Excitement was palpable well before the doors to the CHI Health Centre opened. Serpentine queues outside the downtown venue, coffee and stimulating conversations were prominent.
Investors of all hues, ages and nationalities thronged to see the Oracle of Omaha.
The atmosphere was electric and the Dynamic Duo lived up to their billing. Over the next six hours Warren Buffet and Charlie Munger fielded questions on a wide range of topics from the recent and future investments of Berkshire Hathaway to buyback of its own shares, deployment of its huge cash reserves as well as life advice.
Age truly is just a number for the 88-year-old Chairman, Buffett and 95-year-old Vice Chairman Munger. While Buffet sipped Coke and offered his views on financial markets and Berkshire Hathaway in his characteristic witty style, Charlie Munger chewed on See's Candies peanut brittle was his usual blunt, straight forward self.Also Read: Berkshire Hathaway swings to big profit; Buffett laments Kraft Heinz
The AGM kicked off with questions on stock buybacks. Berkshire Hathaway has bought back $1.3 billion shares last year and $1.7 billion in the first quarter of this year. "If our stock gets cheap relative to intrinsic value, we would not hesitate. We would certainly be willing to spend a $100 billion". Charlie Munger added that "when it gets really obvious, we'll be very good at it".
He also wasn't forthcoming on the price he was willing to buy back Berkshire stock at as he doesn't want to signal future buybacks or influence share price.
He was very clear that Berkshire Hathaway had no ambition to spend a dime unless shareholders are better off for having done so.
Loyalty of Berkshire Hathaway shareholders for the stock could also be a hindrance towards buybacks. As the company's Class A shares are held by long term investors who don't trade often, $100 would be spent on repurchasing Class B shares.
A shareholder pointed out that Berkshire would have increased its cash substantially to $155 billion from $118 billion had it put the cash in stock index funds Vis-a-Vis U.S. Treasury Bills. Buffet mentioned that this is something his successor might want to take up.
Both Buffet and Munger opined that cash in hand will be better deployed in big acquisitions and be better than an index fund. Meanwhile, Buffet agreed that while the price paid for H. J. Heinz Co. in 2013 was right, they had overpaid for Kraft Foods Group Inc. in 2015.
Berkshire owns 27% of Kraft Heinz and its write-downs have weighed on Berkshire's fourth quarter earnings. In addition the first quarter earnings did not report Kraft Heinz's results because Kraft has delayed releasing them.
He said that retailers like Amazon, Walmart and Costco Wholesale Corp have gained power relative to brands which used to have more leverage. Even though "Kraft Heinz is still doing very well operationally", he says "you can turn any investment into a bad deal by paying too much."
Munger pitched in by saying "it's not a tragedy. Two transactions, one worked wonderfully and the other didn't work so well. That happens."
His view on how they value Berkshire Hathaway's insurance business was very clear. They "have a very high value on that" and won't be selling it. He said that it is ideal as it has large amounts of assets that aren't linked to natural disasters. Berkshire doesn't need to buy reinsurance and can use the float it holds more efficiently than most insurance companies.
Buffet differed from the opinion that the Amazon investment wasn't value investing. He said that both his portfolio managers Todd Combs and Ted Weschler are value investors and follow the same calculations as he would. He went on to add that he trusts them and doesn't second guess their decisions. "They are looking at things they feel they can understand what will be developed by that business between now and Judgement Day."
Buffet and Munger don't regret catching Amazon earlier but he rues missing out on Google. They saw how much GEICO was paying Google to run ads and how well it was working but didn't invest in the stock. Charlie added "and we sat there, sucking our thumbs."
On succession plans and why Berkshire's Vice Chairman, Ajit Jain and Greg Abel weren't on stage, Buffet commented that they were in the front row and ready to answer questions. The opportunity presented itself later when the question asked how to place a price on unconventional insurance contracts that could expose the company to huge risks. After outlining most of the process that he follows, Jain said that his absolute test is, "pick up the phone and call Warren."
Abel answered a few questions especially in the area of renewable energy. However Warren Buffet strongly felt that having two people on stage wasn't cast in stone and that there's enough room to have more there. But he joked that he and Munger are afraid of having the others show them up. Munger talked of the radically different structure at Berkshire and said "I think you're just going to have to endure us."
Buffet added that the two investment managers Todd Combs and Ted Weschler would never appear on stage to answer questions as "investment decisions are proprietary and belong to Berkshire."
As far as the competitive threats to home and auto insurance firm GEICO are concerned, Buffet singled out Progressive Insurance. He felt both were excellent and well managed businesses that sometimes copied each other. Being bullish on GEICO, he felt that "to some extent it's a two horse race, and we've got a very good horse."
Even with the increased regulatory possibilities, Buffet said that "all the points you raise, I am aware of, and I like Apple very much. I like the fact that it's our largest holding."
Words of wisdom and life advice came thick and fast from Buffet and Munger during the AGM. A 13 year old boy asked for advice on how kids could develop the skill of delayed gratification. Munger who is 95 years old, jumped in and answered "I am an expert at delayed gratification. I've had a lot of time to delay." He felt that either one is born with the delayed gratification gene or they're not, it simply cannot be taught.
Saving money is not necessarily the best thing to do, Buffet said. A correlation between happiness and money is not visible beyond a point. He stated that he himself spends "2 to 3 cents" of every dollar. "Don't go overboard on delayed gratification" was his advice to the young boy.
Warren Buffet fielded a question from a 9 year old who wanted to know if Berkshire should adapt and invest more in technology companies. He said that the company would continue to search for firms with strong "moats". "We don't try to win at a game we don't understand," he noted.
Finally he added that "we will do our best to enlarge the circle of competence of Berkshire so we don't miss so many."
When a young mother with an 11 week old infant wanted to know about future job prospects given increasing automation, Buffet said that the American economy and the American people were extremely ingenious and would continue to find ways to employ more people. Buffet announced that he didn't know what the next "big thing" would be, but he knew that there would be a next big thing.
This was the energy and spontaneity of the question and answer session at the Annual General Meeting of Berkshire Hathaway. Buffet and Munger liberally shared their insights into the business world and the life lessons learned in their lifetime, keeping the capacity crowd riveted to their seats for over six hours.
(The author is founder, Millennium Mams', a non-profit organization for women investors.)
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