Warren Buffett on virus, economy, airlines mistake
Warren Buffett, Chairman and CEO of Berkshire Hathaway.
David A. Grogan | CNBC
Warren Buffett made a lot of news at Berkshire Hathaway‘s first virtual annual meeting on Saturday, including revealing that he sold all his airline stocks and didn’t see any value in any major acquisitions amid the coronavirus pullback in stocks. The 89-year-old “Oracle of Omaha” was joined at the meeting with Vice Chairman of Non-Insurance Operations Greg Abel and was asked shareholder questions by CNBC’s Becky Quick.
Here’s a full recap:
9:19 pm: Buffett takes question from actor Bill Murray
Murray asked via Quick: “This pandemic will graduate a new class of war veterans: Health care, food supply, deliveries, community services. So many owe so much to these few. How might this great country take our turn and care for all of them?”
Buffett: “We won’t be pay to pay, actually. It’s like people that landed at Normandy…The poor, the disadvantaged… They suffer, there’s an unimaginable suffering and at the same time they’re doing all these things. They’re working 24-hour days and we don’t even know their names…If we go overboard on something, we ought to do things that can help those people. This country — I’ve said it a lot of times before — but the history of it. I mean we are a rich, rich, rich country and the people that are doing the kind of work that Bill talks about, they are contributing a whole lot more than some of the people that came out of the right womb. Or got lucky or know how to arbitrage bonds. And in large part, I’m one of those guys. So you really try to create a society that, under normal conditions, with more than $60,000 of GDP per capita, that anybody that works 40 hours a week can have a decent life without a second job and with a couple kids. They can’t live like kings, I don’t mean that. But nobody should be left behind.”
Murray and Buffett met up last year in Omaha over ice cream. — Franck
9:03 pm: Buffett on why he didn’t buy more Berkshire stock
Buffett explained why he didn’t repurchase more Berkshire Hathaway shares during the sell-off in the first quarter. The company only repurchased $1.7 billion of Berkshire shares even as it sits on a record $137 billion cash pile.
“The price has not been at a level where it really feels way better to us than other things, including the option value of money, to step up in a big way,” he said. — Franck
8:53 pm: Being against buybacks is now ‘politically correct,’ Buffett says
Buffett said the criticism towards buybacks is largely uncalled for. “It’s very politically correct to be against buybacks now,” he said. “There’s a lot of crazy things being said about buybacks. Buybacks are so simple. It’s a way of distributing cash to shareholders.” Buffett noted share repurchase programs should be executed in a price and need-sensitive manner, but “when the conditions are right, it should also be obvious to repurchase shares and there shouldn’t be the slightest taint to it anymore than there is to dividends.” — Imbert
8:40 pm: Buffett says he’s not breaking up the conglomerate
Buffett was asked whether he would consider breaking up Berkshire Hathaway. Here’s his answer:
“If you were to sell Berkshire’s various subsidiaries you would incur a very significant amount of tax at the corporate level before anything was distributed to the shareholders…The interaction of being able to move capital around in terms of being able to do in insurance that we couldn’t do unless there were the backup earnings and capital employed. And the other entities — there’s enormous advantages in capital deployment within the place. There is not a big discount to break up value embodied in Berkshire’s price…It isn’t going to happen. Now I will tell you everybody in the world will come around and propose something and say ‘it’s wonderful for shareholders and, by the way, it involves huge fees.’…My plan has been thought out and in place for a long time. And it not only ensures that the money that’s been made at Berkshire all of it ends up going to various philanthropies staggered over time, but it also — it will keep the wolves away.”
“I think the comment on the capital allocation is critical. That we have the ability to move the capital among the — be it the operating businesses or up to the insurance or down — with really no consequences to our shareholders. That’s the value driver, the unique structure of Berkshire and it creates immense value.” — Franck
8:27 pm: Buffett says he and Charlie Munger are in good health
Warren Buffett said he and Charlie Munger, his longtime business partner, are in good health, adding the 96-year-old vice chairman will return to the annual meeting next year. The 89-year-old chairman and CEO said that Munger added Zoom Video to his repertoire and is having virtual meetings every day. Asked about future management who will allocate capital at Berkshire Hathaway, Warren Buffett listed Greg Abel, vice chairman of non-insurance operations, Todd Combs, Ted Weschler, his two key investing deputies. “Charlie and I are around. We like capital allocation ourselves. We are not going any place voluntarily, but we probably will be going some places involuntarily before that long,” Buffett said.
“Charlie is in good health. I’m in good health.” — Li
7:55 pm: Greg Abel doesn’t see Berkshire’s culture changing
Berkshire Hathaway Vice Chairman of Non-Insurance Operations Greg Abel — one of the potential successors to Warren Buffett — said he doesn’t see the company culture changing whenever the “Oracle of Omaha” and his right-hand man, Charlie Munger, leave. “A large part of that [culture] is having the business acumen to understand the transaction and economic prospects and the ability to act quickly,” Abel said. “I really don’t see that changing. There’s no one better than Warren and Charlie, but equally we have a talented team at Berkshire.” — Imbert
7:20 pm: Buffett says he’s ‘willing to do something very big,’ but hasn’t seen anything ‘attractive’
Warren Buffett hasn’t made a major acquisition in several years despite Berkshire Hathaway’s record cash pile. Buffett said it is because there hasn’t been anything “that attractive,” “We have not done anything because we haven’t seen anything that attractive,” Buffett said. “We are not doing anything big obviously. We are willing to do something very big. I mean you could come to me on Monday morning with something that involved $30, or $40 billion or $50 billion. And if we really like what we are seeing, we would do it.” Berkshire’s quarterly earnings revealed that the conglomerate had a record $137 billion in cash and equivalent instruments on its balance sheet at the end of the first quarter. — Li
7:10 pm: Buffett says he sold his entire stake in airlines
Buffett reveals Berkshire dumped its entire airlines stake.
“The world has changed for the airlines. And I don’t know how it’s changed and I hope it corrects itself in a reasonably prompt way,” Buffett said. “I don’t know if Americans have now changed their habits or will change their habits because of the extended period.”
But “I think there are certain industries, and unfortunately, I think that the airline industry, among others, that are really hurt by a forced shutdown by events that are far beyond our control,” he added.
Asked by CNBC’s Quick to clarify if Berkshire had sold all of its airline holdings, Buffett answered “yes.”
The prior stake, worth a collective several billion dollars, included United, American, Southwest and Delta Airlines. — Franck
6:52 pm: Buffett now taking shareholder questions
CNBC’s Becky Quick has been collecting shareholder questions and is now asking Buffett the questions via a video link.
6:42 pm: Buffett says he was ‘wrong’ about the airlines
Warren Buffett said he made an “understandable mistake” when valuing the airline stocks as a near-global halt in travel due to the coronavirus sent their prices sharply lower. “When we bought [airlines], we were getting an attractive amount for our money when investing across the airlines,” he said. “It turned out I was wrong about that business because of something that was not in any way the fault of four excellent CEOs. Believe me. No joy of being a CEO of an airline.”
“I don’t know that 3-4 years from now people will fly as many passenger miles as they did last year …. you’ve got too many planes.” — Imbert, Quick
6:32 pm: Buffett thinks highly of Fed Chief Jerome Powell
“I’ve always had Paul Volcker up on a special place, a special pedestal in terms of Federal Reserve chairmen over the years… Jay Powell in my view, and the Fed board, belong up there on that pedestal with him because they acted in the middle of March. Probably somewhat instructed by what they’d seen in 2008 and 2009. They reacted in a huge way and essentially allowed what’s happened since that time to play out the way it has. March, when the market had essentially frozen, a little after mid-month, ended up on March 23 — it ended up being the largest month for corporate debt issuance, I believe, in history… Every one of those people that issued bonds in late March and April ought to send a thank you letter to the Fed because it wouldn’t have happened if they hadn’t operated with really unprecedented speed and determination.” — Franck
6:22 pm: The best thing to do is buy into S&P 500 index fund, Buffett says
Warren Buffett believes average investors should buy the broad market for a long period of time instead of following stock-picking advice of others. “In my view, for most people, the best thing is to do is owning the S&P 500 index fund,” Buffett said at Berkshire’s annual meeting. “There are huge amounts of money people pay for advice they really don’t need. If you bet on America and sustain that position for decades, you’d do far better than buying Treasury securities, or far better than following people who tell you” what to invest, he added. — Li
6:11 pm: Buffett — don’t use borrowed money to participate in markets
Legendary investor Warren Buffett still thinks America is the best bet out there but noted people should not borrow money to participate in market given the uncertainty around the coronavirus pandemic. “When something like the current pandemic happens, it’s hard to factor that in. That’s why you never want to use borrowed money, at least in my view, into investments,” Buffett said from Berkshire Hathaway’s virtual shareholder’s meeting. “There’s no reason to use borrowed money to participate in the great American tailwind, but there’s every other reason to do so.” — Imbert
5:56 pm: Buffett says, ‘be careful about how you bet.’
“Perhaps with a bias, I don’t believe anyone knows what the market is going to do tomorrow, next week, next month, next year. I know America’s going to move forward over time, but I don’t know for sure and we learned this on Sept. 10, 2001. And we learned it a few months ago in terms of the virus. Anything can happen in terms of markets. And you can bet on America but you’re going to have to be careful about how you bet. Simply because markets can do anything.”
Buffett has said that investors should never buy stocks on margin using borrowed money. — Franck
5:50 pm: Stock market has produced $100 for every $1 since Buffett finished college
For every $1 invested when Warren Buffett finished college in the 1950s, the stock market has produced $100, the “Oracle of Omaha” pointed out during his presentation at Berkshire Hathaway’s annual meeting.
“All you had to do was believe in America. You just had to believe that the American miracle that was intact,” Buffett said. “You didn’t have to read the Wall Street Journal. You didn’t have to look at the price of your stock. You didn’t have to pay a lot of money in fees than anybody…Nothing can stop America when you get right down to it.” There was a testing period after the stock market crash of 1929 where a lot of people “really lost faith,” Buffett said. “In the end the answer is never bet against America.” — Li
5:10 pm: Buffett: Economy faces ‘extraordinary’ range of outcomes, but nothing can stop America
Buffett struck a cautious tone when discussing the U.S. economy at the start of the meeting, warning that the possibilities “are still extraordinarily wide” given the coronavirus crisis. But he then went on to reiterate his longtime belief that America will overcome even the most daunting challenges, including the current global pandemic.
“In 2008 and 2009 our economic train went off the tracks, and there were some reasons why the roadbed was weak in terms of the banks. This time we just pulled the train of the tracks and put it on a siding. And I don’t really know of any parallel — in terms of a very, very well the most important country in the world, most productive, huge population — in effect sidelining its economy and its workforce.”
“But even facing that, I would like to talk to you about the economic future of the country. Because I remain convinced, as I have — I was convinced of this in World War II, I was convinced of it during the Cuban Missile Crisis, 9/11, the Financial Crisis — that nothing can basically stop America.” — Franck
5:02 pm: Buffett says he owes a huge debt of gratitude to Dr. Fauci
Warren Buffett thanked White House health advisor Dr. Anthony Fauci for educating and informing him and the country of coronavirus developments, saying he owes a “huge debt of gratitude” to him. Buffett said the country is “very, very fortunate” to have Fauci who communicates in a “very straightforward manner” about the global health crisis. Fauci is the director of the National Institute of Allergy and Infectious Diseases and the leading public health expert on President Donald Trump’s coronavirus task force. — Li
4:45 pm: The meeting begins
Buffett begins talking with Abel at another table to his side. Buffett has his beloved Coca-Cola next to him in a glass.
4:45 pm: Greg Abel to take the stage with Warren Buffett
Alongside Buffett on the stage answering shareholders’ questions will be Greg Abel, Berkshire’s vice chairman of non-insurance operations. Abel, who joined the conglomerate in 1992, was promoted to his post in 2018. Prior to that, he served as Berkshire Hathaway Energy’s chairman and CEO. Abel, now 57, is seen as a top contender to succeed Buffett, who is 89 years old. At Berkshire’s annual meeting last year, Buffett hinted that Abel and Ajit Jain, who handles all insurance-related operations, could be possible successors. Both Abel and Ajit answered some shareholder questions last year. — Li
4:40 pm: Buffett has doubled the stock market’s return
Despite short-term fluctuations, Warren Buffett’s long-term track record is why this meeting is such a big annual event for investors. Berkshire Hathaway A shares have returned nearly 21% annually since 1976, more than double the return of the S&P 500’s 10% return over the same time, according to FactSet. Over the last year, Berkshire has lost 15%, compared to the S&P 500’s 1% loss. Berkshire’s heavy investments in banking and insurance has hurt it during this dramatic economic slowdown. — Melloy
4:39 pm: What to expect from Berkshire’s first virtual annual meeting
This year’s Berkshire Hathaway shareholder’s meeting, which will be held virtually for the first time, comes at a critical juncture for the conglomerate. Shareholders want more clarity on the company’s leadership as Greg Abel shares the stage with Warren Buffett. They also want insight on Buffett’s plans regarding the company’s massive cash pile. Berkshire Hathaway has more than $137 billion in cash through the end of the first quarter and shareholders wonder if the “Oracle of Omaha” has found any attractive investments since the coronavirus pandemic sparked a global market sell-off. —Imbert
4:28 pm: Berkshire reports net loss of $50 billion
Berkshire Hathaway reported a net loss of nearly $50 billion for the first quarter earlier Saturday as the conglomerate’s stock investments took a massive hit amid the coronavirus outbreak. But this quarterly result is deceiving as Berkshire owns more stock investments than other companies that fluctuate. Accounting rules require the company to report unrealized losses in equities, so this loss is a reflection of the coronavirus stock market rout. Berkshire’s operating earnings actually rose to $5.9 billion from $5.6 billion in the same period a year ago. — Imbert
4:00 pm: Buffett hunkering down?
Going by the company’s first-quarter 10-Q filing, it appears Buffett was not chomping at the bit to buy more stock or companies outright during the coronavirus market rout. The filing revealed Berkshire had a record $137 billion in cash and equivalent instruments on its balance sheet at the end of the first quarter, up from about $127 billion at the end of the year. Also, the company spent just $1.8 billion buying stocks and just $1.7 billion repurchasing Berkshire Hathaway shares. It will be interesting to see if Buffett is in fact waiting for more clarity that the economy is not going through a more lasting setback because of the pandemic. — Melloy
— CNBC’s John Melloy and Becky Quick contributed to this report.
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