous.
Audience question: [Question about China]
Charlie Munger: If there's one thing we should do, it's get along with China and have as much free trade as possible with China.
Warren Buffett: Mutually-assured destruction held the line with the USSR, but it nearly came to disaster in Cuba.
Becky Quick: [Question about Taiwan Semiconductor]
Warren Buffett: I love Taiwanese businesses, but the location scares me.
Audience question: What is your 100-year vision for Berkshire?
Warren Buffett: Lots of new ideas come and go. Lots of new investing books come out, but they're not saying anything better than what Ben Graham wrote in his book ["The Intelligent Investor"] in 1949.
Charlie Munger: Graham made 50% of his returns from a single great investment in GEICO.
Warren Buffett: Think things through and try to avoid the biggest mistakes. If you do that in the long run, you're on the way to what Charlie calls a lollapalooza.
Bundling auto insurance
Becky Quick: Is GEICO working on bundling auto insurance coverage with new cars at the point of sale?
Ajit Jain: We're in that race, but nobody's found the secret sauce yet. The information needed to price insurance is different from the information needed to price a vehicle.
Warren Buffett: We have 80 car dealerships that do a lot of business. We're obviously looking into it. The last real innovation in car insurance was the establishment of State Farm as a mutual company in 1929.
Voting control of the company
Audience question: Who will have voting control of Berkshire someday?
Warren Buffett: Index funds want a world in which society doesn't get mad at them for having voting control over large corporations. Index funds produce a tiny fee on assets under management. Investment managers offering index funds want you to come to them for other investments instead -- not quite a loss leader, but close, and contrary to what Jack Bogle intended when he created the concept. If you can figure out where their self-interest is, you can anticipate their behavior.
Becky Quick: Will Greg Abel have a say in share repurchases?
Warren Buffett: Greg Abel understands capital allocation as well as I do. He will make those decisions in much the same framework as I do. Valuation is way easier than others make it. Complexity in valuations is great for producing footnotes in a Ph.D. thesis, but it's just not that hard. Satisfy the needs of your business, then decide what to do with the leftover capital. If any investment price is less than its intrinsic value, then it's accretive to company value. Repurchases can be the smartest thing you do, or the stupidest thing you can do. It all depends on the relationship of value to price.
Audience question: Charlie Munger, do you stand behind your support of Covid vaccinations and your criticisms of vaccine skeptics?
Charlie Munger: Yes.
Watching the successors
Becky Quick: What should shareholders look for in the behavior of your successors?
Warren Buffett: Tom Murphy told me that the secret to business is to buy a good business. It's OK to inherit one, too. Greg Abel is inheriting a good business, but he will make it even better.
Audience question: What is your outlook on the banking industry?
Warren Buffett: Anticipating a few questions on banks, I decided we should use some banking language to describe me and Charlie. [Reveals signs saying "Available for Sale" in front of himself and "Held to Maturity" in front of Munger]. The situation in banking is similar to what it always is in banking, that fear is contagious. Always. Sometimes the fear is justified and sometimes it is not. It used to be that if you saw people lining up in front of a bank, the proper response was to get in the line. The banking system has changed so much of the years. We did something enormously sensible when we set up the FDIC. Bank runs used to just be part of the picture. You can't run an economy very well if people are always worried about bank runs. Yet here we are in 2023 and we actually see the FDIC pay off on all deposits, and yet some people are still very worried. That just shouldn't happen. The messaging has been very poor from politicians, from the agencies, and from the press. It's something to have a law that became effective in 1934 still not be understood when it's about something as important as the banking system. I don't think the American public is that dumb. We park enormous cash in Treasury bills because we want to have access to it in case the banking system seizes up. In banking, too often, the incentives are all wrong. They were wrong at Fannie Mae and Freddie Mac. We will have to have punishment for people who do the wrong things. If the CEO gets the bank in trouble, both the CEO and the directors should suffer. The stockholders of the future shouldn't suffer; that doesn't teach anybody anything. It is not a good lesson to teach people to teach the people who hold the economy in their hands.
Charlie Munger: I'm very old-fashioned; I liked it when the banks didn't get into investment banking. I don't think having a bunch of bankers all trying to get rich leads to good things. I think a banker should be more like an engineer and be more into avoiding trouble than into getting rich.
Warren Buffett: The banks have figured out a thousand different ways for people to borrow on margin. It's totally distorted all the lessons learned in the '29 crash.
Charlie Munger: Imagine taking banking into derivative trading. Who in his right mind would have thought of that?
Warren Buffett: Banking can have all kinds of new inventions, but it needs to have old values. You've got to have the penalties in place to punish the people who create the problems so that it changes the behavior of people in the future.
Becky Quick: How do you see the behavior of regional versus bigger banks?
Warren Buffett: If you follow sound banking methods, which means not doing things that other people would do, it can be a very good investment. If it hadn't been for the Bank Holding Company Act of 1970, we might have ended up owning a lot of banks instead of owning insurance companies.
Charlie Munger: The bank we owned was a sound institition in its community, but we were forced out of it.
Warren Buffett: Banking was more attractive to us. There were more and bigger targets to buy. We would have found more banks, but we were precluded from doing that. We've sold bank stocks, first when the pandemic broke out, and again in the last 6 months, because we're not sure where the banks are heading. Events will determine their future, and you've got politicians and laws and a whole lot of people who don't really understand how the system works. And then you've had imperfect communication with the American public. Every event keeps re-creating a different outcome. With math, you know what pi is going to be no matter what happens. But with banking, you don't know anything about the future stickiness of deposits. And so we're very cautious about the ownership of banks. We're with one bank now, and we were the ones who proposed that deal with Bank of America, so we're sticking with it. But recent events have reconfirmed my belief that the public doesn't understand the banking system.
Charlie Munger: The gamier it gets, as it looks with banking, the less I like it. I am deeply distrustful of any system when everybody wants to get rich and everyone is envious of everyone else. I think that's deeply toxic.
Audience question: What if the United States dollar is no longer the world's reserve currency due to inflation?
Warren Buffett: We've got everything going for us, but that doesn't mean you can just print your way out of debt.
Charlie Munger: At some point, printing money to buy votes will become counterproductive. If something is dangerous and unproductive you ought to keep it a fair distance away.
Warren Buffett: We can do a lot of dumb things in the United States, but we can't do an unlimited number. Your best defense against inflation is your own earnings power. If you're the best at what you do, you'll succeed with your talents. You won't succeed by hoarding dollars, but you'll succeed if you're productive for your community.
Becky Quick: Did you over-pay for Pilot?
Warren Buffett: We would have preferred 100% ownership of the company for our initial price, but it wasn't for sale. We've done deals in different ways, but our preferred way is to cut a check for 100% ownership and leave management in place.
Audience question: What have been some of your major mistakes?
Warren Buffett: Write your own obituary, then try to live up to it. In business, don't make mistakes that would take you out of the game. Tom Murphy told me, "You can always tell someone to go to hell tomorrow". That's even better advice in a world where you can ruin your life by fighting with someone online.
Charlie Munger: Spend less than you earn. Invest frugally. Avoid toxic people. Avoid toxic behaviors. Learn continuously.
Warren Buffett: Learn how others manipulate people, avoid their manipulation, and don't do it yourself.
Charlie Munger: Get toxic people the hell out of your life.
Becky Quick: What should a person do if those toxic people are in their own family?
Warren Buffett: I don't know how you deal with a drunken, foolish parent, other than to get out of the house as soon as possible.
Audience question: Walmart and Berkshire have a great relationship. How do you decide where to distribute products?
Warren Buffett: The best thing you can do for your distribution is to have a product so good that consumers will ask for it by name.
Becky Quick: What is your investment thesis on Paramount Global?
Warren Buffett: The streaming-media business needs fewer companies and higher prices. When I owned a gas station, we had a competitor who set our profits. Since he sold twice as much volume as we did, he not only set our prices, he won. Anyone who tells you that they know the future of pricing is crazy. People only have so many hours a day, and they only have two eyeballs. There's simply a limit to how much media they can watch. Talent will always get paid, but it's tough to be the supplier when nobody else among your competitors wants to give up.
Electricity generation and climate change
Audience question: Why don't you shut down MidAmerican's coal power plants in Iowa? Your current plan won't meet the IPCC targets.
Warren Buffett: If there's one state in the US that stands out for its renewable energy, it's Iowa. We have one investor-owned competitor in Iowa, and our power is significantly cheaper. In fact, MidAmerican's power is cheaper than what's produced in Nebraska by OPPD, just across the river. Our record in wind and solar is unbeaten, and it's enhanced because we reinvest 100% of the earnings back into the company.
Charlie Munger: I think there are a lot of false claims about climate change against too many unknowns.
Warren Buffett: We are spending $3 billion in new capital investments on top of $4 billion in depreciation. We'd like to spend more, but political opposition won't let us.
Charlie Munger: Even if we didn't care about climate change, it would still be wise to be conservative with our hydrocarbons. They can do things nothing else can.
Becky Quick: Can you give a look into Berkshire's oil holdings?
Warren Buffett: We like Occidental Petroleum's position. The manager is extraordinary. I know the math of it, but I don't know a thing about the technical side of oil production. We are lucky to have shale oil, but it's not a long-term source of petroleum. We don't seek full control of Oxy.
Audience question: What do you think about Elon Musk?
Charlie Munger: Elon Musk over-estimates himself, but he's very talented. He doesn't need to over-estimate himself to be talented.
Warren Buffett: He is very talented.
Charlie Munger: He undertakes impossible tasks and sometimes succeeds. Warren and I want to find the easy jobs. We don't want that much failure.
Becky Quick: Are we getting closer to a cash dividend?
Warren Buffett: If the stock price is less than its intrinsic value, then buybacks are a way to effectively deliver dividends productively. It's easier to buy private firms, but we just don't have that many opportunities. We're running Berkshire so that it does fine and maybe a little better than fine.
Audience question: Do you have any advice for a young lawyer?
Charlie Munger: My son-in-law says that becoming a partner is like entering a pie-eating contest where winning means you get to eat more pie.
Warren Buffett: He hasn't practiced for many years, but Charlie has, on a few occasions, given me answers that nobody else would have come up with. He just wasn't happy selling his time to people who were going to make the wrong decisions anyway.
Becky Quick: [Question about corporate minimum taxes]
Warren Buffett: We don't think corporations are over-taxed in the United States, but we don't feel bad about spening what we do.
Audience question: What is the funniest story you've never told about each other? What's the hardest part of your job?
Warren Buffett: Nobody's after each other's jobs here. It's an ideal working environment, and it's 5 minutes from my home.
Charlie Munger: We're both so ridiculous that it's not really necessary to have stories about it.
Warren Buffett: We've had as much fun on some deals that haven't worked out as we had on some that have. If you always knew you'd get a hole-in-one, you wouldn't have much fun playing golf.
Becky Quick: [Question about Activision Blizzard holdings]
Warren Buffett: Look carefully through our 10-Q and 13-F and you'll find out what we're doing. If the deal doesn't go through, I don't think it's the fault of either Microsoft or Activision Blizzard.
Audience question: How does Berkshire capture owners and keep them as managers?
Warren Buffett: Most jobs force people into compromises. Charlie Munger and I give those people an out. I've had five managers in my life, and I loved working for all of them. But I especially loved working for two of them. By taking away the need for an owner to work with banks, analysts, and other outsiders, we make life easier for them. The most important purchase we made was probably National Indemnity. Once a year, Jack Ringwalt would get worked up about running National Indemnity and would be looking to sell. Once we bought it, and took those problems away from him, he didn't seem to mind anymore.
See's and NetJets
Becky Quick: Can you offer any updates on See's and NetJets?
Warren Buffett: See's is a great product that doesn't travel well. It's hard to expand distribution, no matter how hard we try. NetJets is a great product for your heirs to buy for you. We have about 650 NetJets aircraft in the US and we are buying 100 more this year without selling any. Our backlog is just that big.
Charlie Munger: You could argue that NetJets is as valuable as any major airline.
Warren Buffett: We had a tough time selling Charlie Munger on NetJets, but then we told him we would add a coach seat just for him.
Audience question: Do you see any opportunity in zero-emissions vehicles?
Warren Buffett: We've always thought the auto industry looked too hard. Henry Ford was on top of the world, then 20 years later, the company was headed to the junk heap until the Whiz Kids came along, including Tex Thornton and my friend Arjay Miller. You'll see change in vehicles, but nobody's going to own the world because they brought about the change.
Becky Quick: Does the Federal Reserve have too much on its balance sheet?
Warren Buffett: Lots of people want a little inflation. People with a lot of debts want a lot of it.
Charlie Munger: You can be pretty extreme in fighting depressions if you're willing to be disciplined in reverting to your old ways when the threat is done.
Warren Buffett: It's tough to know what the inflationary breaking point is for a society, but you don't want to come too close to it.
Charlie Munger: It's also very difficult to go through periods of very high unemployment.
Audience question: Should companies decouple from trade?
Charlie Munger: You don't want to give up the benefits of efficiency from trade, but you also don't want to hollow out your manufacturing base completely. It's a tension.
Warren Buffett: We were a textile company, but the northern states couldn't compete with wages and cheap power from the TVA in the South. Air conditioning was also a huge factor, permitting factory work in the South. Then we became unable to compete as a country with suppliers from overseas. And we do want to see the rest of the world moving up.
Charlie Munger: Adam Smith had it right that the free market makes most people much better off, but we haven't figured out how to take the pain out of it.
Warren Buffett: I think we have to credit the system. We in the United States have 25% of the world's GDP. I don't think that's an accident.
Charlie Munger: It's poison to think that our country's success happens automatically, rather than as a product of striving.
Becky Quick: [Question about mark-to-market accounting]
Warren Buffett: We should reflect changes in asset values on the balance sheet, but not on the income statement. Marking to market makes the income statement worthless. We will consistently do what is legal, and we will say what we think is right.
Charlie Munger: I don't understand what the accountants were thinking when they brought about that change. It's bonkers. Accountants want rules that make them safe.
Audience question: How do you transfer your wisdom to your heirs?
Charlie Munger: I live my life my way, and hope my descendants imitate my way.