The Berkshire Hathaway Inc. (NYSE: BRK.A) Annual General Meeting has always been one of the anticipated events for value investors.
It is the period of time where most of us stay tuned to the legendary investor duo – Warren Buffett and Charlie Munger, to share their thoughts and opinions on what has gone through the past year. These sharings and questions are not only just based on Berkshire’s main operations, which is the insurance and utility business, but also on their investments in other companies as well.
Here are 7 reminders that we found in this year’s Annual General Meeting for investors to improve themselves.
1. Equities were absolutely the place to be
30 years ago, the top company in terms of market value had a market value of a hundred billion. But within 30 years, the largest company today has a market value of 2 trillion.
Due to the capitalistic world we live in, great companies and businesses have grown well. Even it may seem unfathomable that a 2 trillion company like Apple Inc. as of today may still be worth more in the future.
Given enough time for the equity of a company to grow, it certainly can bring in tremendous returns that not even the wise one can predict.
2. Hindsight is always 20/20
There were plenty of questions by shareholders on Berkshire’s reluctance to “be greedy when everyone was fearful”. Warren Buffett himself admitted that Berkshire should have done things better.
He is quick to admit that Berkshire could have deployed its war chest during the selldown last year. But just like every one of us, he does not have a crystal ball that can foresee the future. Nevertheless, he still stood by his decision to sell airlines and cut back on banking stocks.
3. Investing = Extraordinary Business + Fantastic Management
When questioned on Berkshire’s decision to sell off some portion of Apple shares, Warren Buffett admitted again he should not have. But the repurchase of Berkshire Hathaway shares still means shareholders enjoy a higher stake of Apple share ownership.
Buffett’s approach to investing has never really changed. It still boils down to finding extraordinary businesses with fantastic management. Citing Tim Cook’s achievement after taking over leadership at Apple, Buffett thinks that Apple is a better run company now.
Wrong management is the “number one risk factor”. Any management that fails to make their business relevant as time goes by, will see even a great business deteriorate.
4. Valuation is not crazy if you understand the prospect of the company
Again citing Apple as an example, even as a relative latecomer to invest in Apple, Warren Buffett is still positive about the company. He does not think the valuations are crazy for Apple, because he understands the company and its future with the customers around the world.
Warren Buffett may not be a fan of high growth investing, but the tenets and approach still hold true to high growth investing. If a company is showing signs of growth potential and commands a certain brand loyalty, valuation should not be based on what it is worth today. It should be whether today’s price is considered a bargain in the future.
5. Gambling impulse is very strong in people worldwide
Another stark reminder Warren Buffett gives is that there will be gamblers in the stock market as well. The allure of knowing that volatility when played in favour could reap some unexpected huge one-off rewards.
But, most people tend to overlook the downside risk, or be too confident of their emotions.
6. China will flourish
When Charlie Munger was quizzed on his previous China investment in BYD Co. Ltd., a shareholder also asked about The Daily Journal‘s Alibaba Group Holding Limited’s purchase.
In his own words, Charlie Munger acknowledges that China has grown tremendously over the years. Even Warren Buffett agrees too.
In that list of the 20 most valuable companies, three are Chinese. In the next 30 years, probably things will be changing.
7. We are seeing substantial inflation
Even within Berkshire’s businesses which require raw material purchasing, Warren Buffett says that there is substantial inflation.
Due to a surge of demand and the sudden supply of money, certain items have certainly seen some propped up prices.
Hence, it does seem wiser to invest cash that are not needed in the near term, in fear of the sudden inflation uptick.
Even though both Warren Buffett and Charlie Munger have been through a lot during the years as investor, they too agree that we are currently in uncharted territory.
They do not claim to know what will happen by having what it takes to predict the future. But what they have, are years of experiences and an unshakable principle and approach when it comes to investing.
Sure, some would argue that they might not have the insight and knowledge to delve into exciting stocks in the EV scene or cloud based softwares. But putting aside that, their reasoning, rational and approach still works well in terms of how an investor should approach buying and selling a company.
What was your most memorable quote or lesson for this Annual General Meeting? Let us know in the comments below.
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