- Warren Buffett and Charlie Munger are wary of bank stocks and bearish on commercial real estate.
- The Berkshire Hathaway duo are downbeat on the US economy and worry the government is overspending.
- They also discussed Apple, AI, Japan, Taiwan, and Occidental Petroleum during their annual meeting.
Warren Buffett and Charlie Munger revealed during Berkshire Hathaway's annual shareholder meeting on Saturday that they are wary of owning bank stocks, bearish on commercial real estate, and pessimistic about the US economy.
The two investing icons — who are Berkshire's CEO and vice-chairman, respectively — also touted their massive Apple stake, ruled out a takeover bid for Occidental Petroleum, and discussed the risks posed by artificial intelligence and de-dollarization.
The pair, who are both in their 90s, offered advice about success, marriage, and inheritance as well.
Here are the 10 key takeaways from Berkshire's annual meeting:
1. Banking and debt-ceiling fears
Buffett declared that allowing Silicon Valley Bank to fail would have been "catastrophic." He stated that Americans shouldn't worry about the safety of their bank deposits, or the federal government breaching its borrowing limit.
"If the government allowed depositors to lose money, it would cause bank runs across the country and disrupt the global financial system," he said. "That is not the way the US is going to behave, any more than they're going to let the debt ceiling cause the world to go into turmoil."
Buffett also blasted politicians, federal agencies, and the media for leaving people needlessly afraid.
"A lighted match can be turned into a conflagration, or it can be blown out," he said.
The investor also emphasized that Berkshire stands ready to provide liquidity if a financial crisis grips the US economy.
"We want to be there if the banking system temporarily gets stalled in some way," he said. "It shouldn't, I don't think it will, but I think it could."
Buffett added that he's wary of owning bank stocks at the moment, given the sector's current challenges.
2. Commercial real estate woes
Rising interest rates, tighter lending standards, and sliding asset valuations are heaping pressure on commercial real estate developers.
Buffett blasted the industry's excessive reliance on debt, and argued that recklessness needs to be penalized "if you're going to change how people are going to behave in the future."
Meanwhile, Munger predicted a devastating blow to the commercial hearts of cities.
"The hollowing out of the downtowns in the United States and elsewhere in the world is going to be quite significant and quite unpleasant," he said.
3. The economy is cooling
Buffett described the pandemic era of rock-bottom interest rates and freewheeling government spending as the most extraordinary period for business since World War II.
However, he warned the boom is over now, and the US economy is poised to suffer a downturn this year.
"It hasn't ended with employment falling off a cliff or anything in the least, but it is a different climate than it was six months ago," he said.
4. Dollar disaster
The US dollar's status as the world's reserve currency is safe for now as there isn't a clear substitute, Buffett said. He shrugged off the risk of de-dollarization, and dismissed the idea of bitcoin or another cryptocurrency usurping the greenback.
"It's a joke to think of any tokens," he said.
However, the Berkshire boss cautioned the US government's overspending could lead to sustained inflation. That would relentlessly erode the purchasing power of Americans' dollars, and make people think twice about saving money or building up their pensions.
"We should be very careful," he said. "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."
5. Buffett won't buy Occidental
Berkshire has spent around $11 billion to build a nearly 24% stake in Occidental Petroleum since last spring. It also owns close to $10 billion worth of the oil-and-gas company's preferred stock, and holds warrants it can exercise to buy more common shares at a fixed price of $5 billion.
Moreover, Buffett and his team have the green light from regulators to own up to 50% of the company. Yet the investor ruled out a takeover bid for the fossil-fuel giant on Saturday.
"We will not be making any offer for control of Occidental," Buffett said.
6. AI concerns
Munger said he was skeptical that artificial intelligence will change the world, and joked that human intelligence works just fine.
Buffett expressed his amazement at what ChatGPT and other AI tools can already do. But he also questioned what AI could be used for in the future, and compared it to the splitting of the atom as a potentially dangerous advance in technology.
7. Higher rates are helping
The Federal Reserve has hiked interest rates from nearly zero to upwards of 5% over the past 14 months, in a bid to curb historic inflation.
Experts have warned the steeper rates may crimp demand and drag the US economy into a recession, but they're at least partly good news for Berkshire.
Buffett's company is set to collect about $5 billion in interest from its roughly $130 billion of cash and Treasury bills this year, compared to a $50 million yield a few years ago, the investor said.
8. Nothing beats Apple
Berkshire owns scores of businesses including Geico, See's Candies, Duracell, and the BNSF Railway. Apple outclasses every single one of them in Buffett's view.
"It just happens to be a better business than any we own," he said, underlining how indispensable the iPhone and other Apple devices are to consumers. Berkshire holds more than $150 billion worth of Apple shares, making it by far the most-valuable holding in its stock portfolio.
Buffett also celebrated the fact that Berkshire doesn't have to buy more Apple shares to increase its ownership of the company, thanks to the tech titan's stock buybacks.
"The good thing about Apple is that we can go up," he said.
9. Picking Japan over Taiwan
Berkshire recently boosted its stakes in Japan's five largest trading houses to around 7.4% across the board. In contrast, it slashed its Taiwan Semiconductor holdings by almost 90% in the fourth quarter of last year.
Buffett invested in the Japanese quintet because they were big enough to move the needle at Berkshire, cheaply valued, paid dividends, repurchased stock, and operated in familiar industries, he said on Saturday.
Berkshire was also able to offset the currency risks by issuing yen-denominated bonds that offered minimal yields, he noted.
Meanwhile, Buffett dumped most of its TSMC position because of Taiwan's geopolitical tensions with China, he said.
"I don't like its location, and I've re-evaluated that," Buffett said about the chipmaker. He prefers to find great managers and businesses in the US, and feels more comfortable putting his money in Japan than Taiwan, he added.
10. Life lessons
Buffett and Munger shared several pieces of advice about personal finance, marriage, and estate planning.
Berkshire's CEO warned people not to live beyond their means, rack up credit-card debt, or invest recklessly. The company's vice-chairman added that having the right associates and behaving well are critical too.
"It's so simple to spend less than you earn, and invest shrewdly, and avoid toxic people and toxic activities, and try and keep learning all your life," Munger said. "If you do all those things, you are almost certain to succeed."
Buffett underscored the vital importance of finding the right partner in life as well.
"If you make the right decision on a spouse, I mean, you've won the game," he said.
The billionaire investor added that people should instill the right principles in their children, to ensure they pass down not just their wealth, but also their approach to using money.
"Don't think that a cleverly drawn will, will substitute for your own behavior in teaching your kids the values you hope that they will have," he said.
Buffett also dispensed some wisdom to people trying to figure out what to do in life. He encouraged them to write their own obituaries, and work out how to live up to them.
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2023-05-08 21:34:00Z
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