Warren Buffett, chairman and CEO of Berkshire Hathaway, praised the government’s intervention in recent bank failures, saying it averted what could have become an even bigger crisis.
Asked during the company’s annual shareholders meeting on Saturday about the failure of Silicon Valley Bank, Buffett said he thought the government did the right thing in stepping in to guarantee bank deposits above the Federal Deposit Insurance Corporation guarantee of $250,000.
“It would have been catastrophic,” Buffett said of a situation where the government didn’t act. He added that refusing to guarantee all SVB deposits risked a “run on every bank in the country” and, by extension, a threat to the global financial system.
Berkshire Hathaway, the Omaha-based conglomerate that owns and invests in companies ranging from Dairy Queen to GEICO, has substantial investments in the largest banks in the country. As of the end of 2022, Buffett’s investments included a 13% stake in Bank of America, 3.2% stake in Bank of New York Mellon, 2.8% stake in Citigroup, and 0.5% stake in U.S. Bancorp.
The banking industry has been rattled by higher interest rates, which squeezed banks unprepared for the sharp drop in the value of its interest rate-sensitive assets. The episode has led to heightened scrutiny on the commercial real estate sector, where telework arrangements and soaring borrowing costs are raising concerns about banks that lend to the sector.
“The hollowing out of the downtowns in the United States and elsewhere in the world is going to be quite significant and quite unpleasant,” said Berkshire Vice Chairman Charlie Munger, who added that Berkshire itself is not actively exposed to commercial real estate.
The debt ceiling
Buffett also spoke briefly on the debt limit, noting that he could not imagine the U.S. government allowing “the debt ceiling to cause the world to go into turmoil.”
Congress and the White House are barreling toward a June 1 deadline to raise the limit on how much the U.S. Treasury is allowed to borrow, with the “economic and financial catastrophe” of a government default on the line.
Nonetheless, Buffett expressed broad worry about the trajectory of U.S. politics.
“Partisanship, it seems to be, has moved toward tribalism, and tribalism just doesn’t work as well.”
Concerns about AI
The nonagenarians also fielded questions on the application of artificial intelligence on investing — and the world at large.
As Wall Street weighs the use of tech like ChatGPT in forecasting stock prices, Buffett said “the tech doesn’t make any difference” in finding investable opportunities.
Buffett, whose reputation for stock picking built Berkshire, added that “what gives you opportunities is other people doing dumb things.”
Broadly, Buffett expressed concern that society can’t “un-invent” technology that changes the future, but adamantly said humans remain in the driver’s seat.
“With AI, it can change everything in the world except how men think and behave,” Buffett said, loosely quoting Albert Einstein’s commentary on the invention of the atom bomb. Munger quipped that “old fashioned intelligence works pretty well.”
The Oracle of Omaha
Known as the “Oracle of Omaha,” Buffett currently ranks fifth on Forbes’ billionaires list, with a net worth of about $105 billion.
Throughout his decades in business, Buffett has earned a reputation as one of the smartest investors alive — all while maintaining a relatively frugal lifestyle (he still lives in the house he purchased in 1958, and regularly eats McDonald’s).
Buffett’s strategy is broadly defined as value investing; buying low and only selling when absolutely necessary. Buffett advises holding onto good investments for decades at a time, while ignoring most short-term market movements.
In 2016, Buffett gave an interview and used the following example of how he thinks about investing: “If you had a chance to buy into a good company in your hometown … and you knew it was a good company and knew good people were running it, and you bought in at a fair price, you wouldn’t want to get a quote every day.”
Instead of frequently checking a stock’s price, Buffett said, “you’d look to the earnings and dividends over the years as determining whether you made a good investment or not. And that’s what people should do with stocks.”
‘Woodstock for capitalists’
The annual Berkshire shareholders meeting, dubbed by Buffett and fans as the “Woodstock for Capitalists,” has seen as many as 40,000 attendees pile into the largest convention center in Omaha, Nebraska. It will be the 59th time Buffett has presided over Berkshire’s annual shareholder meeting.
The gathering has also become known for its marathon Q&A session: Buffett, 92, and Berkshire Vice Chairman Charlie Munger, 99, are slated to take questions from attendees for at least five hours Saturday.
Like most investors, Berkshire is coming off a down year, at least on paper: It reported an annual loss of $22.8 billion for 2022. But in his most recent annual letter to shareholders — the release of which is itself a seminal event on investors’ calendars — Buffett called that figure “100% misleading” because it includes losses on stock holdings whose “quarter-by-quarter gyrations, regularly and mindlessly headlined by media, totally misinform investors.”
Instead, Buffett said, investors should look at the operating earnings of Berkshire’s wide-ranging portfolio of companies, which as of year-end included American Express, Bank of America, Coca-Cola, Occidental Petroleum and Paramount Global. On that basis, Berkshire “set a record at $30.8 billion,” Buffett said.
What’s more, Buffett calculated that the rate of return to Berkshire shareholders over its 58 years of existence has been 3,787,464%. He attributed this success to continuous savings, “the power of compounding,” avoiding “major” mistakes, and what he called “the American Tailwind.”
“America would have done fine without Berkshire,” Buffett wrote. “The reverse is not true.”
Berkshire on Saturday reported a 12.6% increase in operating earnings between March 31 and the same time last year. But Buffett said a slowdown in the economy would likely lead to a “majority of our businesses” reporting lower earnings this year than last year.
“In the last six months or so, at various times the businesses have left the incredible period which was about as extraordinary as I’ve seen in business since World War II.”
In addition to discussion of economics and finance, Berkshire’s gathering is also known for homespun traditions like consuming candy from See’s and ice cream bars from Dairy Queen, both of which are Berkshire holdings. Buffett has said of his investment in See’s: “We put $25 million into it, and it’s given us over $2 billion of pretax income, well over $2 billion.”
Longtime Berkshire watchers say they plan to relish this year’s gathering.
“Even though I’ve gone for 32 or 33 years, it’s enjoyable, uplifting, and you’re always learning something new,” Paul Lountzis, who makes Berkshire his largest investment at Lountzis Asset Management LLC in Wyomissing, Pennsylvania.
“Charlie is 99 and Warren turns 93 on Aug. 30,” Lountzis added, “and you just don’t know how many more you’re going to have.”
Source: | This article originally belongs to Nbcnews.com
