Last Saturday, Berkshire Hathaway held their shareholder meeting at the CHI Center in downtown Omaha. The annual tradition, famously dubbed the “Woodstock for Capitalists,” has attracted attendees from all over the globe for decades. I’ve seen estimates there were 18,000 investors in attendance on Saturday, with thousands more making the trip to Omaha and viewing the meeting from one of the various overflow rooms. 

1. First Meeting Without Charlie

Glaringly absent from this year’s meeting was the presence of Charlie Munger, Buffett's longtime friend and business partner. Mr. Munger passed away last November, just shy of his 100th birthday. Each year, the annual meeting begins with a video that is not broadcast on the live stream. Usually, to view the video, you must actually be in attendance. This year, that video was devoted to paying tribute to Charlie. I found a version on YouTube (here), and it is definitely worth a watch. 

Early in the Q&A session, Buffett was fielding a question about the prospect of Utah switching to a public power model. After providing his thoughts, he turned the question over to Greg Abel, mistakenly referring to him as Charlie. The moment (clip) certainly tugged at the heartstrings of those in attendance, drawing a large applause from the crowd. 

2. Berkshire Trims Apple Stake

Just before the meeting, Berkshire released its first-quarter earnings report. The report revealed that Berkshire trimmed its stake in Apple for the second consecutive quarter. Apple is by far Berkshire’s largest common stock holding. Even after trimming the position by around 13%, their interest in Apple was reported to be $135.4 billion. For context, the market cap of Berkshire as of last Friday was $867 billion. This would imply that about 16% of Berkshire’s market value is comprised of its position in Apple.   

When questioned about selling its Apple position, Buffett implied that it was due to tax reasons after the stock soared in 2023. Berkshire is Apple’s largest shareholder outside of ETF/mutual fund companies and Apple’s CEO, Tim Cook, was in attendance. Buffett ultimately took some time to praise the company and asserted that Apple would remain one of Berkshire’s most important stock holdings for the foreseeable future.

3. Record Cash Pile

Another area that has been a focus of investors has been Berkshire’s massive stockpile of cash. At the end of the first quarter, Berkshire’s holdings of cash, cash equivalents, and Treasury Bills had grown to $182.3 billion. This would imply that 21% of Berkshire’s market value is based on its cash position. For additional context, Berkshire’s cash position alone would rank as the 41^st largest company in the S&P 500, with a similar value to Disney ($204 billion) and McDonalds ($197 billion). 

Buffett spoke about the cash holdings, saying, “I don’t think anybody sitting at this table has any idea of how to use it effectively, and therefore we don’t use it.”

4. Succession

Buffett spent considerable time during the Q&A session sharing his thoughts on succession. He reiterated that Ajit Jain would run the insurance operations while Greg Abel would oversee the non-insurance businesses. He suggested that Greg and Ajit have already taken over many of Buffett’s responsibilities. “I don’t really do much, and I don’t operate at the same level of efficiency that I would have thirty years ago or forty years ago … when you’ve got somebody like Greg (Abel) and Ajit (Jain), why settle for me? It has worked out extremely well. The number of calls I get from managers is essentially awfully close to zero, and Greg is handling those. I don’t know quite how he does it, but we’ve got the right person, I can tell you that.”

An important question related to succession relates to who would take over the capital allocation decisions after Buffett is gone. Todd Combs and Ted Weschler, who collectively manage a large portion of Berkshire’s common stock portfolio, represent alternatives to Greg Abel. Buffett shined some new light on this subject, saying: “If I were on that board and making that decision, I would probably, knowing Greg, I would leave the capital allocation to Greg. He understands businesses extremely well, and if you understand businesses, you understand common stocks.”

5. Artificial Intelligence

Buffett fielded several questions related to artificial intelligence. He is famous for taking things he doesn’t fully understand, which over time has included various cutting-edge technologies, and placing them in what he refers to as the “too hard pile.”

“I don’t know anything about AI. That doesn’t mean I deny its existence or importance or anything of the sort,” Buffett said, speaking in a cautious tone. “We let the genie out of the bottle when we developed nuclear weapons, and that genie has been doing some terrible things lately, and the power of that genie is what scares the hell out of me. I don’t know any way to get the genie back in the bottle, and AI is somewhat similar. It’s part of the way out of the bottle, and it’s enormously important and it’s going to be done by somebody ... we may wish we never seen that genie, or it may do wonderful things. I’m certainly not the person that can evaluate that.” 

While highlighting that AI has enormous potential for good, he spent time talking about how it could be used for bad. He had been shown an AI-generated video of himself speaking that he suggested his own family would not be able to tell wasn’t real. He warned of AI’s utility for scamming people, calling it the “growth industry of all time.”

Buffett concluded the end of the Q&A session by jokingly saying: “I not only hope you come next year, I hope I come next year.” The crowd responded with a standing ovation. They certainly agreed.

Week in Review

• Federal Reserve officials voted to leave interest rates unchanged during their meeting last Wednesday, May 1st, as recent economic data revealed that price pressures remain elevated. While Jay Powell admitted his confidence that inflation would resume its decline has lowered, he maintained an easing bias, stating that the next interest rate move is still more likely to be a rate cut than a rate hike. 
• The latest ISM (Institute for Supply Management) service-sector PMI, a gauge for economic activity in the service sector, fell from 51.4 in March to 49.4 in April. This decline is noteworthy as it marks the first time since December 2022 that the services PMI has fallen below 50, a threshold that indicates a contraction in the service sector.
• According to FactSet, 80% of the S&P 500 has reported Q4 results as of last Friday, May 3rd, 2024. The earnings growth rate, blended between companies that have already reported with the estimates for those that have yet to report, is at 5.0% year-over-year, which is above analyst expectations of 3.4% going into this earnings season. If the actual growth rate stays at 5% or higher, it will mark the highest year-over-year earnings growth since Q2 of 2022.

Hot Reads

Markets

• Fed Says Inflation Progress Has Stalled and Extends Wait-and-See Rate Stance (WSJ)
• U.S. Job Growth Totaled 175,000 in April, Much Less Than Expected, While Unemployment Rose to 3.9% (CNBC)
• Immigrant Workers are Helping Boost The U.S. Labor Market (CNBC)

Investing

• There’s More to Warren Buffett’s Game Than Just Picking Great Stocks (Jason Zweig)
• A New Normal In Housing Prices (Ben Carlson)
• Almost True (Adam Grossman)

• The Godfather of American Comedy (The Atlantic)
• Jerry Seinfeld’s Incredible Reveal about the ‘Beached Whale/Golf Ball’ Episode – Rich Eisen Show (YouTube)
• The Roast of Tom Brady was FANTASTIC – Pat McAfee (YouTube)

Markets at a Glance

Source: Morningstar Direct.

Source: Morningstar Direct.

Source: Treasury.gov

Source: Treasury.gov

Source: FRED Database & ICE Benchmark Administration Limited (IBA)

Source: FRED Database & ICE Benchmark Administration Limited (IBA)

Economic Calendar

Source: MarketWatch

IMPORTANT DISCLOSURE INFORMATION