Starting a thread for the Berkshire Hathaway 2021 annual meeting which has just started. $BRKA $BRKB

Abel and Jain are present on stage, although off to the side from Buffett and Munger.

Buffett is spending a few minutes talking about Jain and Abel to introduce them to the shareholders.

Very good to have all of them available for Q&A on the same stage.

Buffett is now talking about Q1 2021 results. I wrote a thread on a few observations on the 10Q this morning.

Buffett is pointing out how the accounting rule change a few years ago distorted quarterly (and annual) earnings by including unrealized gains and losses from investments in net income.

This makes periodic earnings swing dramatically and misleads many investors.

Buffett has a slide of the top 20 companies in the world by market cap, 5 of the top 6 U.S. based which led into a pep talk on the United States, which he does so well.

"The system has worked unbelievably well."
Now Buffett puts up a slide of the top 20 companies in the world from 1989. None of the 20 from 30 years ago are on the present list. Zero. And 13 of the 20 were from Japan!

The top company in 1989 had a market cap of $104 billion - Industrial Bank of Japan.

Buffett is directing this very good history lesson at new investors, but most will just see an old man talking about Henry Ford and disregard his statements. Too bad for them.

Buffett has a list of auto companies from the early 20th century that eventually went bust. Dozens of auto companies just starting with the letters "Ma". Thousands of entrants. Incredible future. Most failed.

"It's not as easy at it sounds."

Referring to entering new and exciting markets that will change the world.

First question asks why Buffett was defensive early in the pandemic. A lot of hindsight bias in that question. Of course it wasn't the right call ... given the history that played out.

Buffett talks about his role controlling risk at Berkshire.

Buffett implies that if Berkshire was still in the airlines, they might not have received the aid that they did. That's very interesting. He's implying that Berkshire's exit from the airlines in some way facilitated the fact that government bailed them out.

Next question is why Berkshire didn't deploy more cash at the lows in March 2020. More hindsight bias in that question ...

Interestingly, Buffett notes that the $20 billion minimum cash balance is going to be increased given Berkshire's current size.

The day before the Fed acted, Buffett thinks that even Berkshire could not have issued debt. Markets were closed. He's praising Powell for acting, praising Congress for acting. "It did the job."
Buffett did not think that it was a "sure thing" that government would act as they did. He was unwilling to COUNT on government acting as they did in March 2020. He won't rely on the kindness of anyone. And that's how I like it, and I suspect most shareholders agree.

Munger says that the questioner is "out of their mind" to think that Berkshire could bottom tick the market in March 2020.

Q: Should long term Berkshire shareholders diversify into an index fund?

A: Munger prefers holding Berkshire to holding an index fund. Buffett recommends the S&P 500 index fund, has never recommended Berkshire to anyone.

Buffett "likes Berkshire" but suggests that people who don't know anything about stocks or no "special feelings" about Berkshire should buy the S&P 500 index.

Buffett is going out of his way to not talk up Berkshire, which is fine, but I question the idea of suggesting the S&P 500 index at current valuations. I don't think that does anyone any favors.

In the context of dollar cost averaging into index over a long lifetime, S&P 500 is OK, but the question was from a longtime shareholder asking if he should diversify into an index. It would seem nuts to sell BRK to buy the S&P 500, in my opinion. Munger seems to agree.

BREAKING: Munger would prefer to have a son-in-law who works at Chevron rather than as an English professor at Swarthmore.

Buffett doesn't use the word "asinine" often, but tears into the ESG proposals which I assume will be discussed more fully during the formal shareholder meeting when the matter comes up for a vote.

"We don't do things just because we have a department of this or a department of that ... what's important is what we are doing at BHE and the railroad..."

Buffett is really fired up talking about renewables and how you can't turn off the coal plant until you have transmission from wind power to where it is actually used.

I can tell he's pissed about Berkshire getting a bum rap on the environment.

Buffett turns over the question to Abel who has slides prepared regarding Berkshire's environmental record at the energy group. Goes back to a 2007 conference where he discussed climate change, policy, innovation, etc... These guys are prepared for the ESG proposals...

Buffett asks "How many other energy companies were there" when Abel talks about a group of companies that made commitments regarding the Paris climate agreement. Abel says "none".

Buffett: "We'd spend $100 billion on infrastructure" referencing Biden's speech on Wednesday stating that we need more infrastructure spending.

If we get a 10% return, I'm all for it as well.

Good question on prospects for insurance when Buffett and Jain are no longer involved. Should Berkshire then focus on short-tail lines?

Jain talks about pricing for the unknowns unknowns - a good answer, but not really addressing succession.

Buffett: "We are willing to lose $10 billion in a single event" if paid appropriately for taking on a risk.

Sounds like a big number but not relative to Berkshire's current size.

"Warren and I don't have to agree on every damn thing we do."

Charlie's answer when asked about differences of opinion between him and Buffett on Costco and Wells Fargo.

Having Jain and Abel on stage interacting with each other is quite valuable for shareholders.

"In three more years, Charlie will be aging at 1% per year. No one is aging less than Charlie."

Very funny, Warren ...

Jain talking about GEICO and Progressive - very candid about Progressive as a formidable competitor and the relative advantages of GEICO and Progressive.

I can tell Jain doesn't engage in BS. At all.

Buffett talking about $AAPL. Munger thought that Buffett selling a little was a mistake.

Charlie: "Yes"

Buffett is talking about how Apple products are indispensable to customers.

He's right about some people picking their phone over a car if they had to choose between the two.

People are addicted to their damn phones.

Buffett talking about how interest rates are like financial gravity when asked about stock valuations.

Buffett looking for a clipping from a ... paper WSJ ... noting that the government sold 4 week t-bills at an average price of 100.000000. Free money for Uncle Sam.

Buffett notes that there has been an incredible change in anything that produces money because the risk free rate is now zero.

And of course he's right. But for how long will this last? Is it "safe" to price stocks as if the risk free rate will be zero forever?

"The most interesting movie we have ever seen."

Buffett characterizing the current economic environment.

Buffett: Low interest rates reduce the value of float substantially but Berkshire has options for investing that others don't have.

As noted earlier today, Buffett shuns fixed income securities for this very reason.

Buffett notes that most SPACs have a two year limit for deploying cash. If you have a gun to your head, then you'll buy something.

The meeting is half over and no Bitcoin, Dogecoin, Elon, or Crypto questions yet, unless I missed it.

As an aside, I have tweeted about nothing other than Berkshire today, and today is the annual meeting, yet $TWTR algorithms think that THIS is what I'm interested in. 👇🤣🙃

Buffett says that he has roughly $70-80 billion that he would love to put to work.

$20 billion is not the minimum cash level anymore, as he alluded to earlier. It is probably double of that or more, but he has not specified.

Charlie: "Bernie Sanders has won."

Referring to the millennials having trouble rising as far as earlier generations.


Buffett defends the logic of repurchases vs. dividends as a way of cashing out shareholders who want cash, leaving the rest of us alone to continue compounding.

Tax efficiently, I might add.

Munger: Critics are bonkers.


I feel very good about not receiving a surprise dividend from Berkshire anytime soon.

Which I suspect will remain the case as long as Buffett and Munger are around since they don't want to pay the taxes any more than I do.

Buffett stresses that he doesn't speak for Berkshire when providing his personal views on taxes.

He punts on tax questions. Although he certainly has spoken in the past on taxes at prior meetings.

I like the new policy.

Munger: "I wouldn't move across the street to save my children $500 million in taxes."

But ... "Who in the hell would drive out the rich people?"

The government owns "Berkshire Class AA stock". They can take a percentage of earnings without owning any of the company.


Buffett thinks that his wealth will accomplish more utility in private philanthropy run by smart people. It won't make a "damn bit of difference" if it goes to the Federal government.

I agree.

I suspect (or at least hope) that Buffett has spoken to the President about tax policy, especially the folly of even thinking about thinking about taxing *unrealized* gains annually, one of the more bonkers ideas to ever be proposed in Washington. Truly nuts.

Buffett: Valuation for Kansas City Southern deal would not be happening without interest rates at current levels. A combination would have a small impact on BNSF and Union Pacific.

Buffett: Biggest single "risk factor" never appearing in a company filing is a CEO who is personable and everyone likes but doesn't know what he or she is doing.


Buffett dodges the question. He doesn't want 400,000 people mad at him and 2 people happy.

Charlie: "You're waving a red flag at a bull." Rant follows on bitcoin and other things invented out of thin air ... Disgusting, contrary to the interests of civilization...

Q: Why is BRK's proposal for TX grid better than Musk's proposal?

Abel: BRK's proposal is the best they could come up with. If Elon's proposal is better, then Texas should pursue it. Notes that battery solution isn't as robust in terms of duration of power supplied.

Buffett: We know what we can do for TX grid. If someone can provide a solution cheaper and faster, they should do it.

Notes that Berkshire is backing proposal with $4 billion penalty if they fail to deliver.

Q for Ajit: Would you underwrite an insurance policy for Elon Musk's mission to Mars?

"No thank you, I will pass."

Buffett: Depends on the premium. And on whether Elon is on the mission or not. Skin in the game.


Ajit: "I would be very concerned about writing an insurance policy with Elon Musk on the other side."


Q: Why aren't Ted and Todd available to answer questions?

Buffett: Why would we make Ted and Todd available to talk stocks and share ideas with competitors?


Munger is convinced that China will allow companies to flourish. They "changed communism" because they didn't want to stay poor. A remarkable change coming from such a place. And it has worked like gangbusters. Munger very complimentary.

This will trigger many people.

Q:What happened to the joint health care initiative with Amazon and J.P. Morgan?

Buffett: We learned more about health care in decentralized Berkshire subsidiaries and is one place where centralization could save some real money.

Very hard to change the overall system.

Buffett notes that when companies pay healthcare costs for employees, its an abstraction to employees. They don't realize that they are really paying in the form of lower wages. And they like that.

Munger: "No kidding"

Buffett notes that U.S. pays 17% of GDP for healthcare while no other major country pays more than 11% yet we get poorer results.

Rational Walk: "No kidding"

Buffett on the failure of the joint healthcare initiative with J.P. Morgan and Amazon:

"We were fighting a tapeworm, and the tapeworm won."

Question: What do Jain and Abel read on a daily basis?

90% of Ajit's reading is related to insurance. Abel focuses on the operating businesses he's in charge of.

Blocking and tackling.

Buffett: Nothing illegal or immoral about gambling on Robinhood but you can't build a society around it. Not admirable. Will read prospectus.

Munger: "Waving a red flag at a bull." Godawful. Deeply wrong. State lotteries: States pushed aside mafia in numbers game.

Q: Signs of inflation in subsidiaries?

Buffett: Very substantial. We are raising prices. People are raising prices to us. It's being accepted. Take homebuilding. Cost up up up. Every day.

cc @federalreserve
Buffett is clearly seeing inflation pressure. Doesn't sound like he thinks it is "transitory".

Who do you believe? Warren Buffett or Jay Powell and his army of phd economists?

I am paraphrasing, but the transcript will be posted soon, the video will be available, and I'd encourage everyone to read his statements on cost pressures verbatim.

"There's more inflation going on that people would have anticipated six months ago or thereabouts."

Listening to that exchange just now makes me want to take out a large thirty year fixed rate mortgage as soon as possible even if I might be paying a high price for a property.

Buffett notes that while rich people can change states relatively easily, a business with plants cannot change so quickly and must be very careful about the pension deficits in various jurisdictions.

Q: Biggest lesson over the past year?

Buffett: "Listen more to Charlie."
Munger: "We are in uncharted territory."

Buffett talks about the long term prospects for Berkshire over the next many decades, etc.

No break between the 3 1/2 hour Q&A session and formal meeting. Buffett is 90. Munger is 97.

The formal meeting is a foregone conclusion in terms of the outcome of the two shareholder proposals so I'll conclude this thread here.

You can follow @rationalwalk.
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