118: 2024 Berkshire Debrief

My reflections on a very special Berkshire Hathaway annual meeting weekend

May 08, 2024

You’re reading the free version of Watchlist Investing on Substack. If you’re not already subscribed, click here to join 3,000 others.

Want more in-depth and focused analysis on good businesses? Check out some sample issues of Watchlist Investing Deep Dives, which is now on Substack. Whether a monthly or annual subscriber, you’ll have access to all back issues and extras.

For less than $25 per month, you can join corporate executives, professional money managers, and students of value investing receiving 10-12 issues per year. In addition, you’ll gain access to the archives, now 36 issues and growing! Other benefits include access to a live Berkshire Hathaway sum-of-the-parts valuation model, private subscriber-only Google Meetups, and subscriber introductions.

What a weekend!

My overall thoughts: This was a very special BRK meeting. I can’t go so far as to say it was the best one simply because we dearly missed Charlie. But it was certainly one of the most memorable and special because of the celebration of Charlie’s life and work and spending time with old friends and meeting new friends. Take out all the business and dollar signs and I’d still come back to Omaha each May — I think those who don’t attend in person miss this important element.

Friday:

Gabelli Conference Omaha: I was delighted to be asked back to share the stage with some fellow Berkshire scholars.
VALUEx BRK 2024. Guy Spier and team put together a wonderful agenda of names that included Dorothe Obert, who was Charlie’s secretary for decades, and Rosie Rios, whose signature is featured on $1.8 trillion of currency from her role as Treasurer of the United States. Guy generously allowed the proceedings to be recorded this year:

The Main Event

Apple: Berkshire sold a portion of its stake in Apple. Buffett implied it was related to valuation. Reasons cited included higher future taxes, high valuations overall, and the uncertain geopolitical landscape. My guess is Buffett sees lots of potential risks along a path containing many possible outcomes. The pandemic and the Great Financial Crisis are in the distant past for a 24-hour news cycle, but they are very much recent memory for Berkshire.
BRK Energy: “We’ll do what society tells us” is what WB had to say on the wildfires, litigation, and potential for the regulatory landscape to change. He was quick to point out that they could handle some uncertainty in rates of return but they wouldn’t put good money after bad in a binary scenario that sees BRK lose its entire investment.
Future Energy Demand: The Catch-22 of energy is that the risk potential is balanced by huge future demand and related investment opportunities. Greg Abel said Iowa (Mid American Energy) would see its demand double by the 2030s and Nevada (NV Energy) could see it triple by the late 2030s. Those are simply HUGE increases in energy demand. I think the political realities of needing the investments will ultimately end up moving legislation to a more investor-friendly set of laws/regs but one can’t say for certain.
Steer Clear of Cyber Insurance: I felt really good about Ajit Jain’s response to BRK not writing cyber insurance. It’s a $10 billion market globally with mouth-watering 30% margins, but the risks are too high. Risks can aggregate in unexpected ways. Jain needs more actual hard data before committing Berkshire to cyber.
The transition to Greg / Ajit is going well. Ajit told us how Buffett deftly handled managers who previously reported to him. Warren would skillfully not answer their question so they’d have to go to either Greg or Ajit. Warren also said that some of the managers wanted more input / direction and he wasn’t able to give it to them.
On the next CEO’s retirement: “Anyone who wants to retire at 65 isn’t qualified to be Berkshire’s CEO.” ‘nuff said!
Home Services settlement. One, Warren gave this entirely to Greg to deal with. The $250 million settlement is importantly only an obligation of BRK Home Services NOT BRK Energy or BRK itself. They told the other side of the bench that they would fight it aggressively if they tried to get to the parent companies. In the footnotes to the 10Q (I’ll have a separate analysis of that later) the payout is over 4 years, so while it’ll hurt, at least there’s a time value of money element here.
Einstein College donation: There was a special video showing the reaction of med students when they found out tuition would be FREE starting next year. This was made possible by a $1 billion gift from the widow of Sandy Gottesman, an early Buffett partner, investor, and BRK board member. I have a feeling this is only the start of some incredible gifts we’ll hear about in future years. This is so cool!
Greg in charge of investments: This was an important question. Who will be responsible for the investment portfolio? It’s been assumed that Todd/Ted would take over the ~$350 billion portfolio. But while they might still help manage it, Buffett would like Greg to have overall responsibility. Buffett said the board would have the final call but that he preferred the CEO to have overall responsibility for capital allocation. “He [Greg] understands businesses extremely well.”
TTI Revenues: Greg gave some important details on TTI, the electronics components distributor BRK bought in 2007. The business does $10 billion in revenue with an average cost per part of a little more than nine cents. Read that last part again. Nine. Cents. As in $0.09. Greg quoted a number of 95 billion parts per year. That’s simply incredible.
One of my favorite moments of the meeting happened when Greg genuinely had no answer and sort of squirmed in his seat before respectfully saying he had nothing to add. Warren and the 40,000 of us there recognized Charlie’s favorite “nothing to add” and gave it its due. The video below *should* start at 30:52.
Warren knows psychology. He was asked about exiting positions and he started by talking about understanding the consumer behavior around Apple’s products. He referred to the term apperceptive mass to explain how he came to buy Apple in the first place. I watched the video a 2nd time and I don’t believe he touched on why he sold Apple.
On BNSF’s struggles. Greg gave a good explanation of why BNSF is behind compared to its Class I peers. It’s as simple as right-sizing the business (rail yards, locomotives, employees) to the level of volume / underlying demand. Rail volumes overall are flat and there’s also increased competition with trucks given the ongoing trucking freight recession.
“Pleased but not satisfied” Buffett said he wanted Peter Kiewit’s saying to be the philosophy at Berkshire. There’s always room for improvement.
BNSF as a bond? “What it earns in relation to its replacement value is a pittance, but we’ll do fine in terms of what we paid for it. And we’ll distribute substantial amounts in relation to what we paid, to Berkshire, in a very tax efficient way.” I need to think about this more, probably in a future post. One of my questions this year (sadly I did not get a chance at the mic) was on BNSF and Buffett’s comment in his annual letter that it earns a satisfactory return on its purchase price. He reiterated that again a the meeting. My question is: What about the time value of money? It’s been 14 years since Berkshire bought BNSF. Surely the purchase price isn’t relevant today, is it? Unless he’s thinking of it like a bond?
Pilot. Buffett noted that a couple of directors had qualms about the deal at the outset. Not much could be said about the fiasco. Buffett quipped, “All’s well that ends”. He did note (for those listening closely, in what I thought was a subtle slight to Jim Haslam, Jr.) that “we like the business that was created by Big Jim Haslam.” Buffett also praised Adam Wright, Pilot’s BRK-installed CEO. CNBC interviewed Adam before the meeting. He said they were investing $1 billion in upgrading 400 stores. I liked his line “We’re fuel agnostic and guest focused”. That sums up the economic position that Pilot holds as a pitstop for truckers and others to refuel their vehicles and themselves.
“Be kind and the world will be better off”.
Buffett signing off: “I not only hope that you come next year I hope I come next year.” Me too, Warren. Me too.