As Warren Buffett looks to put Berkshire Hathaway’s growing pile of cash to work, his next big investments could well be in his own company.
The potential for Berkshire to buy back its own stock was a frequent topic of discussion Saturday as Buffett appeared before more than 40,000 shareholders at downtown’s CHI Health Center arena for Berkshire’s annual meeting. The event also was livestreamed internationally in both English and Mandarin.
Buffett had recently signaled interest in buying up as much as $100 billion of Berkshire’s more than $500 billion in outstanding stock if he thought the stock was undervalued enough, and he repeated that lofty top figure several times on Saturday.
“There’s no master plan on that other than to buy aggressively when we like the price,” Buffett said at one point. “If it’s under-priced, we will take advantage of it.”
Buffett spent more than five hours Saturday offering up insights into Berkshire, the economy and financial markets, as well handing out life advice. And while Chairman Buffett is now 88 and Vice Chairman Charlie Munger checks in at 95, it appeared neither has missed a beat in the past year.
Buffett seemed sharp as ever, filling his answers with his trademark wit and wisdom. And right-hand man Munger was often his usual blunt self.
The meeting also remained largely the Warren and Charlie Show. Though Buffett has designated several top lieutenants in recent years — and one of them is likely to succeed him as Berkshire’s next CEO and chairman — he and Munger took the stage alone, Buffett regularly sipping from a Coke, Munger munching on See’s Candies peanut brittle.
When asked at one point why shareholders don’t hear more from other Berkshire executives, Munger said it’s largely a function of Berkshire’s streamlined, unbureaucratic way of making decisions.
“You’re just going to have to endure us,” Munger quipped.
As Buffett once again gathered shareholders in his hometown for the annual Berkshire celebration of capitalism, it wasn’t surprising that the first question he fielded Saturday was on stock buybacks. In addition to Buffett’s recent comments, early Saturday morning Berkshire released a first-quarter earnings report that showed Buffett had bought back $1.7 billion in stock during the first three months of this year.
That exceeded the $1.3 billion in stock Buffett bought back in all of last year. In the previous five years, Berkshire didn’t buy back any.
The stock buybacks are in a way a function of the fact Buffett has faced difficulty deploying Berkshire’s growing pile of cash, which at the end of 2018 stood at $112 billion. While Buffett for years has been on the hunt for an “elephant-sized” corporate acquisition, he’s complained about the high asking prices for companies of the size that could move the needle at Berkshire.
While there are many ways to spend Berkshire’s money, Buffett said Saturday, “spending it intelligently is the problem.”
Buffett said there was no magic to the $100 billion figure he tossed out for buybacks, though it is close to Berkshire’s current cash account. He also wasn’t saying what price he’d be willing to pay for Berkshire stock, a secret he needs to keep to avoid signaling future buybacks or influencing the stock’s price.
One questioner noted that the recent Berkshire buybacks came at higher prices than the stock was trading at as recently as December of last year. Buffett acknowledged that — he has previously suggested he was marshaling cash at the time for an acquisition that fell through — but he said he thinks shareholders still benefited from the recent buybacks, if not dramatically.
“We have no ambition … to spend a dime unless shareholders are better off for having done so,” Buffett said.
One hurdle to buybacks would likely be the loyalty many Berkshire shareholders have for the stock and Buffett, as evidenced by the thousands who flock to Omaha each year.
Buffett acknowledged that the company’s “A” shares, many held by longtime Berkshire investors like himself, don’t trade often. But the creation of “B” shares years ago does make shares available on the market.
“There’s no question if we are able to spend $100 billion in repurchasing shares, more of that money is certainly going to be spent on the B than the A,” he said.
Buffett said that when Berkshire does buy back shares, it needs to make sure all the selling shareholders, whom Buffett considers partners in the business, have all the information needed to make informed decisions.
James Shanahan, an analyst who monitors Berkshire for Edward Jones in St. Louis, said the buybacks revealed early Saturday were unexpected given the price Berkshire was trading at earlier this year. That fact means there will likely be more in the future.
“It’s a big number and a big surprise in that the stock wasn’t weak,” Shanahan said. “I think we need to revise our thinking of what is possible in buybacks.”
Several shareholders interviewed Saturday said they were OK with Berkshire buybacks, particularly given Buffett’s inability to find other ways to deploy the capital.
“If they were to put $10 billion into buybacks, I wouldn’t be opposed to that,” said Bijan Dastmalchian of Scottsdale, Arizona.
Not that the 24-year-old would consider selling his own shares. He said he’s “kind of in the fold forever.” And he wasn’t the only one expressing such thoughts.
“Hell, no,” Chris Tesari of Los Angeles said at the thought of selling his shares. He’s been coming to Omaha for Berkshire meetings for 23 years.
Despite all the love shown for Buffett on Saturday, he at times faced tough questions, too.
One shareholder questioned Buffett’s recent outspoken support for Democratic candidates, saying Berkshire would face higher taxes and more regulation if “socialist” policies were put in place.
Buffett said he separates his personal politics from Berkshire, and noted he’s voted for plenty of Republicans over the years. He also made clear that he’s no socialist.
“I’m a card-carrying capitalist,” he said.
A member of a San Francisco investment club made up of police officers also questioned why Buffett has been so quiet about the series of scandals at Wells Fargo bank involving phony accounts, unauthorized fees and abuses related to mortgages and auto insurance.
Berkshire owns 9 percent of the bank, whose CEO Tim Sloan resigned in March in the wake of the most recent disclosures.
Buffett acknowledged that Wells Fargo made “errors in judgment,” “incentivized some crazy things” and said its leaders didn’t act quickly. And, he said, shareholders like Berkshire paid a price for it.
But both he and Munger declined to criticize Sloan, Buffett saying, “We have no evidence that he did a thing.” Munger said he wished Sloan was still running the bank.
Buffett added that he wished CEOs wouldn’t go away “so rich” after doing dumb things, drawing applause.
Shanahan, the analyst, said he was disappointed by the responses, which will surely not be popular with many.
“I cringed a little bit when I heard them defend Tim Sloan,” Shanahan said. “It felt like a lot more than errors in judgment.”
One questioner asked why shareholders didn’t hear more from Berkshire executives Ajit Jain and Greg Abel, which might help prepare shareholders for the day when Buffett is no longer around. Jain oversees Berkshire’s insurance operations; Abel watches over Berkshire’s other wholly owned businesses. It’s believed one — many analysts speculate Abel — will one day succeed Buffett.
Buffett responded that hearing from Jain and Abel was probably a good idea, saying the format for the Q&A session was “not set in stone at all.” He then invited shareholders to ask questions of the executives.
One shareholder later took Buffett up on that and asked Jain a question about how he priced insurance risk. Buffett himself later called on Abel, who leads Berkshire’s energy units, to respond to a couple of energy-related questions.
Buffett said shareholders will never hear from Todd Combs and Ted Weschler, who several years ago were given authority to invest part of Berkshire’s stock portfolio. Any information on why they make the investment decisions they do is proprietary. “We are not an investment advisory organization,” Buffett said.
Several children were called on for questions, often asking Buffett for advice on how to lead their lives. One boy asked Buffett whether there’s a way to learn to delay gratification.
Buffett, well-known for his frugal ways, joked that he tries to “spend 2 or 3 cents of every dollar I earn.” But he then told the boy that it’s important to live your life and do the things that give you and your family enjoyment.
“Don’t go overboard on delayed gratification,” he said.