Warren Buffett shareholders meetings: More economic and financial pain ahead

Over 40000 people gathered in Omaha, Nebraska between May 4-6 for Berkshire and Hathaway’s annual shareholders meeting. This summit is also known as the Woodstock of capitalism. Investors, family offices, hedge funds leaders gather at this event and host private meetings to share insights on investments and the future of the economy. Warren Buffett, and Charlie Monger the leaders of Berkshire are respectively 92 and 99 years old are two of the wealthiest men in the world worth over $100 billion each. Among the corporate celebrities attending this year's shareholder's meeting were Bill Gates, Founder of Microsoft, as well as Tim Cook, the CEO of Apple.

At the opening session, right after the short movie that is showcased every year, Buffet presented Berkshire financial performance. Berkshire delivered Q-1 2023 operating earnings of $8.1 billion, which increased 12.6% year over year. The increase was driven by higher earnings at insurance underwriting, insurance-investment income among others. Revenues increased 20.5% year over year to $85.4 billion, mainly due to increase in revenues in Insurance, Railroad, Utilities and Energy. In terms of its financial position, at the end of Q1 of 2023, total shareholders’ equity was $513 billion, up 6.5% from the level as of Dec 31, 2022.  Berkshire ended the first quarter of 2023 with about $165 billion in cash. In terms of performance, under Buffett and Monger’s leadership Berkshire Class A shares grew 3,787,464% over the last 58 years. The comparable growth for the broad-based S&P 500 over the same time, including dividends, is 24,708%. It's safe to say that Monger and Buffett have outperformed market by a long stretch.

On the health of the economy: Buffett and Monger spent about six hours on Saturday answering questions from shareholders. This year's annual meeting was particularly crowded with visitors from all the US states as well as over 50 countries. The increased attendance was mostly due to reduced travel restrictions due to Covid, as well as shareholders wanting to see the two legendary investors in person as their old age suggests they may be retiring soon.

Questions asked ranged from the banking crisis, value investing, US-China relations, Artificial Intelligence, clean energy investment and the US debt ceiling. During the first half of the annual meeting session, Warren Buffett (CEO), and Charlie Monger (Vice Chairman) were joined on stage to address questions by Greg Able (chairman and CEO of Berkshire Hathaway Energy) and Ajit Jain, (Vice Chairman of Insurance Operations). These two executives will lead the investment firm once Buffett and Monger will no longer be able to lead the company. The market knows that there is strong leadership in place that will ensure continuity in Berkshire performance.

Despite the recent market volatility, bank failures and worries over a potential recession, Warren Buffett provided a prudent overview on the health of the economy. He reiterated that Berkshire would continue to do well in the long term, however tough times are to be expected in 2023 and 2024. Buffett expects to see earnings decline for many of his businesses due to the economic slowdown. High cost of capital and high inflation will underpin the market in 2023 and corporations will have to do more with less. Businesses will also struggle to sustain high revenues and justify inflated growth expectations. According to Buffet, corporations will also have to deal with the sudden inventory build-up which they will need to get rid of in a less consumption driven market.

On the banking crisis both Buffett and Munger reiterated that the regulator rescue of Silicon Valley Bank and other regional banks was key in preventing a wider banking panic. They also reiterated that banking negligence at CEO and Directors level should be punished in order to send a strong correcting market signal. The rapid regulator intervention was also instrumental in reassuring account holders and confirming that all money is safe in the US banking system.

In terms of the US and China relations, both Buffett and Monger stated that strong bilateral relations based on free-trade agreements is a must to ensure global growth and more predictable markets. A further escalation of the animosity between the two largest economies would only weaken an already fragile global economic system.

Both Monger and Buffett also commented on speculations that some countries are moving away from the dollar as their reserve currency. They both don’t expect the U.S. dollar to be “dethroned” as the world’s reserve currency anytime soon as they see no option for any other currency to be the reserve currency. They did however warn that the Fed cannot print money forever.

Conclusion:  While the mood at the annual meeting was cheery, Buffett delivered mostly bad news. He delivered is comments with the usual calm and wisdom. Time of extreme spending, extravagant corporate valuations, and fast-paced growth fueled by printing trillions of dollars is over. Charlie Monger warning to value investor was “get used to making less”. Buffet and Munger also joked, as there are plenty of people doing dumb things out there, there are plenty of opportunities to do good.