Transcription
All right. Hi everybody. This weekend, we had the Woodstock of Capitalists again, the annual Berkshire Hathaway shareholder meeting. And as part of this event, or or special weekend, I guess, Warren Buffett sat down with CNBC's Becky Quick for around 30 minutes, and he gave her a rare interview. Like, you don't see Buffett speaking publicly too often, generally, and ever since he stepped down as the CEO of Berkshire Hathaway, even more so. So, it's a rare opportunity to get a glimpse into what's going on in in Buffett's mind right now. How he sees the current environment, the market environment. That's what he talked about for a good chunk of this interview. He covered a a wide range of of other topics, too. And I, what I did is I watched the video today. I recorded it. I chose a couple of segments that I think every investor needs to watch and needs to be aware of. So, I basically condensed down the entire 30-minute interview to around 33 minutes. The video is sped up like a little bit. I'm going to show you these clips, and I might add a few thoughts here and there, some additional ideas that come to my mind in terms of the subject at hand. So, without further ado, let's just start with clip number one.
>> Well, I think it's all working. It's all working. It it isn't our ideal uh surrounding area uh or environment, I should say, uh in terms of deploying cash for Berkshire. Uh, but in terms of how we got the right management, we got the right arrangement, and uh, you know, we can pick our spots and and and uh nobody can tell us what to do exactly, and and uh so sometimes we're doing nothing, but other other times we get quite active. I mean, the world is full of people that are offering you things to do, and then the question is to find find one that, you know, makes sense.
All right. I think two things stand out here. First of all, he talks about the market environment. He, and he, I'm putting words into his mouth here, but I think he believes the environment is still quite frothy, meaning valuations are high, speculation is high, there are very few bargain opportunities, especially for an investor like Warren Buffett, who is investing like a significant amount of money. He's arguably the the biggest public market investor. Um, obviously, he has private investments as well, but in terms of the the cash he's willing to deploy also on the public equity side of things, he's one of the biggest players out there, if you leave the passive management firms, um, aside for a second here. So, yeah, he doesn't see very many opportunities. Um, and and I can relate to it, even though I would say that I think the the I think the the current environment can be a bit deceiving because if you are managing smaller sums of money, like I do, for instance, and I, I would assume most of my viewers do as well, I think there are actually quite a lot of opportunities, and that's not really reflected in the headline figures that you see. S&P trading at all-time highs. The S&P trading at almost a record high valuation in terms of its price to earnings valuation. The NASDAQ, I think, is trading at a record high price to sales valuation metrics. You could also bring up the the Buffett indicator and all these different indicators measuring, um, where where the market is at. But I think it's deceiving because the market is incredibly concentrated. We're basically at record high concentration levels in terms of, well, the contribution of the top five and the top 10 stocks to the overall index, and these biggest, um, constituents, they are also, um, yeah, quite richly priced, at least as a, at a surface level. Um, I think the the biggest components right now, take Microsoft, Amazon, Meta, uh, you name it. These companies are also fantastic businesses, arguably the best businesses in the. And if you just take a look at the, uh, results posted by Microsoft, Amazon, I think Meta and Alphabet, they all reported this week. Most of them, I believe, reported very solid, if not strong numbers. I, I just released a video on Meta, for instance, which of the four posted the highest topline growth, but the market actually didn't like the results all too much. But that's another topic which I covered in this video. What I'm trying to say is, I think the headline figures that I just referenced, they are hiding, in a way, that there's a lot of turmoil under the hood. So, take software names, for instance. Uh, I shared some some quite remarkable statistics on X the other day, which I can't recall, but it was highlighting that a lot of software names actually down 50% or more over the last 12 months or or whatever the timeframe was, doesn't really matter here. Um, ultimately, a lot of, uh, software names are down significantly, and the broader software basket is is probably in a bear market, meaning the basket as a whole is down like 20% from a prior high. So, that's just one example. But I think in payments, for instance, you could make a similar case where many stocks' valuations, at least relative to a previous high, have come down significantly, and there is skepticism among investors, which is reflected in the price performance over, well, the the shorter timeframe, um, that lays in the past. And I think Bill Ackman is is one of the quote unquote big guys here, who's managing significant sums of money, who has been quite vocal about this. Um, I think he said, especially in quality land, meaning, uh, stocks that are perceived as quality businesses, there are actually some interesting opportunities if you are are willing to maybe take a close look at some companies that aren't part of the, um, top 50 companies in the world, maybe that aren't even part of the S&P 500. I think in the, uh, small and mid-cap space, there are plenty of opportunities that are worth digging into. And if you, um, broaden your scope to equities and and stocks outside of the US, in particular, uh, I'm, I'm in particular thinking of Europe and the United Kingdom here. I think there are, yeah, lots of interesting opportunities available if you do the hard work and actually take a look. And then, I, I know I'm, I'm, I'm rambling a little bit here, but I hope you find it valuable regardless. The other point Buffett made is, well, we are sitting on a record high level, um, of cash, but we still, uh, basically take pride in the fact that we, we only act if we see opportunities, and if there's nothing to do, we do nothing. And I think that has always been one of the key strengths of of Buffett and his investment style. So, I think that it's, yeah, worth respecting, um, for sure. Okay, let's take a look at the next sequence. I, I, um, I clipped and and picked you.
Okay, let's take a look at the next sequence that I prepared here.
>> You're still active in managing the portfolio too and looking at stocks. You're looking around and you don't see a lot that you want to invest in.
>> Well, then we don't do anything. I mean, we've been in, of the 60 years I've been in the business, you know, there probably five of them have been really juicy, you know, and, uh, I think it was Tom Watson, senior of IBM, that, uh, said they asked him the reason why IBM had been so successful or something like that, and he said, "I'm smart at spots, and I stay around those spots."
All right. What Buffett talks about here is is again that, well, obviously the most attractive opportunities in markets arise when there's a general market sell-off, a general crisis that is, yeah, sort of catching everyone off guard. And he just said, well, over the 60 years he's been investing for, they have maybe been five where, I think that's a quote from him as well, where it's basically raining gold, and that's when you want to be ready and have a lot of cash on hand. And that's what what Buffett is doing. Like, uh, I think he'll mention the figure again a little later, but Berkshire is sitting on $380 billion in cash, and that figure is growing and growing and growing. And, yeah, we haven't had a major crisis in in quite some time. Obviously, we had COVID in 2020, but then again, COVID was more of a flash crash. Buffett specifically, like he's too big to to have, like, he couldn't act as quickly as the market rebounded back in March, April, and the subsequent months of 2020. And before that, yeah, obviously there were a few tinier, tiny crises, like the European debt crisis. I remember the, uh, 2018 tax sell-off. Uh, but the the last true bear market, um, was the great financial crisis. And, yeah, if you just think about recency bias, many, many investors don't even remember what it, what it is like to have a secular bear market that that lasts more than say, half a year. So, yeah, that's what Buffett is waiting for. And I think it's worth remembering that, well, bear markets happen quite frequently, even though they happen rarely. But I think historically, they happen like every six, seven, eight, nine years. Buffett just said, well, five the last six years. So, those were maybe major crises leading to more obvious bargains across all all sectors. Um, yeah.
Okay. Next clip.
>> Just looking at the macro stock market environment. What does this feel like to you? Is does it feel expensive? Does it feel like there are opportunities in?
>> Well, it feels like, you know, I've compared it, the markets to a church with a casino attached, and and people can move between the church and the casino. And and I would say there are more people in the church and more people in the casino. But the casino's gotten very attractive to people. You know, if you're buying one-day options, we're selling them. I mean, that is, uh, that's not investing. It's not speculating, it's gambling, you know, just totally. There's nobody that can explain why they're buying an option for one day unless they maybe maybe the fellow that that, uh, you know, made the $400 and some thousand dollars from knowing when we were going into Venezuela do it. But I mean, that's, and the quantity of those things is just incredible. So, we've never had people in a more gambling mood than now. But that
All right. What Buffett talked about here is basically the the attitude many investors bring to to this, um, discipline these days. And I think it's not a new phenomenon. Uh, probably kicked things off in in a in a really weird way during the, uh, meme stock era, so 2020, 2021, the subsequent years, and has never really disappeared since then. What I also also thought of when I, when I watched this clip is the general changes in market structure that you are seeing, where you have more like pot shops and basically quant funds that make investment, investment decisions based on data. For instance, like they scan an earnings report that is released, and seconds later, a stock like, even if it's a mega-cap stock worth billions and billions of dollars, moves up 15%, 20%. Like multiple billions in market cap. That's something like historically you didn't see that often. And obviously, that's more of a, the in institutional side, I'm, I'm talking about here. I think what Buffett had in mind here too, and now I'm speculating, but I think he had the the retail investing community in mind too, where, well, people place less emphasis on business fundamentals than he would like to. And it introduces sort of a new dimension worth thinking about investing, and that's something I've been quite vocal about myself, uh, on X, on my blog, I probably mention it here on my YouTube channel too, where, let's say you find an investment, for instance, no investment advice, no position in Nintendo yet, but I'm currently looking at Nintendo. Just released a deep dive. Um, and I think Nintendo is probably quite attractively billed right here. Want to do some more work. There are a few more things I want to think about. But one aspect that I probably should think about, that I haven't thought about much in the past, in the past couple of years, is, well, is there the risk that the market just continues to neglect, almost already ignore Nintendo for the foreseeable future? Is there some kind of catalyst that might change the perception of Nintendo? Or could this be that money? Because I think one issue I have with Nintendo is management's capital allocation track record. I don't think it's outright terrible. I think the the timing of their buybacks, for instance, hasn't been too bad, but then rather modest in in size. And if you have a stock where you don't expect the the price to change because the perception might eventually change due to a catalyst, you rely even more so on the management team. And if the management team is not an outstanding capital allocating team, you might have a problem, and you may be stuck in a quote unquote value trap. So, that's something I've been thinking thinking about more recently. Uh, which is something I, I didn't think of much maybe two, three, five years ago. So, yeah, definitely a lot of of gambling you see in in the retail on the retail investing side of things. I think you could bring up many examples here. I think all all you have to do is open like a Robinhood account and and check what kind of incentives the app provides to its users. I think it's incentivizing a very high trading frequency. I, I remember, I don't have the exact numbers here, but I think, um, I saw some figures about the average turnover of a Robinhood account the other day compared to a brokerage account with some of the more, I don't know, mainstream conservative brokerage accounts, however you want to call them. I think it was something like 10x. Um, maybe I'll find it when I post edit this video and can can show it on screen. There was some kind of absurd number, and I think it was like when I, when I read this, not sure where it was, they also shared the average performance of of said accounts, and I think the performance was was not good, to to put it quite, quite nicely.
Okay, next clip from Buffett.
>> I guess what I'm trying to get at is do you see the circumstances building up anywhere that could lead to a time like that again, any sort of panic in the market?
>> Where do you see them?
>> Well, if you saw them, they wouldn't happen. I mean, you've got all kind, you don't worry about what but what people are talking about can happen. It's it's something comes out of the blue, but something will come out of the blue. I mean, a nuclear bomb can come out of the blue.
I think what Buffett talks about here can be tied back to the five crises that he mentioned earlier that provided plenty of opportunities for him to deploy the cash he he had ready. And usually, these crises, they aren't announced, they catch investors off guard. I just mentioned COVID, for instance. Um, this was something many investors, like, if you would have asked investors in early 2020, where do you think the market will end this year? Where do you think we'll be five years from now? They might have had a view on it, but if you would have brought up a pandemic as a potential risk. So, I think that's something to be aware of. I think usually markets, um, decline when there's a lot of uncertainty. They usually bottom on quote unquote peak uncertainty, meaning like, there's really not a lot of clarity when things will get better. Um, I think that's what we saw in COVID too, by the way. I think we bottomed in March when there was not too much clarity in terms of how this will eventually get solved, but there was some confidence that at some point things will get better. Um, yeah, that's all I have to say here.
Last and final clip.
>> Let's talk a little bit about CEOs, um, in some of the Berkshire holdings. You mentioned Apple's Tim Cook and just the phenomenal job you think he's done.
>> Incredible. Uh, he's not the only one of your major holding CEOs who stepped down. James Quincey recently stepped down from Coca-Cola, too. And we just spoke with Vicky Hull, who announced that she is retiring and stepping down from that position at Accidental. U part of what Greg's talked about is how stable that portfolio is, and and these holdings are companies that he knows and managers that he that he knows. There's going to be some new managers in some of those major holdings coming in. Is that a problem?
>> Well, it was certainly a problem in Coca-Cola there for good many years when I around the company. Yeah, sure. It's it's, uh, and you have the most problems with with with a really good company because it'll it'll it'll it'll continue. I mean, if you're selling some product that people are buying every day, you can make the wrong decision for a long time. Uh, uh, but that's one of the problems with investing that, uh, uh, Tim Cook, I, I felt was very, very good from the start, and our most of our managers, uh, are very good at the smaller problems, like they can't anticipate the overwhelming problems. That's that's my job, or no GR's job.
>> Do you feel good about those holdings still? Have you met any of the new managers?
>> Of those business? I
>> Haven't met the old manager.
Okay, the last comment is funny because I think that's sort of a a controversial topic, or at least investors go about about it in different ways. Um, should you talk to management? Yes or no. I think Buffett, um, is known to be not making investment decisions reliant on on having met the management team before. And, but that's another subject that I don't want to get into, um, in this video. What I wanted to touch upon, though, is I think this is the the clip I chose that's the most focused on actual business fundamentals. I think what, what few people are aware of is that a CEO transition can be a literal thesis breaker. So, I believe, and I think Buffett mentally in this clip, that that's another controversial debate you frequently encounter in investing. What's more important? Is it the management team, or is it the company's moat, the competitive advantage, or the set of competitive advantages a company has, um, established over its its lifetime? Um, I think Buffett is leaning towards, well, the business is more important. I would, I would have to say that I think management is incredibly important. I think over time, you, like, if I take the average trajectory that a business, not a business that a investor takes, I think over time they come to acknowledge that management is probably more important than they initially thought. And that's why I'm at, I think ultimately, if someone put a gun to my head and said, choose an exceptional business or an exceptional management team, I would go for the management team. He mentioned Tim Cook, who famously stepped down quite recently. I think the CEO of Netflix comes to mind here as well. And all I'm trying to say here is, if there is a CEO in a holding company, not a holding company, a company that you have in your portfolio, I think it's worth, um, going back to the drawing board and make sure that first of all, you study, uh, the person that is going to be the, um, next CEO. Do you think he's competent, or she's competent? Of course, um, you give this, uh, successor a shot. Presumably, you should give her some some time. But it's something to track very closely because the CEO is so important, especially in companies that were founded, which Apple wasn't, but, uh, Netflix was. If you are invested in a founder company and the founder steps down for whatever reason, it's time to get alerted and to lock in again. Is this still the was the thesis that I was betting on when I made my initial investment still the same here? Like, I'm invested in Weiss, for instance, and if the CEO of Weiss would step down tomorrow, because I think the investment thesis in Weiss is so reliant on, uh, Chris Carmack being ultra long-term focused and willing to sacrifice margin for the longer term broader mission of Weiss. If he would ever step down, I think a more corporate hire, a more corporate CEO would be incentivized or inclined to show more profit to Wall Street, which would be a thesis breaker for me. But that's another side note here.
Okay, that's basically all I wanted to cover here. Let me know whether you have watched the annual shareholder meeting of Berkshire Hathaway this year. What your takeaways takeaways were here, and if you have any other insights you want to share on the clips that I chose for this video. Take care.