Berkshire Hathaway Inc. (BRK.A) held its annual meeting of shareholders in Omaha, Nebraska on May 4, 2019, hosted by Chairman and CEO Warren Buffett, along with Vice Chairman Charlie Munger. The 88-year-old Buffett and the 94-year-old Munger did not announce a succession plan, but briefly turned the floor to the executives widely expected to be the company's next leaders, Ajit Jain, age 66, and Greg Abel, age 56. Both rarely speak publicly.
The meeting lasted nearly seven hours, and the table below summarizes seven key takeaways.
Berkshire Hathaway 2019 Annual Meeting: 7 Takeaways
- No succession plan announced, but likely successors to Buffett speak
- Amazon.com Inc. (AMZN) is a value play, but not Buffett's idea
- Operations are improving at The Kraft Heinz Co. (KHC)
- Cash hoard is now $114.2 billion; stock buybacks will increase
- New accounting rules make Berkshire's earnings "totally capricious"
- "Size is a drag on performance"
- "I don't think the country will go into socialism"
Source: Berkshire Hathaway 2019 annual meeting livestream
Likely Successors To Buffett Finally Get Exposure
In response to a question, Buffett acknowledged that it would be "a good idea" for top lieutenants Ajit Jain and Greg Abel to field inquiries about their businesses. "You could not have two better operating managers than Greg and Ajit," Buffett said.
Since early 2018, Jain has led Berkshire's operating divisions in insurance, while Abel has headed all other operating divisions. At the meeting, Buffett declined to announce a formal succession plan. He also made it clear that he intends to remain the public face of Berkshire through his claim that expanding the number of seats at the head table at the meeting from two (for Munger and himself) to four (including Jain and Abel) was unnecessary.
Buying Amazon Offers Value, But Not Buffett's Idea
Two days before the annual meeting, Buffett raised eyebrows by disclosing that Berkshire had purchased shares of Amazon.com for its equity investment portfolio. Given Amazon's sky-high P/E ratio and concerns that its rapid growth rate may be unsustainable longer term, this was a surprising move for a value investor. More interesting still, Buffett appeared to distance himself from this decision.
"Yeah, I've been a fan [of Amazon CEO Jeff Bezos], and I've been an idiot for not buying [Amazon shares previously]," he told CNBC on May 2. However, he added that this purchase was not his idea. "One of the fellows in the office that manage money" was behind it, he noted. Presumably he referred to Todd Combs or Ted Weschler, each of whom oversee about $13 billion of equity investments for Berkshire, per CNBC.
In response to a question at the annual meeting, Buffett said, "I can assure you both managers--and one of them bought some Amazon stock in the last quarter--he is a value investor." He added, "They are looking for things that they feel they understand what will be developed by the business between now and Judgment Day."
Confidence in Kraft Heinz Management
The value of Berkshire's stake in Kraft Heinz has dropped by 50%, or $10.6 billion, from its 52-week high. At the meeting, Buffett once again admitted that "we overpaid" for Kraft, but he asserted that "The operations of Kraft Heinz have been improved under the current management overall."
'Probably More Liberal' With Buybacks
Berkshire's holdings of cash and short-term investments rose from $111.9 billion at the end of Dec. 2018 to $114.2 billion at the end of March 2019. While Buffett and Munger noted that high stock market valuations have been an impediment to finding attractive acquisitions, they acknowledged that Berkshire repurchased only $1.7 billion of its shares, including both class A and class B, in the first quarter. "We're going to probably be more liberal when it comes to repurchasing shares," Munger said, without offering more specifics.
New Accounting Rules: 'Totally Capricious'
Buffett already has been a vocal critic of new GAAP accounting rules that compel Berkshire to include unrealized mark-to-market gains and losses from its investment portfolio in the company's reported earnings. "Bottom line figures are gonna be totally capricious," he warned attendees.
Accordingly, he focused on the operating income generated by Berkshire's wholly-owned businesses, which in 1Q 2019 was $5.55 billion, up by 5% from $5.29 billion in 1Q 2018. However, the consensus estimate anticipated a figure of $5.9 billion, per Barron's.
'Size Is A Drag On Performance'
One questioner asked Buffett to comment on past remarks to the effect that he was building Berkshire into a vast "compounding machine." Meanwhile, a growing source of concern for Berkshire's shareholders is that its stock has lagged the S&P 500 Index (SPX) for much of the last 10 years.
Buffett warned that "size is a drag on performance." Although "Berkshire is better situated than ever," he added that "It won't be the highest compounder by a long shot against many other businesses." In an oblique reference to the inevitable management succession at Berkshire, he said that "[future results] will depend on the people that will follow us."
'I Don't Think The Country Will Go Into Socialism'
Buffett has supported some liberal causes, such as higher taxes on high earners, as well as some past Democratic presidential candidates. But he proclaimed during the meeting that "I'm a card-carrying capitalist," extolling "the market system and the rule of law" that underpin American prosperity.
Regarding socialist policy proposals that are gaining popularity within the Democratic Party, Buffett opined, "I don't think the country will go into socialism in 2020 or 2040 or 2060." Munger said, "I think we're all in favor of some kind of government social safety net in a country as prosperous as ours," but decried "the vast stupidity with which parts of that social safety net are managed by the government."