Berkshire Hathaway’s annual shareholder meeting in Omaha on May 6th was quite a show, with the undisputed conductor being 92-year-old Warren Buffett. I attended with the Sifter team to hear the Oracle of Omaha’s insights and compiled Buffett’s 10 lessons for investors.
Omaha’s convention center was packed with shareholders eager to hear what Warren Buffett had to say this year.
The event lasted over six hours, with Buffett answering more than 62 audience questions. At times, his monologues went on for over 20 minutes. Meanwhile, business partner Charlie Munger dozed off next to him, and Buffett’s successors Greg Abel and Ajit Jain listened humbly.
The lessons presented in this article are timeless investment advice from Buffett, recurring in his speeches year after year.
1. We never make emotional investment decisions
Buffett emphasized this lesson right at the beginning of his speech, and 99-year-old Charlie Munger confirmed by saying, “never.”
Every investor recognizes the feeling of having money burning a hole in their pocket, urging them to invest it somewhere.
For over 60 years, Buffett has managed to resist this impulse. He invests whenever the opportunity meets his criteria, paying little attention to macroeconomics or market conditions.
2. Investors are too impatient
Buffett once again stated that investors have a too short-term perspective, and he is undoubtedly correct. Charlie Munger has previously stated that only the purchase and sale price of a stock matter; the fluctuations in between are pointless to track.
3. We love buying and holding great companies
This lesson is not new in Buffett’s vocabulary, but he reiterated it over 15 times during the six-hour presentation. It certainly left no room for misunderstanding. Just as often, he mentioned, We like the management of the company.
Buffett’s investment philosophy has solidified over the years: companies with capable and straightforward leadership thrive. Such companies receive substantial autonomy in Buffett’s portfolio and have access to Berkshire Hathaway’s vast capital when needed.
4. In the short term, stock prices can move above or below the true value of the business based on emotions rather than fundamentals.
Buffett referred to this when he stated that they make money from the mistakes of other investors. When others sell out of fear, they buy good businesses at favorable prices.
Throughout the entire presentation, not a single word was mentioned about stock market prices.
5. It is easier to buy and hold exceptional companies than constantly switch from “far from great companies”
According to Buffett’s philosophy, long-term ownership of outstanding companies is significantly more important than constant portfolio turnover.
Buffett noted that it has become increasingly challenging to find undervalued top-notch companies.
He reminded the audience that the best opportunities arise when people do foolish things. In their experience, the number of people doing foolish things has grown significantly, leading to more significant mistakes. This comment elicited laughter from the audience.
6. Share buybacks can either be smart or really dumb
This is perhaps Buffett’s most contradictory statement in the Q&A session. A share buyback is a form of shareholder remuneration where companies buy back their own shares to reduce their capital by cancelling the repurchased stock. In the US share buybacks is more common than distributing dividends, largely due to tax considerations. When share buybacks is conducted by using debt or to motivate management bonuses, it is often foolish.
However, when company management recognizes that the market price is significantly lower than the true value of the company, buying back shares can be a smart move.
As the number of shares available in the market decreases, the ownership percentage of existing shareholders increases. Buffett appreciates this.
7. Retained Earnings – an important aspect for Buffett
Every year, Buffett presents a retained earnings table showing how much profit their portfolio companies have left for the company after dividends
Buffett believes that intelligently reinvested earnings are the key to future growth in returns.
When a competent management reinvests profits into it’s business growth in a profitable way, a snowball effect occurs, enabling the company’s earnings to grow even further.
I have previously written about this topic: Why Should Stock Investors Pay Attention to Return on Invested Capital?
8. The best returns are achieved by companies that have been producing the same product or service for several years
Buffett clearly believes in companies that have demonstrated their superiority in a particular area. Traditionally, these have included companies like Coca-Cola, but Apple has also secured a place in Buffett’s heart.
Buffett favors companies with established business models and products that are essential to people’s daily lives.
9. The investor’s most important task is to continue reading and researching until the investment idea becomes crystal clear
This advice supports the fact that an investment opportunity must be thoroughly understood, with all the facts supporting the investment decision.
If the decision to buy a company’s stock is not easy, Buffett doesn’t invest in the company.
Buffett also referred to the importance of investing only in companies within one’s area of expertise. He spoke several times about how they continuously learn more about the companies they own and customer behavior. This knowledge is crucial in making investment decisions.
10. Buffett sees himself as a business analyst, not a market analyst
This insight did not come directly from Buffett’s mouth but from other sources.
Over the course of the six-hour presentation, it became clear how much Buffett values good and reliable businesses.
While they monitor market changes, particularly the effects of inflation on company earnings, Buffett does not extensively analyze the general stock market.
Macroeconomic noise does not bother Buffett, at most it concerns him. He sees that the responsibility of competent company management is to ensure that top-notch companies generate profits even in challenging times.
Lessons and Concerns
Did I learn new things along the way? Not really, not things I hadn’t already heard or read about Buffett’s investment principles.
Berkshire Hathaway’s shareholder meeting and Buffett’s sermon were like a doctor’s appointment reminding us of the importance of good habits.
In the daily lives of many investors, market noise and macroeconomic concerns subtly infiltrate their investment thinking – keeping emotions out of investment decisions is very difficult.
My greatest concern mainly relates to the future of Buffett’s company (Berkshire Hathaway) and its successors. With the conductor being 92 years old, I think, it is time for him to make room for the younger generation.
Although Buffett has named Greg Abel (60 years old) as his successor and Ajit Jain (71 years old) as his wingman, they were not given much speaking time. Of course, Buffett reiterated his complete trust in both gentlemen multiple times.
Nevertheless, conductor Buffett spoke for over 80% of the time and occasionally gave his successors some room. Perhaps this is in line with Berkshire Hathaway’s culture, but one thing is certain: once Buffett inevitably passes on, The Show will not continue in the same way.
Santeri Korpinen
CEO, Sifter Capital
