Berkshire 2020: Notes from the Virtual AGM

Berkshire Hathaway held it’s first virtual AGM this weekend, thanks to the ongoing pandemic. Buffett first spoke for an hour about some history of the market, followed by the formal shareholder’s meeting, and roughly 2 hours of Q&A to top it off. His presentation was a masterclass in market history, time travel and public speaking. All questions this year had to be routed through the journalist panel of Becky Quick, Carol Loomis and Andrew Ross Sorkin. The resulting questions were of really high quality. I quite liked this virtual-only format. Here are my high level takeaways from the event.

Future of Berkshire: It’s quite clear to me that Greg Abel is the new CEO. He has stressed in the past that the CEO of Berkshire needs to be a capital allocator and was caught a little offguard when he was asked why he didn’t mention Ajit amongst the capital allocators. I found Greg Abel to be confident, but his answers (obviously) lacked the sharp insights we have come to expect of Warren & Charlie. Perhaps, this will resolve itself with time.

Technology: As Buffett said, the top 5 companies aren’t very expensive. They are very special and return gobs of cash while not needing much capital at all.

Reference to the Great Depression: His first hour of presentation, though splendid in content, was somber in tone. He later on has repeatedly said that 20-30 years is a good time frame (up from his 10 that he said and sold equity index puts on in the recession).

Betting on America: Buffett is no different in his optimism on America. Charlie generally tones his enthusiasm down. In his examples, his start date for 5000:1 real wealth generation are from a very special point – newfoundland with nothing but opportunity. New Land of this size at these latitudes hadn’t been found for at least half a millennia before and probably never will be found going forward (Mars?). The wealth of minerals under the land also was a bounty. In short, this was a very special case that won’t repeat.

The next 20 years are going to be interesting. This, IMO, will be due to a combination of rising inequality, inability to accept higher wealth redistribution, loss of sole superpower status, and overall climate of liberal malaise. Charlie said it beautifully during DJCO - he said that, despite the various challenges, Japan handled the last 20 years with grace.

Lack of Buybacks: Lack of buybacks and share purchases was very surprising. Buffett’s hand is effectively telling us that he thinks we are in for a rough time ahead or that we don’t know. He quoted Mr. Market just a few and farmland analogy minutes before the buyback question. On the other hand, if book at $155 is reasonable, $185 isn’t too expensive.

Change: Every individual faces change as they age and the environment evolves around them. I think Warren is changing too - he’s moving from a growth mindset to a capital preservation mindset over the last few years. Further, the capital he manages is becoming impossible to deploy if he rules out 4 out of the top 5 companies.

My key takeaways are twofold. First, technology businesses with very high rates of capital return can continue driving the US equity market. Second, given starting valuations in the rest of the world (Europe, SE Asia), they may be a better bet for the non-tech businesses. Potentially, other than overweighting these two factors a bit over the coming years, I’m not making major changes to my investment plan.