“It’s a Better World than it Has Ever Been”
Those are the words of Warren Buffett, answering a question during the 2023 Berkshire Hathaway shareholders meeting in May. Buffett has always been an optimist, so that observation is not surprising. Technology has made consumer goods available that the richest tycoons of 100 years ago could not imagine, let alone have. On the other hand, in the short term there could be some economic pain ahead. “The majority of our businesses will report lower earnings this year than last year,” Buffett said, and his partner Charlie Munger added, “Get used to making less.” Inflation has been pushing up costs for many businesses, including labor costs, and not all of these increases can be passed along to consumers in final pricing.
Although Buffett has an enviable record of investment success, he readily admits that most of his decisions have been average. In his annual shareholder letter this year, he said that he’s made about 12 really good decisions over the past 60 years, that is, about one every five years. These 12 investments, including early purchases of Coca Cola and American Express, account for the bulk of the market beating returns of Berkshire Hathaway.
One of questions put to Buffett and Munger was whether they were concerned that Berkshire’s stock portfolio was now over 30% in Apple, due to price increases since the shares were purchased. The questioner pointed out that some prominent advisers suggest that no more than 20% of a portfolio should be invested in a single company. Mr. Munger’s pungent reply: “I think he’s out of his mind.”
Mr. Buffett patiently explained that the “portfolio” includes all the businesses that are 100% owned by Berkshire Hathaway, not only those where they only own shares. Viewed in this light, Apple would be far less than 30% of the value of firm. What’s more, observed Buffett, Apple “just happens to be a better business than any we own.” He believes that people would rather give up having a second car than give up their iPhone, making it an extraordinary consumer brand.
During the meeting, Berkshire reported that net income for the first quarter was $35.5 billion, up from $5.58 billion a year earlier. However, net income includes unrealized capital gains and losses, which neither Buffet nor Munger believe to be helpful financial information for short-term evaluations. Buffett points instead to operating earnings, which rose to $8.07 billion from $7.04 billion. Berkshire ended the quarter with some $130 billion in cash.
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