7 Best Questions Asked at Berkshire Hathaway Annual Meeting

Why are you recommending listeners to buy now yet you're not comfortable buying now as evidenced by your huge cash position?

Well hey, as I just explained, the position isn't that huge. When I look at worst-case possibilities, I would say that there are things that I think are quite impossible, improbable and I hope they don't happen; but that doesn't mean they won't happen.

I mean, for example, in our insurance business, we could have the world's or the country's number one hurricane let it's ever had it, but that doesn't preclude the fact we got out the biggest earthquake a month later.

So we are not—we don't prepare ourselves for a single problem; we prepare ourselves for problems that sometimes create their own momentum. I mean, 2008 and 2009, you didn't see all the problems the first day. What really kicked it off was when the Freddie and Fannie, the GSEs, went into conservatorship in early September; and then when money market funds broke the buck.

I mean, there are things to trip other things, and we take a very much a worst-case scenario into mind that probably is a considerably worse case than most people do. So I don't look at it as huge, and I'm not recommending that people buy stocks today or tomorrow or next week or next month.

I think it all depends on your circumstances, but you shouldn't buy stocks unless you expect, in my view, you expect to hold them for a very extended period, and you are prepared financially and psychologically to hold them the same way you would hold a farm and never look at a quote.

You don't need to pay attention to them. I mean, the main thing to do—and you're not gonna pick the bottom and you're not gonna—nobody else can pick it for you or anything of a sort—you've got to be prepared when you buy a stock to have it be down 50% or more and be comfortable with it.

As long as you're comfortable with a holding—and I pointed out, I think a year, maybe two years ago in the annual report, well just the one before this most recent one, I pointed out that there have been three times in Berkshire's history when the price of Berkshire stock went down fifty percent—three different times.

Now if you hold it on borrowed money, you know you could have been cleaned out. There wasn't anything wrong with Berkshire when those three times occurred, but if you're going to look at the price of the stock and think that you have to act because it's doing this or that or somebody else tells you why—how can you stay with that when something else is going up or anything?

Really, you've got to be in the right psychological position, and frankly, some people are not really careful. Some people are more subject to fear than others. It's like the virus; it strikes some people with much greater ferocity than others.

And fear is something I've really never felt financially, but I don't think Charlie's felt it either. But some people can handle a psychological—if you can't handle it psychologically, then your religion is known to suck, because you're gonna buy and sell in the wrong time.

You should not count on somebody else telling you this; you should do something you understand yourself. If you don't understand it yourself, you're gonna be affected by the next person you talk to. And so you should be in a position to hold.

I don't know whether today is a great day to buy stocks—I know it will work out over twenty or thirty years. I don't know whether it'll work out over two years at all; I have no idea whether you'll be behind on a stock you buy on Monday morning or the market.

This is a question that comes from William Lewis. He said, "Please did I understand correctly, Mr. Buffett, to say that Berkshire Hathaway sold its interests in four different Airlines, and if so, can you name them? Can the names of those airlines be identified?"

Yeah, I wouldn't normally talk about it, but I think it requires an explanation. And it requires an explanation that means we were not disappointed at all in the businesses; they were being run and the management. But we did come to a different opinion on it than the four largest U.S. airlines.

It's American Airlines and Delta Airlines and Southwest Airlines and United Continental, and I think collectively they probably at least 80% of the revenue passenger miles that is flown in the United States, and they have significant international flying too, excluding Southwest. So we like those Airlines; we like—but we don't like.

So the world has changed for the airlines, and I don't know how it's changed. I hope it corrects itself in a reasonably prompt way. I don't know whether the Americans will have now changed their habits or will change their habits because of an extended period if it happens that we’re semi-shut down.

In the economy, I don't know whether the trends toward—you know what people have been doing by falling—I mean it's been seven weeks since I've had a haircut. It's been more than seven weeks since I put on a tie or anything; I've been just a question of which sweatsuit I wear them.

So who knows? Who knows how we come out of this?

But I think that there are certain industries—and unfortunately, I think that the airline industry among others—are really hurt by a forced, in fact, shut down by events that are far beyond their control.

Gregg, would you like to add anything?

No, I didn't intend to use that as a wine, but you've covered it well.

Yeah, we would have bought other airlines too, incidentally, but those were the four big ones, and those ones we could put some money into. We put, whatever it was, seven or eight billion into it, and we did not take out anything like some—right, oh yeah, that was my mistake.

But it's always a problem if there are things on the lower levels of probabilities that happen sometimes, and it happened to their lines, and I'm the one who made the decision.

But Warren, just to clarify on his question, he has a few states—the answer is yes.

When we sell something, very often it's going to be our entire stake. I mean, we don't—we don't trim positions. That's just not the way we approach it. Any more than if we buy a hundred percent of a business, we're gonna sell it down to ninety percent or eighty percent.

I mean, if we like a business, we're going to buy as much of it as we can and keep it as long as we can. But when we change our mind—

I'm sorry, now go ahead.

When you change your mind?

Well I want—when we change our mind, we don't take half measures or anything of the sort.

So I was amazed at how—frankly now we thought we were selling a bit far lower prices than we paid. But I was amazed at the volume their airlines always trade in—in large volume relatively.

But we have sold the entire position.

I was encouraged to see your investment in the company, but with passing weeks it became evident that your investment facilitated Occidental management's ability to avoid a shareholder vote on the Anadarko acquisition—a very shareholder unfriendly outcome.

This deal proved to be irresponsible and expensive from an Oxy perspective and ultimately very value destructive for Oxy shareholders, in my view, it also permanently hurt Berkshire's reputation in the marketplace.

Please comment on this unfortunate outcome and tell me why Oxy shareholders and other market observers shouldn't feel this way.

Well yeah, we said right from the beginning, although we didn't certainly expect to agree to what's happened. We said, we said essentially when you buy into a huge oil production company, you know how it works out is going to depend on the price of oil to a great extent.

It’s not gonna be your geological home runs or Hormuz or super mistakes or anything like that—it is an investment that depends on the price of oil.

I mean, when oil goes to minus $37 that happened the other day for Burger, I guess it was the May contract, you know, that's off the chart.

If you own oil, you should only own oil if you expect these prices to go up significantly. I don't know whether they'll go up significantly or not.

We're in that—our commitment was made on a Sunday when the management of Anadarko favored Chevron, and Chevron had a breakup fee of a billion dollars.

And Occidental people have been working on it for several years, and that was attractive at oil prices that then prevailed. It doesn’t work; obviously, it doesn’t work at $20 a barrel.

Certainly, it doesn’t work at - $37 a barrel.

But it doesn't work at $20 a barrel, and everything the oil companies have been doing, whether it's Exxon or I've sit-down or anybody else—it doesn't work at these oil prices.

That's why oil production is going to go down a lot in the next few years because it does not pay to drill.

Now, that's happened at other times in the past, but the situation is—you know, you don't know where you're going to store the incremental barrel of oil. Oil demand is down dramatically.

For a while, the Russians and the Saudis were trying to outdo each other in how much oil they could produce.

When you've got too much in storage, it doesn't work its way off that very fast. Now, you will have production of oil down in the United States significantly.

It does not pay to drill in all kinds of formations that paid before. And to that extent, if you're an Oxy shareholder, you know—you or any shareholder in any oil-producing company—will join me in having made a mistake so far in terms of where oil prices went.

And who knows where they go in the future?

Let me follow up with this one, then. This one comes in from Mohnish Bahl, who says, is there a risk of permanent loss of capital in the oil equity investment?

Certainly, as you know, there's no question. If oil stays at these prices, there are gonna be a lot of money, a whole lot of money.

And it will extend to bank loans, and it will affect the banking industry to some degree—not that doesn't destroy their earnings, but there’s a lot of money that's been invested that was not invested based on a $17 or $20 or $25 price for WTI, West Texas Intermediate oil.

But you can do the same thing in copper. You can do the same thing—and some of the things we manufacture, I mean, with commodities, it’s particularly dramatic.

Farmers have been getting lousy prices, but to some extent the government subsidizing, I'm all for it, actually.

But if you're an oil producer, you take your chances on future prices unless you want to sell a lot of futures forward. Oxy actually did sell 300,000 barrels a day of what's—in effect that they bought puts but—and sold calls in effect to match it.

They were protected on the $10 a barrel on 300,000 barrels a day.

But you're really buying—when you buy oil, you're betting on oil prices over time. And over a long time, oil prices, there's risk and the risk is being realized by oil producers as we speak.

There will be, if these prices prevail, there will be a lot of bad loans in energy loans—bad debts in energy loans—and if they're bad debts in energy loans, you can imagine what happens to the equity holders.

So yes, there's a risk.

It comes from Richard, sir, from Tucson, Arizona. He says Berkshire's annual report indicated that Berkshire had three hundred and ninety-one thousand five hundred and thirty-nine employees at the end of 2019.

Which areas of our operations have already been hardest hit or will be by the coronavirus pandemic, and what are the implications for the continued employment of those people?

Those people are employed in dozens and dozens of different industries. And there are a few industries that there's a pretty fair likelihood that our employment could be reduced, but they're not large.

I'm just thinking as I'm talking—I mean, it's not like it's not like we're—you know, some of the businesses that, you know, we're not in the hotel business, various aspects of travel and entertainment and all of that that could really be changed in a very major way.

So I don't—I don't see our employment. I would—I’ll put it this way: Five years now, I think Berkshire will be employing considerably more people. And I don't—I don't see where we'll have large dips, but the virus could take off in certain ways than some of our manufacturing businesses, for example, the demand could be dramatically reduced.

And in those cases, we would have layoffs at some point.

Greg, what I would add is that as we are in the—you know, sort of crux of the pandemic, we're still dealing with it, so our businesses have adjusted.

Some have had to adjust more. We have—if you look at Berkshire Hathaway Energy, for example, you can see our electricity consumption is down four percent.

That realistically doesn't impact our business in a significant way, and longer-term will continue to grow that business.

So even during the crisis, a relatively small impact on the business, but as Warren knows, we do have retailers that their doors are shut right now, be it our See's candy, the some of our jewelers, and at that point in time, we do adjust and adapt to the environment.

That is, we adjust our workforce. But equally we do see, for example, C's at a point—our stores will reopen, and at that point, we really focus.

Overall, for Berkshire as a whole, as Warren said, five years from now, we see our employment numbers being far, far, far greater than they were are today.

And that we see great prospects within the operating businesses as a whole.

There's already speculation of a post-Buffett breakup of Berkshire. And given the sway carried by modern activists, the speculation should be taken seriously.

Many long-term owners see the folly in this view—a $25 billion ancillary earnings stream provides a lot of flexibility when investing insurance float on our and your estates' behalf.

Could you more forcefully make the case of maintaining Berkshire's current architecture? If you don't, that responsibility will fall on an unknown set of shoulders with far less quell.

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.

You can spin off a given one or something of the sort, but the ability to break up a diverse company without tax implications—there was something called the General Utilities Doctrine that prevailed in various ways up until 1986.

A lot of people seem to comment based on the fact that that didn't happen in 1986.

There’s imaginative ways where people try to avoid taxes and can do it in some cases on certain types of transactions—but were to break up Berkshire, that would be one factor.

But the interaction of being able to move capital around in terms of being able to do things in insurance that we couldn't do unless there were the backup earnings and capital employed in the other entities—there's enormous advantages in capital deployment within the play.

So there is not a big discount to breakup value embodied in Berkshire's price, and the situation actually is that although all my purchaser shares—every share will be given to charities pursuant to a plan I'd developed back 14 years ago and followed ever since and will continue following this July, I'll be giving away $3 billion or so worth of the stock.

But it still involves a big voting percentage that includes other people’s that still remain in the picture, aside even from the Buffett family.

It isn't going to happen now.

I will tell you everybody in the world will come around and propose something and say that it's wonderful for shareholders, and by the way, it involves huge fees.

I mean, you do not get impartial advice from that street, whether when there's enormous amounts of fees possible from one action and no feasible from another action.

But you can be sure I've thought about it, and I would say that you can count on Berkshire's present posture being continued for a long time.

I can't tell you what's gonna happen a hundred years from now, and I can't tell you exactly what would happen, for example, if certain ideas in terms of wealth tax has changed or taxes on foundations change.

I mean, they're good, but my plan has been thought out and then placed for a long time, and it not only ensures that the money that's been made off Berkshire—all of it ends up going to various philanthropies staggered over time, but it also will keep the walls away.

Greg?

Yeah, thoughts on that?

Well, I think the comment on the capital allocation is critical. We have the ability to move the capital amongst the—be it the operating businesses or up to the insurance—down with really no consequences to our shareholders.

That's the value driver of the unique structure of Berkshire, and it creates immense values.

That's all I would add or second, I guess.

Alright, this question—I was looking for one of these because I got several questions that came in similar to this. I was looking for one of these a moment ago. This one's from Andrew Winkie.

He says, can you ask Warren why he didn't purchase repurchase Berkshire shares in March when they dropped to a price that was 30% lower than the price that he had repurchased shares for in January and February?

It was very, very, very short period where there were 30% less. But we—I don't think Berkshire shares relative to present value are at a significantly different discount than they were when we were paying somewhat higher prices.

I mean, you know, it’s like Kane said, or whoever was it, "If the facts change, hi Jed, I changed my mind."

What do you do, sir? You know, that's—we always think about it, but I don't feel that it's more than far more compelling to buy Berkshire shares now than I would have felt three months, six months, or nine months ago.

It's always a possibility, and we'll see what happens.

Greg, do you think about repurchasing shares?

Oh no, I think our approach is the right approach.

I mean, you're always—I can't really add anything other than the approach is the right approach.

We approach it when we see it's the right thing for our shareholders to be repurchasing, and that doesn't mean we're repurchasing all the time or the view doesn't change.

There could be a price relative to value at the time—not really what it was worth the year ago.

I mean, the value of certain things have decreased. Our airline position was a mistake; Berkshire is worth less today because I took that position than if I hadn't.

And there are other decisions like that. And, you know, it is not more compelling to buy the shares now than it was when we were buying them.

It's not less compelling. I mean, it's washed.

But we didn't do anything. It's nothing gotten—it's the price has not gotten to a level or 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, big way over the last year.

He points out the sale of Berkshire Hathaway media and then Charlie’s comments from that interview saying that several small Berkshire separate subsidiaries will not be opening when the coronavirus lockdown is lifted.

So should shareholders assume that Berkshire has now changed its long-term policy in regards to keeping underperforming subsidiaries?

I think that policy would spell out for maybe thirty years or so, and then addendum to the annual report that we have said that if a company or operation we think its prospects are that it will continually lose money in the future, that we will certainly will try to sell it to somebody else.

But one way or another, we will not continue to hold it, and that is not a new policy and it's not been changed.

You can say, in effect, we did that with the airline industry to some extent; that if we owned all of an airline now, it would be a tough decision to decide whether to sustain billions of dollars in operating losses when you know, hey, you don't know how long it's going to happen or occur.

And secondly, you know that it's very likely that there'll be too many planes around, and we know what happens in airline pricing when load factors go down and there's an oversupply of airline seats.

So, you know, we didn't have to make that decision in terms of our own operation on it, but we did make a decision that—that's a very tough management decision to make.

And the government, of course, as well, they've had the first wave of financing for the airlines.

But to the airlines' credit, they have very aggressively raised money.

I mean, it's amazing to me what a good job they've done of that.

And in the case of, I think in the case of three of them—no, two of them, but there may be more coming, that raised equity money too.

I mean, they are saying that the debt holders and investors, you know, you've got to put more money into this business if we're gonna be able to continue.

And the government’s done it, and private sources have done it, and it's going to—it's exactly the right thing for the management to be doing.

But, you know, whether it's—whether it makes sense, we'll find out for the investors.