Berkshire Hathaway operating earnings should rise this year, Buffett says at annual meeting
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Berkshire Hathaway (NYSE:BRK.B) (BRK.B) operating earnings, overall, should rise this year compared with this year as insurance underwriting and investment income improves, Chairman and CEO Warren Buffett said at the company's 2023 annual meeting on Saturday.
"The majority of our businesses will report lower earnings this year than last year," because the demand has weakened from the unusually high levels of six months ago, he said. Now. more of the company's businesses have more inventory than they expected and may have to offer discounts to sell them them, he said.
Investment income, though, is "sure to increase quite a bit," he Buffett added.
"We're likely to have a better year in insurance this year than last year," he said.
2:13 PM ET: "We'll have to have punishment for people who do the wrong thing," Buffett said. First Republic Bank's (OTCPK:FRCB) 10-Q showed that there were problems, he added. "If a bank gets in trouble, the CEO and the board should suffer."
2:06 PM ET:"The situation in banking is very similar to what it's always been in banking that fear is contagious, always," Buffett said. Sometimes the contagion is warranted, somtimes not, he added.
"The message has been very poor," from many fronts in terms of calming the fear in the banking industry, he said.
He thinks the incentives in bank regulation are "messed up" and many people have an interest in having them messed up.
1:01 PM ET: The Q&A session takes a one-hour break.
12:56 PM ET: Buffett said he expects the company's approach to share buybacks and capital allocation won't change once Abel takes over as CEO. "Greg understands capital allocation as much as I do," he said. Abel added: "The framework has been laid out and we don't see that framework changing."
12:45 PM ET: Geico is talking to a number of original equipment manufacturers about offering electric vehicle insurance at the point of sale, Jain said. Some OEMs have been directly offering EV insurance. He pointed out that the OEMs would have to take into account driver behavior in addition to the vehicle's risks.
12:37 PM ET: "I feel better about capital deployed in Japan than in Taiwan," Buffett said. He explained his decision to cut the stake in Taiwan Semiconductor Manufacturing Co. (TSM): While it's one of the best managed and most important companies in the world, he doesn't expect that to be the case in five, 10 or 20 years.
12:30 PM ET: When asked about U.S.-China relations, "I think tension has been wrongly created on both sides," Munger said. "If there's one thing we should do it's get along with China and we should have a lot of free trade with China."
Buffett said that both countries can propsper, but "both have to understand you can't push too hard."
12:15 PM ET: Buffett stressed the importance of understanding consumer behavior to determine the attractiveness of an investment opportunity. He talked up the five Japanese companies that Berkshire (BRK.B) recently boosted its stakes in, saying "they owned a whole bunch of business that we can understand as a group."
Berkshire (BRK.B) is the largest foreign corporate borrower in Japan, he noted,. adding that by issuing yen-denominated risk, the company eliminated its currency risk from the investments.
12:09 PM ET: Speaking about the reinsurance business, Jain said the Dec. 31, 2022 renewal date was disappointing as was January. "We were not able to add as much" to our books "as we wanted," he said. Still, he's happy with the business that was written. "I think we have written as much as we can write. Margins have been healthy," Jain said.
He did point out that the operations are heavily skewed to property catastrophe. In particular, the company could take a big loss — as much as $15B — if there's a "big hurricane in Florida," more so than if there's a hurricane in another part of the company, Jain said.
11:55 AM ET: Neither Buffett or Munger said they worry about the future of Berkshire (BRK.B) after they're gone. " We’ll never make a decision that kills us," he said. We keep ourselves in better shape than anybody else." A couple fo strong points: the company doesn't rely on large amounts of debt and it keeps a large pile of cash.
11:41 AM ET: As he has said before, Buffett opposed betting against the U.S., arguing the country "is a better place to live than it was when I was born," though partisanship has "moved to tribalism," and "we need to refine our democracy."
11:38 AM ET: "It wouldn't be smart" to name successors to the company's top lieutenants, Abel and Jain, now, Buffett said. "Things can change."
11:32 AM ET: Energy transformation represents a "very good business opportunity for each of our companies and our shareholders," said Vice Chairman Greg Abel, whose experience is in the energy business. "But it's a long-term journey," he added. Across Berkshire Hathaway Energy, the company has ~$70B of projects that "are really required for transformation."
11:23 AM ET: BNSF has worked very closely with the tribe to mitigate the issue with a train derailment on tribal land in March, Abel said. "There were no long term environmental impacts to that spill," he added.
11:04 AM ET: In discussing the current investing environment, Vice Chairman Charlie Munger said value investors are having a harder time because there are so many investors vying for the same opportunities.
Buffett commented: "What gives you opportunities is other people doing dumb things." He said he has observed an increase of "people doing dumb things" since he started running Berkshire 58 years ago. "They're trying to outsmart each other in arenas you don't have to play. The world is overwhelmingly short-term focused."
10:55 AM ET: "I'm skeptical of artificial intelligence," Munger said. "I think human intelligence works pretty well." Buffett went on to say that AI “can do wonderful things,” adding that Bill Gates showed him an early version.
"Artificial intelligence can do all kinds of things, and when something can do all kinds of things, I get a little worried," Buffett said.
"It can change all things in the world except for how men think and behave," he added, referring to a comment Albert Einstein made on the atom bomb.
10:50 AM ET: Looking at pre-2022, BNSF, the company's railroad, made significant progress on efficiencies, Greg Abel, vice chairman of Berkshire's (BRK.B) non-insurance businesses. "We're making excellent progress," he said. And while that didn't stop in 2022, the "real focus was to get the railroad re-set" to focus on long-term value. "Over the long-term we'll see exceptional results from that team," he said.
10:45 AM ET: "Geico has certainly taken the bull by the horns and made rapid strides in telematics," said Ajit Jain, vice chairman of Berkshire's insurance businesses. On new business, close to 90% uses telematics, he said. But the company hasn't yet seen the benefit of the technology. "Geico is still a work in progress."
The company has come under pressure for, and has admitted to, falling behind rival Progressive (PGR) on use of the technology.
10:41 PM ET: Regarding Buffett and Vice Chairman Charlie Munger's success in investing, "I can't recall anytime we made an emotional decision," Buffett said.
10:38 PM ET: "It would have been catastrophic" if the Federal Deposit Insurance Corp. hadn't guaranteed all deposits at failed bank Silicon Valley Bank, Buffett said.
Update at 10:34 AM ET: In the month of April, Berkshire (BRK.B) probably added about $7B in cash because it didn't buy back as much stock. Cash and U.S. Treasury bills at Berkshire, excluding BNSF, was $127.7B at March 31, 2023.
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With reporting by Max Gottlich