Buffett’s Last Dance

Warren Buffett hosted his final Berkshire Hathaway meeting as CEO this past weekend.

Here are some thoughts and takeaways from listening to the 94 year old Oracle of Omaha.

Currencies

“That’s the big thing we worry about with the United States currency. The tendency of a government to want to debase its currency over time – there’s no system that beats that. You can pick dictators, you can pick representatives, you can do anything, but there will be a push toward weaker currencies.”

The deficit spending and debt trajectory of the US is on an unsustainable path. Everyone agrees but no one knows how to fix it. Buffett points out that this behavior will lead to failure eventually, but it’s not possible to know if that means 2 years or 20 years, but it is a certainty unless something changes.

1% Tax on Stock Buybacks

I wasn’t aware of this change as part of the IRA (Inflation Reduction Act) although I guess it’s been in place since January 2023. Public companies are now charged a 1% tax on stock buybacks. Critics of buybacks say that companies should find more creative ways to deploy capital. Buffett has always said that he will only buy back stock when it makes sense, if the price is low enough. This is how all companies should approach buybacks.

Holding and Compounding

95% of Buffett’s net worth was created after his 65th birthday. His ability to buy and hold assets unless the business fundamentally changes is unique for any professional investment manager. He’s held his Amex position since 2001, which included an -84% drawdown in 2008-09, and still managed to earn a 10x return on the position. He’s able to do this because he has shareholders instead of clients. No one can “redeem”, they can only sell their shares to another buyer. This allows him to practice patience without considering external pressure or influence.

Berkshire’s and Buffett’s wealth can compound endlessly thanks to his frugality. He’s lived in the same house since he was in his late 20’s. Except for a handful of extraordinary earners and entrepreneurs, the wealthiest people I know tend to be frugal compounders. Drawdowns should not feel like an existential threat when frugality is a core financial value. Buffett says, “I know people have emotions, but you’ve got to check them at the door when you invest.” and “The idea that if Berkshire went down 50% next week – I would regard that as a fantastic opportunity and it wouldn’t bother me in the least. Most people react differently.”

I’d add that the antidote to volatility is understanding the value of what you own. Or another way to say that is “price is what you pay, value is what you get.” It obviously doesn’t make sense to sell something that is undervalued because all you have to do is wait for the price to correct back to fair value.

Every rule has an exception

Buffett has always been resolutely pro-America in his investments and his commentary. That doesn’t mean he doesn’t consider international markets. The five Japanese companies that Berkshire owns got a special shout out during the meeting. Buffett added they plan to hold them for the next 50 years. Berkshire owns 10% of each and told them he would request permission to increase the ownership stake. “I would say that – I’ll speak for Greg beyond me – in the next 50 years, we won’t give a thought to selling those positions.”

Movie Recommendation

Buffett has previously recommended Katherine Graham’s autobiography. That story has now been turned into a movie on Amazon Prime, Becoming Katherine Graham. Graham presided over the Washington Post from 1963-1991, which included the Watergate scandal and eventual impeachment of Nixon. It’s a story about courage and leadership.

CNBC Archive

I found this link a few years ago. Consider how much of an impact you need to have on markets to have a dedicated section of CNBC. If you go to buffett.cnbc.com you will find a searchable archive. The obvious next step for CNBC is to turn this archive into a conversational LLM called ChatBuffett. And the next one will have to be called ChatMunger.