8 Most Important Lessons from the 2023 Berkshire Hathaway Annual Meeting
The Berkshire Hathaway annual meeting is a must-watch event. Legendary investors Warren Buffett and Charlie Munger provide their insights and wisdom on a wide range of topics, ranging from the stock market to the economy and everything in between. The Q&A session lasts for a whopping six hours, but I took the time to go through all of the questions that were asked to find the absolute most important 20 minutes. So enjoy! Make sure to subscribe to the channel because it's my goal to make you a better investor by studying the world's greatest investors.
"If Silicon Valley Bank's deposit had not been fully covered, what do you think the economic consequences would have been to the nation?"
“Well, I've just simply say it would have been catastrophic and that's why they were covered. And even though the FDIC limits are 250 thousand dollars—that's what the statute reads—but that is not the way the U.S. is going to behave. Any more than they're going to let the debt ceiling cause the world to go into turmoil. I can't imagine anybody in the administration, in Congress, or the Federal Reserve, whatever it may have been, FDIC. I can't imagine anybody saying, 'Uh, I'd like to be the one to go on television tomorrow and explain to the American public why we're keeping only 250,000 insured, and we're going to stick around every Bank in the country and disrupt the world financial system.' So I think it was inevitable.”
Charlie: “Damony, no. I have nothing to add. I'll get one. And into BYD's factories in China, you would see robotics going in at an unbelievable rate. So we're going to see a lot more robotics in the world. I am personally skeptical of some of the hype that has gone into artificial intelligence. I think old-fashioned intelligence works pretty well.”
“There won't be anything in AI that replaces the gene. Say that unqualifiedly. It can do amazing things. You know, Bill Gates brought me out the latest, maybe not the latest version, but one he thought maybe I could handle. Would you? That has to be careful with me in terms of leading me too fast, and it did these remarkable things. It couldn't tell jokes. Well, Bill told me that ahead of time, and it prepared me, and it just isn't there.”
“But you know, with things like checking all the legal opinions, or you know, since the beginning of time and everything and eliminating all the side—I mean, it can do all kinds of things. And when something can do all kinds of things, I get a little bit worried because I know we won't be able to uninvent it. And you know, we did invent, for very, very good reason, the atom bomb in World War II, and it was enormously important that we did so. But is it good for the next 200 years of the world that the ability to do so has been unleashed? We didn't have a choice.”
“When you start something, well, Einstein said after they had a bomb, he said this has changed everything in the world except how men think. And I would say the same thing. May not—not the same thing, I don't mean that. But I mean, with AI, it can change everything in the world except how men think or behave. Well, yes, I think Elon Musk overestimates himself, but he is very talented. So he's over as they're meeting somebody who doesn't need to overestimate to be very talented.”
“There's a Bill Maher program about a week old, maybe two weeks old. But he interviews Elon, and Elon doesn't say it's a terrific job told us all with Bill Maher, who it's worth watching. And Elon Musk, he's a brilliant, brilliant guy. And I would say that, you know, he might score over 170, but he dreams about things, and his dreams have got a foundation. He would not have achieved what he has in life if he hadn't tried for unreasonably extreme objectives. He likes taking on the impossible job and doing it. And I are looking for the easy job that we can identify.”
“Yeah, if we can do it playing Tic-Tac-Toe, we'll do it. You know, I mean, we have a totally different way of going into the hallway. But we don't want to compete with anyone in a lot of things. I mean, you know, we don't want that much failure. It takes over your life, and I mean, in a way that it just doesn't fit us. But they're going to be—well, there have been important things done by Elon already, and it requires fanaticism. Isn't the word? Yeah, it is the word. Okay, well, it isn't quite the work, but yeah, but it's a dedication to solving the impossible. And every now and then they'll do it, and but it would be torturous to—”
“Mayor Charlie, please elaborate on what's going on in commercial real estate. How bad will the losses be, and what sectors or geographies look particularly bad?”
“I'll just add an addendum from another viewer who wrote in and wanted to know if Berkshire would be more active in commercial real estate as a result. Berkshire's never been very important, very active in commercial real estate. It works better for taxable investors than it does for corporations, the way Berkshire is. I don't anticipate huge effects on Berkshire, but I do think that the hollowing out of the downtowns in the United States and elsewhere in the world is going to be quite significant and quite unpleasant. I think the country will get through it all right, but as they say, it will often involve a different set of owners.”
“Yeah, the buildings don't go away, but as the owners do. Well, but most people like to buy with non-recourse in real estate. And one time I asked Charlie, there was some real estate guy we were talking to, 'How do they decide how much a building like this is worth?' And the answer is it's whatever they can borrow without signing their name. And if you look at real estate generally, you'll understand what the phenomena is happening. If you remind yourself that that's the attitude of most people that have become big in the real estate business, and it does mean that the lenders are the ones that own the property. And of course, they don't want the property usually, so then the real estate operator comes on negotiating with them. And the banks tend to extend and pretend, and there's all kinds of activities that arise out of commercial real estate development, which occurs on a big scale, but it all has consequences.”
“And I think we're about—we are starting to see the consequences of people who could borrow at two and a half percent find out it doesn't work at current rates, and they hand it back to somebody that gave them all the money they needed to build it. Charlie's had more experience than really—Charlie got us started in real estate though. I mean, Charlie—Charlie, yes, it's difficult. I like what we do better. It's very interesting. I mean, we are the reserve currency, and I see no option for any other currency to be the reserve currency. And I think that nobody understands the situation better than Jay Powell, but he's not in control of fiscal policy.”
“And every now and then he drops a few hints. And there was no question when the pandemic broke out. I mean, it was a semi-war-like situation, but nobody knows how far you can go with the paper currency before it gets out of control, particularly if you're the reserve world's reserve currency. Nobody knows the answer to that, and you don't want to try and pick out the point of where it does become a problem because then it's all over. I think we should be very careful. I mean, you know, we all learned Keynesianism, and we applied it in World War II to the advantage of the country, and we did everything we could to prevent inflation during the war. And then the war ended in August '45, and I think in January '46, and I'm not giving you exact figures at all now, but in January '46, I think the rate of inflation was, you know, something like one percent or thereabouts. And by the end of the year, I think it was at like 15. And again, I'm doing this from long memories.”
“But it's easy for America to do a lot, but if we do too much, it's very hard to see how you recover once you let the genie out of the bottle. And people lose faith in the currency, and they behave in an entirely different manner than they do when they feel that if they put some money in the bank or have a pension plan or whatever it may be, that they're going to get to have something with roughly equal purchasing power. And it just changes the legal economy, and all kinds of things can happen then. And I can't predict them, and nobody else can predict them, but I do know they aren't good.”
“I voted for both parties, and it's not limited to politicians of either party or anything of the sort. People take positions; some of them understand what they're doing; some don't understand what they're doing. You know, if they put me on some medical board, I don't understand what I'm doing. You know, it's not that there's nothing wrong with the fact that you can't master everything. You can all be Isaac Newton, but you can't go around pretending you do or making decisions on it.”
“And we are not as well off in relation to curbing inflation expectations, which become self-fulfilling, than we were earlier. And Berkshire is better prepared than most investments for that kind of a period. But I said this in the annual report, but we aren't perfectly prepared because there's no way to perfectly prepare. You don't know what course of action will occur, and it's a very political decision now. It's a tribal decision to some degree, and you'll hope for leadership that actually will do something recognizes the problem.”
“And America is an incredible society. Rich, you know, every—we got everything going for us, but that doesn't mean we can just print money indefinitely. But I think value investors are going to have a harder time now that there's so many of them competing for a diminished bunch of opportunities. So my advice to value investors is to get used to making less.”
“Charlie has been telling me the same thing the whole time we've known each other. I mean, wait. We get along wonderfully because we are making less. Yeah, well, but that's because that mostly I think is because it's larger. We were younger; we never thought we could manage 508 billion.”
“No one. Or five. Yeah, but I would argue that there are going to be plenty of opportunities, and part of the reason they're going to be plenty of opportunities—the tech doesn't make any difference or any of that. I mean, if you look at how the world's changed from the years since 1942, when I started to say, 'Well, how does a kid that doesn't know anything about airplanes, doesn't know anything about, androgens, and cars, and doesn't know anything about them, electricity, and all that?' But that really isn't the—it's not the world changing doesn't or new things coming along don't take away the opportunities.”
“What gives you opportunities is other people doing dumb things. And well, the 58 years we've been running Berkshire, I would say there's been a great increase in the number of people doing dumb things, and they do big dumb things. And the reason they do it to some extent is that they can get money from other people so much easier than when we started.”
“So you could start 10 or 15 dumb insurance companies in the last 10 years, and you could become rich if you were a drone at it, whether the business exceeded it or not. And the underwriters got paid, and the lawyers got paid. And that creates if that's not on a large scale, which it couldn't be done what 58 years ago, you couldn't get the money to do some of the dumb things that we wanted to do.”
“Fortunately, investing has disappeared so much from this huge capitalistic market that anybody can play in. But the big money is in selling other people's ideas. It isn't outperforming in outperforming. I think if you don't run too much money, which we do, but if you're running small amounts of money, I think—”
“I think the opportunities will be greater. But then Charlie and I will always differ on this subject. He likes to tell me how gloomy the world lives, and I like to tell him we'll find something. And so far we've both been kind of right. There is so much money now in the hands of so many smart people, all trying to outsmart one another and not promote one another, getting more money out of other people. And it's a radically different world from the world we started in.”
“I suppose it will have its opportunities, but it’s also going to have some unpleasant episodes. But they're trying to outsmart each other in arenas that you don't have to play. I mean, if you look at that government bond market, I feel at the treasury bond market. I mean, you've got this one bill that's out of line with the others. When we were over three billion of us the other day.”
“And the world is overwhelmingly short-term focused. And if you go to an investor relations call, they're all trying to figure out how to fill out a sheet to show the earnings for the year. And the management is interested in feeding them expectations that will slightly be beaten. I mean, that is a world that's made to order for anybody that's trying to think about what you do that should work over five or ten or twenty years.”
“And I would love to be born today and go out with not too much money and hopefully turn it into a lot of money, and Charlie would too, actually, just like he would find something to do. I will just guarantee you, and it wouldn't be exactly the same as before, but he would have a big, big, big pile. I would not like the thrill of losing my big pile into a small pie.”
“Well, we make bad investment decisions plenty of times. I make more than Charlie because I like to think it's because I make more decisions, but probably my batting average is worse. But I can't recall any time in the ministry of Berkshire we made an emotional decision that I know the movie had Jamie Lee in there, but that was for laughs. Jamie Lee, she's good, but she's not good enough to get me or Charlie to make an emotional decision.”
“Charlie, I'm sure you have something to add on that.”
“Well, it's a different movie than it is shown in most corporate meetings. [Laughter] Emotional decision? No, no, that's in business we're talking about.”
“No, you don't want to be a no-emotion person in all of your life. But you definitely want to be a no-more-no-emotion person making an investment or business decision. That we probably... I would say that we made an emotional decision perhaps when a manager has been with us for some period, we've ignored the fact that perhaps they weren't quite what they were earlier.”
“But our businesses are so good that they've run better sometimes when... you know, I've talked about Wesco, for example, the wonderful Louis. It ran on automatic pilot for a while, but I don't think we suffered by it. But you're going to argue that if Charlie and I hadn't liked Louis as much as we did, we might have spotted a little bit early, but I don't think it made any difference in the results. Would you agree with that, Charlie?”
“Yeah, yeah, you'd be totally with it. And I'm glad we behaved the way we did at Wesco, by the way. What, the thing for a few tens of millions, and it became worth two or three billion. Charlie Charlie said the major mistake you can make is... Then, you know, you're lucky if you're in the United States. People around the world, they don't have a lot of choices. Some in some places. But you should write your obituary and try and figure out how to live up to it. That's something you get wiser on as you go along.”
“The business mistakes, you just want to make sure you don't make any mistakes to take out of the game or come close to digging out of your game. You should never have a night when you're worried about investing. I mean, assuming you have any money to invest at all. And you should just spend a little bit less than you earn, and you can spend a little bit more than you earn. And then you've got debt.”
“And the chances are you'll never get out of debt. I'll make an exception in terms of a mortgage on your house, but credit card debt—we're in the credit card business big time, and the board will stay in the credit card business. But why get behind the game? And if you're effectively paying 12 or 14 or whatever percent you're paying on a credit card, you're saying, 'I'm going to earn more than 12 or 14 percent of money.' And if you can do that, come to Berkshire Hathaway. So I hate to say this with Charlie's around me, but it's straight out of Ben Franklin, and it's not that complicated.”
“Well, I'll give you a couple lessons on... You know, Tom Murphy, the first time I met him said two things for me. He said, 'You can always tell someone to go to hell tomorrow.' Well, that was great advice then. And think about great advice it is when you sit down on the computer and screw your life off forever by telling somebody to go to hell or something else in 30 seconds, and you can't erase it. And, you know, you haven't lost the option, you know? And he said, you know, 'Praise my name, criticize by category.' Well, what makes more sense than that? I mean, who do you like to criticize you all the time?”
“And you don't need to vilify anybody to make your point on subjects of discussion. And then they give another General piece of advice: I've never known anybody that was basically kind that died without friends. And I've known plenty of people with money that have died without friends, including their family. But I've never known anybody. And then I've seen a few people, including Tom Murphy Sr. and maybe Jr. who's here, but certainly his dad. I never saw him, I watched him for 50 years. I never saw him do an unkind act. I didn't see him do very many stupid acts either. I mean, it wasn't he was not discriminating. He just decided that there was no reason to do it.”
“Wow, what a difference that makes in life!”
Charlie: “Well, it's so simple to spend less than you earn, and industriously avoid toxic people and toxic activities and try and keep learning all your life, etc., etc., and do a lot of deferred gratification because you prefer life that way. And if you do all those things, you are almost certain to succeed. And if you don't, you're gonna need a lot of luck—a lot of luck—and you don't want to need a lot of luck. You want to go into a game where you're very likely to win without having any unusual luck.”
“I'd add one more thought too: you need to know how people can manipulate other people, and then you need to resist the temptation to do it yourself. Oh yes, the toxic people who are trying to fool you or lie to you, who aren't reliable meeting their commitments.”