The Lollapalooza of long-term investing

The Lollapalooza of long-term investing

The Berkshire Hathaway annual meeting hosted by Warren Buffett and Charlie Munger is often called the Woodstock of capitalism. We think of it more as the Lollapalooza of long-term investing. 

We share their optimism and conviction that private enterprise and stable government can generate global growth, progress and prosperity.  The globally leading companies that we invest in have delivered strongly this year despite all the issues and uncertainties we face.

Our CIO Christopher Rossbach has been going to Omaha for the past ten years to hear Warren and Charlie talk about business, investing and capital allocation, to get a snapshot of the US and global economy from Berkshire’s many companies and to meet up with other investors from all over the world.  Here are his key takeaways:

All good but bottlenecked

This year’s meeting was a perfect metaphor for the bottlenecked post-pandemic global economy: the auditorium was packed, travel is back, people have decided to come to Omaha again from all over the world, in particular from China, and the 6am queues have never been longer. But by the time the traditional ‘Berkshire movie’ started, all 16,000 people had fit in, and the meeting was as informative, educational and fun as ever. See’s Candies had a record day and ran out of peanut brittle leaving many disappointed, including us. It’s the same with the global economy. Demand is strong but growth is held back because of bottlenecks. Inflation and interest rates are the biggest issues but the underlying cause is positive and we have to keep perspective.  

A big day for Charlies

Another is that at 92 and 99, Warren and Charlie continue to astound with their insights into Berkshire’s businesses and the broader economy.  Not every decision they have made in the past year has been right and they admitted mistakes but their track record speaks for itself. Greg Abel and Ajit Jain, vice-chairs and heads of the industrial and insurance businesses, were on stage for the first half of the day but the second half with only Warren and Charlie was even more compelling. 

The movie at the beginning was all about the inevitable succession and they joked that last Saturday was a big day for Charlies in London and Omaha (the Berkshire meeting date has been set for years and although the Royal family chose the same day for the coronation it was considerate enough to time it so we could watch it in the early morning queue). The day was a reminder of why people come to Omaha in person and how much Berkshire is about Warren and Charlie and the way they have built the company.

Industrial slowdown and increased investment

It was good to see Greg Abel taking a bigger role at the top table. Warren said clearly that Greg was going to be the next CEO and referred many of the questions about Berkshire’s industrial businesses to him. Greg’s more comprehensive answers showed that he has his own style.  He is not as folksy as Buffett but he spoke about Burlington Northern, the railway, and Berkshire Hathaway Energy in a straightforward and knowledgeable way.  Many of the industrial businesses are facing a temporary slowdown after the strong growth they had last year because of higher base effects, more cautious corporate investment, ongoing supply constraints and higher costs.  They also have significant investment needs, like Burlington Northern in its track and smart rails technology, or Geico, the insurance company in upgrading its IT systems and telematics capabilities.  We think Berkshire’s companies are not alone in this need to reinvest in their business and we own a number of companies in our portfolios that will benefit from providing these products and services.

New opportunities for value creation

Warren speaks about the many benefits to companies from being a part of Berkshire’s long-term business.  His approach is to use the float generated by its insurance business and the excess cash earned by the wholly-owned businesses to invest in public equities or buy whole companies. Warren prides himself on being a long-term owner who does not care about short-term swings in numbers. He says that he lets management get on with their jobs and his calendar is mostly empty. CEOs say it is transformative not to have constant pressure from research analysts and shareholders expecting them to deliver every quarter and forcing them to make short-term decisions.

Greg Abel’s background as a CEO and operator of businesses highlighted another opportunity for added value. Alicia Knapp, the CEO of BHE Renewables, talked about the steps it has taken to increase its exposure to renewables and highlighted its cooperation with Precision Castparts, another Berkshire company, to provide solar energy for a new plant in West Virginia. It is good to see Berkshire companies leveraging their resources across the business. There are tremendous opportunities for them to work together.  

Charlie Munger says it all

Warren and Charlie got a question about their 100-year vision for Berkshire and Charlie nailed it. Talking about Benjamin Graham, the famous value investor, he said that Graham had been sheepish because much of the money he made came from a single growth stock, Geico, which is now a Berkshire company. “There was a lot of sort of lousy companies that were too cheap, and you can make a little money floating from one to another, but the big money he made was in one growth stock. Buying one undervalued great company is a very good thing, as Berkshire has found out again and again and again.” That’s all you need to know. Buy high-quality companies with strong competitive positions, solid growth prospects, good management and strong balance sheets and you will do very well.

Earlier this month Jeff Prestridge, Group Wealth and Personal Finance Editor of the Daily Mail and the Mail on Sunday and one of the most influential financial journalists in the UK, asked us about artificial intelligence and its impact on investment management.  We said that we think that AI is only as reliable as the inputs, it cannot make judgements about the future and it will lead to index returns. No matter how you ask the question you will always get the same ideas back.  An algorythm may be able to analyze data and to provide outputs based on patterns and correlations, whether it is AI or a systematic trading system, but there is no substitute for knowledge, judgment and consistency. We don’t see a future where investment judgement is replaced by AI.  

Charlie also had a great quote on artificial intelligence at the annual meeting.  He said that he thinks old-fashioned intelligence works pretty well. We couldn’t agree more and you can read Jeff’s article on AI in the Mail on Sunday here.

With all the turbulence, conflict and uncertainty we face, this year’s Berkshire Hathaway annual meeting reaffirmed the value of long-term, rational and moderate thinking and belief in the progress and prosperity that US and global business can achieve. It was a poignant day for Berkshire, its shareholders and for anyone who cares about long-term investing – and we have to hope that there will be more opportunities to come together in Omaha.

Read the full article here 

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