Buffett AGM Comments

[jasonchin]

Folks, I am trying to understand this explanation.

 

he says CAPEX > depreciation … just means depressed earnings. How is that related to the net cash produced in the covid context remaining unchanged ? if anyone got that, a quick explanation would be appreciated.

 

thx

 

 

"Warren Buffett: (01:27:41)

It affects others much less. Our three major businesses of insurance and the BNSF railroad, railroad and our energy business, those are our three largest by some margin. They’re in a reasonably decent position. They will spend more than their depreciation. So some of the earnings will go, along with depreciation, will go toward increasing fixed assets.

Warren Buffett: (01:28:13)

But basically these businesses will produce cash even though their earnings decline somewhat. And if we’ll go to part two, at Berkshire, we keep ourselves in an extraordinary strong position. We’ll always do that—that’s just fundamental. We insure people. We’re a specialist to some extent and a leader. It’s not our main business, but we sell structured settlements. That means somebody gets in a terrible accident, usually an auto accident, and they’re going to require care for 10, 30, 50 years."

 

My personal interpretation: he meant that earnings will be depressed relative to new capex because it takes time to ramp up the new capex (esp. in those industries). It's like building an extension to your property. You can still enjoy the fruits of your existing property, but you will have to fork out capital for your extension which may take some time to be up and running. However, your existing property is cash generative.

[mattee2264]

I think Greg is a safe pair of hands and a humble guy who won't go on an ego trip if he became #1. Given the size of the empire that Buffett has assembled that isn't the worst thing in the world. He will probably make sure the businesses continue to run well and make sensible bolt-on acquisitions. But it is difficult to imagine him stepping into Warren's shoes and making transformative acquisitions that really move the needle for Berkshire. I assume that is where Ted and Todd are expected to contribute more but it is a big step up from being hedge fund investors. Perhaps the idea is the three of them work together?

[Guest longinvestor]

I think Greg is a safe pair of hands and a humble guy who won't go on an ego trip if he became #1. Given the size of the empire that Buffett has assembled that isn't the worst thing in the world. He will probably make sure the businesses continue to run well and make sensible bolt-on acquisitions. But it is difficult to imagine him stepping into Warren's shoes and making transformative acquisitions that really move the needle for Berkshire. I assume that is where Ted and Todd are expected to contribute more but it is a big step up from being hedge fund investors. Perhaps the idea is the three of them work together?

 

Thinking the same. I doubt the committee type management. There will be one person in charge. He can get opinions from the other two but will make decisions. If I had to guess, Todd. He’s going through OJT at Geico, JPM, Haven etc.

[bci23]

If you can read past the normal fluff optimism I think this was the most bearish Buffett has been. Heck, he started out the meeting talking about comparisons to the Great Depression. Combine that with the fact he has essentially bought nothing so far I think that tells you all you need to know.

 

I also liked this set up for Q&A much more, the quality of the discussion was soo much better. The only truly dumb question was the one from the guy that didn't know you could convert A shares to B shares.

[scorpioncapital]

If you can read past the normal fluff optimism I think this was the most bearish Buffett has been. Heck, he started out the meeting talking about comparisons to the Great Depression. Combine that with the fact he has essentially bought nothing so far I think that tells you all you need to know.

 

I also liked this set up for Q&A much more, the quality of the discussion was soo much better. The only truly dumb question was the one from the guy that didn't know you could convert A shares to B shares.

 

But he also said that unlike the 25 years of going nowhere from 1929 to 1954, the Fed now has FDIC and other tools. I actually got the opposite impression that it will be much shorter than a 25 year depression because of what the government is doing.

[StubbleJumper]

If you can read past the normal fluff optimism I think this was the most bearish Buffett has been. Heck, he started out the meeting talking about comparisons to the Great Depression. Combine that with the fact he has essentially bought nothing so far I think that tells you all you need to know.

 

I also liked this set up for Q&A much more, the quality of the discussion was soo much better. The only truly dumb question was the one from the guy that didn't know you could convert A shares to B shares.

 

 

Yes, I must say that I did not at all miss the BS from previous years where adults write a question and get their 11 year-old to go to the microphone to ask it.

 

 

SJ

[petec]

If you can read past the normal fluff optimism I think this was the most bearish Buffett has been. Heck, he started out the meeting talking about comparisons to the Great Depression. Combine that with the fact he has essentially bought nothing so far I think that tells you all you need to know.

 

I also liked this set up for Q&A much more, the quality of the discussion was soo much better. The only truly dumb question was the one from the guy that didn't know you could convert A shares to B shares.

 

But he also said that unlike the 25 years of going nowhere from 1929 to 1954, the Fed now has FDIC and other tools. I actually got the opposite impression that it will be much shorter than a 25 year depression because of what the government is doing.

 

Exactly right. He also said he expected inflation, which would be rather a different outcome.

[scorpioncapital]

If you can read past the normal fluff optimism I think this was the most bearish Buffett has been. Heck, he started out the meeting talking about comparisons to the Great Depression. Combine that with the fact he has essentially bought nothing so far I think that tells you all you need to know.

 

I also liked this set up for Q&A much more, the quality of the discussion was soo much better. The only truly dumb question was the one from the guy that didn't know you could convert A shares to B shares.

 

But he also said that unlike the 25 years of going nowhere from 1929 to 1954, the Fed now has FDIC and other tools. I actually got the opposite impression that it will be much shorter than a 25 year depression because of what the government is doing.

 

Exactly right. He also said he expected inflation, which would be rather a different outcome.

 

I happen to think an inflationary depression is pretty much the same as a deflationary depression )

But at least the Dow or SP or whatever will go up, just not as fast as all your costs.

 

[petec]

If you can read past the normal fluff optimism I think this was the most bearish Buffett has been. Heck, he started out the meeting talking about comparisons to the Great Depression. Combine that with the fact he has essentially bought nothing so far I think that tells you all you need to know.

 

I also liked this set up for Q&A much more, the quality of the discussion was soo much better. The only truly dumb question was the one from the guy that didn't know you could convert A shares to B shares.

 

But he also said that unlike the 25 years of going nowhere from 1929 to 1954, the Fed now has FDIC and other tools. I actually got the opposite impression that it will be much shorter than a 25 year depression because of what the government is doing.

 

Exactly right. He also said he expected inflation, which would be rather a different outcome.

 

I happen to think an inflationary depression is pretty much the same as a deflationary depression )

But at least the Dow or SP or whatever will go up, just not as fast as all your costs.

 

They are VERY different in terms of how you want to be positioned beforehand, especially wrt debt.

[StubbleJumper]

If you can read past the normal fluff optimism I think this was the most bearish Buffett has been. Heck, he started out the meeting talking about comparisons to the Great Depression. Combine that with the fact he has essentially bought nothing so far I think that tells you all you need to know.

 

I also liked this set up for Q&A much more, the quality of the discussion was soo much better. The only truly dumb question was the one from the guy that didn't know you could convert A shares to B shares.

 

But he also said that unlike the 25 years of going nowhere from 1929 to 1954, the Fed now has FDIC and other tools. I actually got the opposite impression that it will be much shorter than a 25 year depression because of what the government is doing.

 

Exactly right. He also said he expected inflation, which would be rather a different outcome.

 

I happen to think an inflationary depression is pretty much the same as a deflationary depression )

But at least the Dow or SP or whatever will go up, just not as fast as all your costs.

 

 

Actually, my take is that an inflationary depression is probably a bit easier to manage.  Labour prices (wages) tend to be sticky downwards, and minimum wages in particular are sticky downwards.  At least with an inflationary depression, you the real price of labour gets inflated away, which enables firms to consider hiring more people.  Similarly, in a deflationary environment, there is a disincentive to spend immediately while in an inflationary environment you are better off to convert your cash into goods immediately.  We probably don't want to experience either of those, but if I were forced to choose....

 

 

SJ

[bci23]

If you can read past the normal fluff optimism I think this was the most bearish Buffett has been. Heck, he started out the meeting talking about comparisons to the Great Depression. Combine that with the fact he has essentially bought nothing so far I think that tells you all you need to know.

 

I also liked this set up for Q&A much more, the quality of the discussion was soo much better. The only truly dumb question was the one from the guy that didn't know you could convert A shares to B shares.

 

But he also said that unlike the 25 years of going nowhere from 1929 to 1954, the Fed now has FDIC and other tools. I actually got the opposite impression that it will be much shorter than a 25 year depression because of what the government is doing.

 

I guess if you were thinking this would be a 25 year depression than yes Buffetts comments were optimistic. But if you were thinking this would be a V Shape recovery or some small speed bump in the economy than his comments comparing us to the Great Depression are very bearish.

 

[Viking]

If you can read past the normal fluff optimism I think this was the most bearish Buffett has been. Heck, he started out the meeting talking about comparisons to the Great Depression. Combine that with the fact he has essentially bought nothing so far I think that tells you all you need to know.

 

I also liked this set up for Q&A much more, the quality of the discussion was soo much better. The only truly dumb question was the one from the guy that didn't know you could convert A shares to B shares.

 

But he also said that unlike the 25 years of going nowhere from 1929 to 1954, the Fed now has FDIC and other tools. I actually got the opposite impression that it will be much shorter than a 25 year depression because of what the government is doing.

 

Exactly right. He also said he expected inflation, which would be rather a different outcome.

 

I happen to think an inflationary depression is pretty much the same as a deflationary depression )

But at least the Dow or SP or whatever will go up, just not as fast as all your costs.

 

 

Actually, my take is that an inflationary depression is probably a bit easier to manage.  Labour prices (wages) tend to be sticky downwards, and minimum wages in particular are sticky downwards.  At least with an inflationary depression, you the real price of labour gets inflated away, which enables firms to consider hiring more people.  Similarly, in a deflationary environment, there is a disincentive to spend immediately while in an inflationary environment you are better off to convert your cash into goods immediately.  We probably don't want to experience either of those, but if I were forced to choose....

 

 

SJ

 

Given everything we are seeing today, is it not likely that we see mild deflation in the US moving forward? This has been the trend in Japan for the past decade and Europe in recent years? Oil at $20 will be deflationary (lower input costs). Massive unemployment. Massive number of business bankruptcies. Double digit negative GDP growth. Falling consumer spending and business investment. Worldwide recession. Strong US$. Long bond yields at historic lows. Debt to GDP levels back to historic highs. Higher taxes in 2021 (likely).

 

What will cause inflation in the near term? War perhaps? Other?

[StubbleJumper]

If you can read past the normal fluff optimism I think this was the most bearish Buffett has been. Heck, he started out the meeting talking about comparisons to the Great Depression. Combine that with the fact he has essentially bought nothing so far I think that tells you all you need to know.

 

I also liked this set up for Q&A much more, the quality of the discussion was soo much better. The only truly dumb question was the one from the guy that didn't know you could convert A shares to B shares.

 

But he also said that unlike the 25 years of going nowhere from 1929 to 1954, the Fed now has FDIC and other tools. I actually got the opposite impression that it will be much shorter than a 25 year depression because of what the government is doing.

 

Exactly right. He also said he expected inflation, which would be rather a different outcome.

 

I happen to think an inflationary depression is pretty much the same as a deflationary depression )

But at least the Dow or SP or whatever will go up, just not as fast as all your costs.

 

 

Actually, my take is that an inflationary depression is probably a bit easier to manage.  Labour prices (wages) tend to be sticky downwards, and minimum wages in particular are sticky downwards.  At least with an inflationary depression, you the real price of labour gets inflated away, which enables firms to consider hiring more people.  Similarly, in a deflationary environment, there is a disincentive to spend immediately while in an inflationary environment you are better off to convert your cash into goods immediately.  We probably don't want to experience either of those, but if I were forced to choose....

 

 

SJ

 

Given everything we are seeing today, is it not likely that we see mild deflation in the US moving forward? This has been the trend in Japan for the past decade and Europe in recent years? Oil at $20 will be deflationary (lower input costs). Massive unemployment. Massive number of business bankruptcies. Double digit negative GDP growth. Falling consumer spending and business investment. Worldwide recession. Strong US$. Long bond yields at historic lows. Debt to GDP levels back to historic highs. Higher taxes in 2021 (likely).

 

What will cause inflation in the near term? War perhaps? Other?

 

 

The theoretical cause of inflation would be the rapid expansion of high-powered money and the elimination of bank reserve requirements.  Will it work, or does conservatism at banks and a lower velocity of money off-set the expansion of the monetary base?  Time will tell.

 

SJ

[mattee2264]

  I can foresee a scenario where you get mild deflation followed by moderate to high inflation. Initially a combination of excess capacity and weak demand not to mention low energy and commodity prices is pretty deflationary. But demand will recover faster than supply and I think that there are likely to be supply constraints in the future as resilience will take precedence over efficiency and companies are too busy deleveraging to invest in new capacity etc and government is also budget constrained so unable to invest in necessary infrastructure etc. Also energy prices will probably go up after the shakedown because some production will be permanently lost or require much higher prospective returns to get back online.

[Viking]

I can also envision mild deflation followed by inflation. As deflation starts to set in the government will start to panic. These is a risk the Treasury will want to do whatever is necessary to get the economy going including dropping money directly to consumers. Hoisington/Hunt says watch the Treasury (not the Fed). The Fed is somewhat restricted by laws what it can do.

 

It will be interesting to see what Trump/Treasury decide to do if we do not get a V shaped recovery in the coming months. Helicopter money right before the election? I would be surprised if Trump did not do it.

 

—————————

In my post above i also forgot to mention how technology is also driving deflation. Look at falling expense ratios in banking, the disruption in retail etc... the move to online is only accelerating. Yes, technology is a growth industry. However, my guess is the disruption and the job losses is many industries is much larger. Net effect is it is deflationary to the economy as a whole.

 

And you can also look at it from a country perspective. The US is the big winner with most of the technology jobs happening there (Amazon, Alphabet, Faccebook, Apple etc). Other countries lose jobs as those platforms expand internationally.

[BG2008]

I can also envision mild deflation followed by inflation. As deflation starts to set in the government will start to panic. These is a risk the Treasury will want to do whatever is necessary to get the economy going including dropping money directly to consumers. Hoisington/Hunt says watch the Treasury (not the Fed). The Fed is somewhat restricted by laws what it can do.

 

It will be interesting to see what Trump/Treasury decide to do if we do not get a V shaped recovery in the coming months. Helicopter money right before the election? I would be surprised if Trump did not do it.

 

—————————

In my post above i also forgot to mention how technology is also driving deflation. Look at falling expense ratios in banking, the disruption in retail etc... the move to online is only accelerating. Yes, technology is a growth industry. However, my guess is the disruption and the job losses is many industries is much larger. Net effect is it is deflationary to the economy as a whole.

 

And you can also look at it from a country perspective. The US is the big winner with most of the technology jobs happening there (Amazon, Alphabet, Faccebook, Apple etc). Other countries lose jobs as those platforms expand internationally.

 

You are forgetting about all the jobs created by technology such as

 

Official Twitter Troll

Career Instagram Models with sub 10k followers

Aspiring Michelin star food critics

Carole Baskins Tik Tok Creators

[Viking]

There is already some solid evidence of short term deflation. The CPI was down a lot in March vs February for instance (much of it attributable to lower energy prices).

 

Anecdotally though grocery prices have gone up a lot recently, and we are also starting to see workers publicly demand higher wages via strikes and such. I take those as potential early signs of inflation.

 

Yes, the data the next 6 months will be very interesting. Regarding wages, if unemployment hits +15% and we do not get a V shaped recovery then my guess is wage growth will slow over time as expectations fall.

 

Currently, grocers are having to pay a premium to attract and keep workers during the pandemic. This will likely be true for all occupations where employees are put at a health risk.

 

I also see a scenario where business that re-open have to charge higher prices because their revenue is lower (due to social distancing requirements) and their expenses are higher (due to PPE they need to source for staff).

 

Crazy stew of unknowable factors right now. Business owners must be going crazy trying to figure out what to do and how it all might play out...

[scorpioncapital]

Small ticket items may be deflated but big ticket items like rent, labour, medical seem to offset a lot of that. Inflation of essential supplies will magnify inflation especially if nobody is buying discretionary things - definition of stagflation.

[merkhet]

Yes, the data the next 6 months will be very interesting. Regarding wages, if unemployment hits +15% and we do not get a V shaped recovery then my guess is wage growth will slow over time as expectations fall.

 

Currently, grocers are having to pay a premium to attract and keep workers during the pandemic. This will likely be true for all occupations where employees are put at a health risk.

 

I also see a scenario where business that re-open have to charge higher prices because their revenue is lower (due to social distancing requirements) and their expenses are higher (due to PPE they need to source for staff).

 

Crazy stew of unknowable factors right now. Business owners must be going crazy trying to figure out what to do and how it all might play out...

 

I received a survey from a theater that I like in Dallas called Alamo Drafthouse (it's like Studio Movie Grill, basically they serve food & drinks while you watch your movie) that asked how we would feel about things like (a) two ticket minimums, (b) a minimum guarantee on food & drink orders, etc. Basically making sure that it's worth it for them to open again.

[Morgan]

Yes, the data the next 6 months will be very interesting. Regarding wages, if unemployment hits +15% and we do not get a V shaped recovery then my guess is wage growth will slow over time as expectations fall.

 

Currently, grocers are having to pay a premium to attract and keep workers during the pandemic. This will likely be true for all occupations where employees are put at a health risk.

 

I also see a scenario where business that re-open have to charge higher prices because their revenue is lower (due to social distancing requirements) and their expenses are higher (due to PPE they need to source for staff).

 

Crazy stew of unknowable factors right now. Business owners must be going crazy trying to figure out what to do and how it all might play out...

 

I received a survey from a theater that I like in Dallas called Alamo Drafthouse (it's like Studio Movie Grill, basically they serve food & drinks while you watch your movie) that asked how we would feel about things like (a) two ticket minimums, (b) a minimum guarantee on food & drink orders, etc. Basically making sure that it's worth it for them to open again.

 

What do you feel about the questions they asked?

[UK]

https://www.barrons.com/articles/warren-buffett-is-too-cautious-berkshire-needs-an-activist-investor-says-51588611940

 

"Swing you bum!"

 

:)

[Xerxes]

These folks complaining all the time on Barron's need to consider the following questions:

 

- How many public companies existed when Buffet took over Berkshire

- How many of them went bankrupt, got bought out and are former shell of themselves (i.e. GE)

- Of those left, how many of them have top 20 market cap

 

It is a marathon, that requires to outlast everybody else by doing less mistakes over time.

Any moron can create a set of arguments on Excel how it is good to invest in A, B and C. and how dry powder drags on performance.

[Munger_Disciple]

https://www.barrons.com/articles/warren-buffett-is-too-cautious-berkshire-needs-an-activist-investor-says-51588611940

 

"Swing you bum!"

 

:)

 

There is a very good comment posted by a reader below this Barron's article:

 

Although I certainly did expect Buffett to buy back more stock, I am disappointed, but not shocked that he hasn't spent his cash on other things yet.  I like Bill Smead and understand his frustration, but let's look at the facts.  The tech stocks that Buffett likes truly never took the deep dive that other stocks did March 23rd.  If he thought that FANG's, etc were overpriced a few months ago, then it's not much different now.  As for Travel and Entertainment, which got crushed down to 25% of their previous value, he basically acknowledged (by selling the airlines) that the world has changed (in his opinion) for airlines, hotels, etc for the foreseeable future.  I don't think he'll ever buy an airline stock again, but he can still pick up a hotel stock, etc. if a vaccine comes along...but I doubt he will.  As for financials, the big banks are not really much higher than their March 2rd lows.  Maybe 10-20% or so?  He said that although he thinks the banks are fine, he did state clearly that there is still potential exposure if things continue to deteriorate (and let's not forget that rates are almost at zero!)  Combine all of the above with the fact that The Buffett Indicator is near an all time high, I can understand why he hasn't spent his cash yet.  Am I frustrated?  Yes!  But who the heck am I to argue with the greatest investor of all time!  I will be patient, as he has been for years...and I hope he will be right eventually. If not, I'll retire to a smaller home.

[scorpioncapital]

Industrials and military defense did tank, and that is within his circle of competence.

Philips 66 hit 40 and it had a huge dividend is not directly exposed to oil and he didn't touch it. Instead he touched the OXY junk.

I really can't reconcile some of his behaviour with what was available in mid March and within his circle of competence.

What was wrong with Lockheed martin with a PE of like 10-11?

And this is only a few of the stuff I have in my portfolio that seem quite decent back in March and big megacaps.

[Guest cherzeca]

https://www.barrons.com/articles/warren-buffett-is-too-cautious-berkshire-needs-an-activist-investor-says-51588611940

 

"Swing you bum!"

 

:)

 

There is a very good comment posted by a reader below this Barron's article:

 

Although I certainly did expect Buffett to buy back more stock, I am disappointed, but not shocked that he hasn't spent his cash on other things yet.  I like Bill Smead and understand his frustration, but let's look at the facts.  The tech stocks that Buffett likes truly never took the deep dive that other stocks did March 23rd.  If he thought that FANG's, etc were overpriced a few months ago, then it's not much different now.  As for Travel and Entertainment, which got crushed down to 25% of their previous value, he basically acknowledged (by selling the airlines) that the world has changed (in his opinion) for airlines, hotels, etc for the foreseeable future.  I don't think he'll ever buy an airline stock again, but he can still pick up a hotel stock, etc. if a vaccine comes along...but I doubt he will.  As for financials, the big banks are not really much higher than their March 2rd lows.  Maybe 10-20% or so?  He said that although he thinks the banks are fine, he did state clearly that there is still potential exposure if things continue to deteriorate (and let's not forget that rates are almost at zero!)  Combine all of the above with the fact that The Buffett Indicator is near an all time high, I can understand why he hasn't spent his cash yet.  Am I frustrated?  Yes!  But who the heck am I to argue with the greatest investor of all time!  I will be patient, as he has been for years...and I hope he will be right eventually. If not, I'll retire to a smaller home.

 

good analysis.  but here is my question about WEB.  in many ways I believe, the GFC was a greater crisis than I expect this covid crisis to be...of course WEB may differ.  but I remember talking to brokers who had clients asking them how they could withdraw quickly all of their money in real cash...the green stuff.  now that was a real financial panic, let's remind ourselves.  this is a health panic which I believe will dissipate at some point w/in 12 months, at which point behaviors will revert and there will be a return to normal...not a new normal.  again WEB can disagree.  but if anyone thinks like I do, then it is startling to see WEB's inactivity....especially banks should be a fat pitch for him