Monday, May 13, 2019

The highlight of Berkshire Hathaway's annual shareholder meeting is the question-and-answer session of the CEO and Chairman Warren Buffett and Vice Chairman Charlie Munger. A shareholder asked Buffett what he values the most in life right now, and Buffett replied, "It's the two things you can't buy, time and love". Buffett also revealed his decision that Berkshire Hathaway will spend large sum of money on charity in the future. He and Munger then proceeded to answer nearly 20 questions from the investors on investment and company operation matters.

Someone asked that since Berkshire has nearly US$ 240 billion in stocks, why do they not disclose more details of their portfolio performance? Buffett explained that they "are not in the business of explaining why they own a stock". He stated in their US$ 200 billion asset portfolio, at least US$ 150 billion has had good returns, and it will perform significantly better in the next decade. Another question addressed to Buffett is that the world's leading companies are equipped with strong "moats". This means that they create barriers to entry for competitors, and these companies are usually technology giants. Such companies have strong branding and substantial entrepreneurial leadership. Should Berkshire then, invest more in technology companies like these?

Buffett replied that he likes such companies and could often find them in the past. Presently, Berkshire's investment philosophy has not changed, as it will continue to identify these competitive companies and strive to expand the company's circle of competence so that not too many opportunities would be missed. However, he would not venture into an unfamiliar terrain but will instead get investment managers who are familiar with these fields. This could mean that Buffett will invest more in technology companies in the future.

Answering the question on why Berkshire is not parking its giant cash pile in index funds before it finds an attractive acquisition, Buffett and Munger replied that all investment index funds make companies less flexible and more vulnerable to the impact of the stock market. Compared to others, they are more conservative in holding cash. Munger pointed out that Berkshire would not make the same mistake as Harvard University's endowment fund in deploying big sums in exotic markets when the market was peaking.

An investor pointed out that Laurence D. Fink, the CEO of BlackRock predicted that in the future, environmental, social and governance (ESG) metrics will be emphasized in valuing companies. How then, does Berkshire measure up on those metrics? Buffett said that scoring well on ESG metrics adds to costs. While Berkshire Hathaway has made moves for instance, investing in more wind energy, it isn't going to focus on responding to someone else's questionnaires or trying to score higher on these score cards. The real-world investment community is more concerned with the direction of "macro finance", which is the field of economic factors such as environment, society, regulation, technology, health and consumption.

Concerning Berkshire's future performance versus the S&P 500, Buffett said "I don't know whether we'll outperform the S&P 500 or not. I know we'll behave with our shareholders' money exactly as we would behave with our own money, and we will basically tie our fortunes in line to this business, and we will be very cognizant of doing anything that would destroy value in any significant way". When asked about China, Buffett said that he has always been open to investing in China. Berkshire has invested a lot in China, but it is still not enough. There may be a big deployment by Berkshire in the next 15 years.

On Europe, Buffett said, "I would like to see Berkshire Hathaway better known in the UK and Europe. I would hope they would think of Berkshire more often when businesses are for sale".

Final analysis conclusion:

As a famous investment guru, Buffett's investment philosophy is a model of "customer-centrism". The investment guides and thinking that he brought about deserves the attention and reflection of all investors.

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