tens of thousands berkshire hathaway (NYSE: BRK.A) (NYSE: BRK.B) Investors flocked to Omaha last week for the annual tradition of listening to Warren Buffett's musings on conglomerate business, financial markets and more than 93 years of life wisdom. But this year's meeting felt different.
Longtime vice chairman Charlie Munger passed away in late November. His sarcastic sense of humor, witty aphorisms, and fun relationship with Buffett will be greatly missed. However, there were other notable differences between this meeting and those of past years. It's a sense of caution.
Let's take a look at the key takeaways from the meeting and how it could affect Berkshire's next actions.
Berkshire sells about 13% of its Apple position
At issue was Berkshire's decision to reduce its stake. apple (NASDAQ:AAPL) During the first quarter. Berkshire sold more than 116 million Apple shares in the first quarter, reducing its position by about 12.9%. This would be the biggest sale of Apple shares since the company began buying stock in 2016, but far exceeds the roughly 10 million shares that Berkshire sold in the fourth quarter.
Buffett mentioned the sale in his first answer during the Q&A session: “Unless something drastic happens that changes our capital allocation and strategy, Apple will be our biggest investment. If you look at the alternatives to what's available in the stock market and the picture of what's going on in the world under the current circumstances, we find it very attractive.”
In addition to concerns about valuations, market conditions and the buildup of cash positions, Buffett also cited the federal tax rate on capital gains, which Buffett said was 35% not long ago. 21%, and now it has reached 52%. past. Concerns about higher tax rates based on fiscal policy and the need to reduce the federal deficit also led Buffett and his team to invest in Apple stock profits now rather than risk higher tax rates in the future. This is another reason why I decided to include it.
accumulate a treasure trove of cash
Buffett has long talked about the trust Berkshire shareholders have in him and his team to protect and grow their wealth. Berkshire is known to be fairly risk-averse, with stable cash flow companies such as insurance, railroads, and utilities; coca cola (NYSE:KO), american express (NYSE:AXP), and Apple. Another asset Berkshire favors is cash.
Berkshire's cash and U.S. Treasury positions totaled $182.3 billion at the end of the first quarter, up from $163.3 billion at the end of 2023. Buffett said he expects the cash position to exceed $200 billion by the end of the second quarter.
You might think Berkshire is hoarding cash because of its high interest rates and high returns on risk-free assets. But just before lunch, Mr. Buffett said that even if interest rates were 1%, Berkshire would still be sitting on a lot of cash because Berkshire only swings at pitches it likes and it's just not doing well. He said that's because he never swings at pitches. meanwhile. “It's just that the situation is not attractive. There are several ways it could change. We'll see if that happens,” Buffett said.
The comment is a potential sign that Berkshire is becoming even more defensive than usual.
The complex but profitable insurance landscape
Berkshire's core businesses are doing extremely well. Berkshire's first-quarter operating profit jumped 39.1% compared to the same period in 2023. This was driven by stronger profits from its insurance business and Berkshire Hathaway Energy (which had an unusually weak first quarter last year). However, Buffett believes that simply quadrupling annual insurance income is not a good idea, given that this is a particularly strong quarter and the third quarter tends to be the highest risk for insurance claims. I warned you that it's not wise.
Much of the question-and-answer session was spent discussing the future of insurance and utilities under the new regulations. Price increases due to climate change and increased risk of natural disasters. The potential impact of automated driving to reduce accidents and reduce insurance costs.
Ajit Jain, chairman of Berkshire's insurance division, answered a question about cybersecurity insurance, saying the market is big and profitable and will probably get even bigger, but it's not worth the risk until we have more data points. said. Another question related to rising insurance premiums in Florida, which Berkshire blamed on climate change, an increased risk of large losses, and a tough regulatory environment that makes it difficult to operate in Florida.
The advantage is that Berkshire prices many of its contracts in one-year increments, allowing it to adjust prices if the risks start to increase and outweigh the rewards. Or, in the words of a Jain, “climate change, like inflation, can be a friend to risk-bearers if done right.”
Regarding the impact self-driving cars will have on insurance, Buffett said the problem is far from resolved, and automakers have been considering insurance for a while, and that insurance is “someone giving you money and you giving them a little bit of money.'' “This could be a very attractive business.” paper. ” In other words, it's not as easy as you think. Accident rates are decreasing, and society will benefit if autonomous driving lowers them even further, but insurance is still needed.
Opening the AI Pandora’s Box
Buffett's response to a question about the potential of artificial intelligence (AI) was similar to his response at the company's 2023 annual meeting. He likened it to an atomic bomb, calling it a genie in a bottle in that it has immense power, but we may regret letting it go.
He talked about his personal experience of watching an AI-generated video of himself. The video was so life-like that neither his children nor his wife could tell if it was really him or his voice, except that he never said it. The one in the video. “If you're interested in investing in fraud, it's going to be the fastest growing industry in history,” he said.
In the end, Buffett, true to his long-held habit of staying within his own circle of ability, said he doesn't know enough about AI to predict its future. “It has the potential to do good, and it has a huge potential to do harm, but we don't know how it's going to play out.”
endless opportunities
Despite the cautious sentiment, Buffett's optimism about the U.S. economy and the stock market's ability to compound wealth over the long term was abundantly clear.
People often pay undue attention to Berkshire's cash position as a barometer of Berkshire's views on the stock market. While it's certainly defensive for Berkshire to maintain such a large cash position, it's worth understanding the background of the company's various business units and the history of certain positions, like Apple.
Berkshire probably didn't want Apple to have 40% of its public stock holdings. Taking risk out of the equation makes sense if Berkshire believes it needs more reserves to respond to changes in its insurance business, especially given the lower tax rate.
In terms of life advice, Mr. Buffett, 93, thinks about what he wants his obituary to read and recommends educational paths, social paths, spouses, and friends to get where he wants to be. He said it would be a good idea to start choosing. go. “The opportunities in this country are basically limitless,” Buffett said.
We can all learn a lot from Mr. Buffett's strong understanding of the needs of Berkshire shareholders and the effort he put into selecting a few investments and inheriting countless opportunities.
When investing, it's important to adjust your risk tolerance, investment objectives, and holdings to meet your financial goals and stay balanced no matter what the market does. In today's fast-paced world filled with rapid change, staying true to our principles is more important than ever.
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Bank of America is an advertising partner of The Motley Fool's Ascent. American Express is the Motley Fool's advertising partner for his The Ascent. Daniel Felber has no position in any stocks mentioned. The Motley Fool has positions in and recommends Apple, Bank of America, and Berkshire Hathaway. The Motley Fool has a disclosure policy.
Warren Buffett talks about Apple, cash, insurance, artificial intelligence and more at Berkshire Hathaway's annual meeting Original story by The Motley Fool