Decoding the Message of BERKSHIRE HATHAWAY AGM 2021
AIF & PMS Experts India got the opportunity to curate a brilliant session in association with the Fund Manager, Mr. Susmit Patodia and the Head of Sales and Distribution, Mr. Akhil Chaturvedi of Motilal Oswal Asset Management Company, on 19th May, 2021. with Mr. Vikas Agrawal (MD & CEO of AIF & PMS Experts India) where they have addressed the topic – “Decoding the Message of Berkshire Hathaway AGM 2021”. The experts were seen verbalizing about the key takeaways of the AGM that was sermonized by Mr. Warren Buffett and Mr. Charlie Munger on 1st May, 2021.
Investment is an art!
To invest in a business, one should have a complete understanding of the company. It helps the money to compound in future. The only key to have a better understanding is reading a lot. That’s what Buffett does and many of the successful people do! Also, there is a need to curb some myths like of diversification! Well, diversification is good, but only to a limit. One should not follow the path of heard mentality.
It is rightly said that, “Be greedy when others are fearful and be fearful when other are greedy”. Heard mentality always stands at the loss side. One cannot define a period! Long term does not always mean 1 year or 5 years, if you are betting on the right horse, there is no end to it.
The zone of investment is another noteworthy constituent. If one has exposure in equity, he should know the ebbs and flows associated with the same. Equity is not a fixed deposit; it continues till the point the business continues. Market keeps testing people and one who passes the test ends up making lots of money. A basic rule of investment says that, buy great management and let it compound but also don’t but anything that will lose money.
Hence, investment is considered to be an art!
5 Keynotes from the AGM, 2021:
Epitomizing the AGM at once, there are few noteworthy points that has been witnessed which are trailed below:
1.Looking at the top 20 companies of the world today, 13 among them belongs to the US and before 30 years, the same number was equipped by Japanese companies which is now at zero. It makes us understand that one can’t be best in every cycle of time. Taking an example, one can make money being in equity as long as he is associated with the fund, but he cannot make money every year.
2.Second point was, when asked about the role at Berkshire Hathaway, Buffett said that he is Chief Risk Officer while Munger replied that he is the Chief Culture Officer! If we see this with another view, in businesses too, the advisors act as the Chief Risk Officers only! And ultimately everyone is their own Chief Culture Officer as only the person knows what works for his upliftment and what brings him to the ground.
3.Third constituent stated that never expect perfection from anything you are associated with. There is nothing called perfection. There is always the scope of improvement. The joy lies in the journey with consistency and not trying to reframe it.
4.The fourth point stated that if you are not confused with what is going on in the world today, you don’t understand it! Nobody knows the perfect solution. Some people just get it right because of their probability but perfect solution is in nobody’s hand.
5.The last point differentiated between situation of two time zones. It stated that now it is very different situation than 2009, so comparing the two makes no sense. 2009 witnessed few of the private enterprises failing and that was the reason of delaying of the government’s action and now it is the government which is failing.
Comprehending the Admissions!
Selling of Airlines stocks!
It was visible that airlines companies needed support from the government because there were tax concerns. Before the pandemic, Berkshire Hathaway owned 10% of all the major airline companies. If they would have continued owning the stocks, and since there was possibility of government bailing out, the tables would have turned on Berkshire Hathaway. Buffet’s statement “To save the airline, they have sold the stock” clearly justifies their stance.
Reducing exposure in Banking Sector!
Just before the pandemic, they owned 11-12% of share of bank of America but when the pandemic hit, they did not want to have that much exposure and tried cutting it down to below 10%. As this is a unique crisis and in such a situation where the banks are at the stage of collapsing, having such exposure in one of the largest banks hints for a red signal. Whenever a crisis hits, the first thing a person do is reduce his leverage. They wanted to bring down the leveraged companies and as banks have most leverage with them, they have decided to reduce the exposure in them. On the other side, they never thought it would go on the other round, they have predicted the economy to be in turmoil, however the market behaved differently.
Defending buy backs!
It is often been reiterated that if one buys their own stock less than the intrinsic value than they are adding value to the shareholders. The concept of buyback became complicated in last 3 years when the interest rates gone to zero. The companies started borrowing at 1% and doing buybacks. They were certainly not wrong on their side, but it was more like inflating their own stock by borrowing. One of the key individuals who knows the functioning of intrinsic value is no other than the promoter of the company. So, as long as one does buybacks on the value of the business which is more than the share price, they are riding on the right horse!
Can Buffett’s criteria of smart investing be applied in Indian Market too?
Buffett criteria of consistent earning power, ROE, Capable management, sensibly priced of value investing can certainly be applied in Indian Market too. The sentence is the philosophy that many investors follow. The quality companies, run by quality people can grow by reinvesting their profit for a long period of time can be purchased at a reasonable price. For quality embedded with consistency, the concept of buying something at a cheap price is insignificant. We don’t get anything great with the cost of average thing. One can buy great companies at good price. The concept remains the same that, buy great companies at good prices but not great companies at wonderful prices. Market keeps evolving as more and more people are entering the market by bettering the market. It requires upgradation of knowledge, understanding and interpretation.
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The informative session was followed by brainstorming Q&A round which is definitely not worth missing! In case you missed the opportunity to associate with the experts, we are providing below the link to connect with them on YouTube at https://youtu.be/HigbfPcE_lI!
Also Read – Berkshire Hathaway’s AGM