2017 Annual Meeting
Annual meeting with Warren Buffett and Charlie Munger discussing Wells Fargo scandal, driverless vehicles threat, airline investment defense, IBM/Amazon mistakes, and Berkshire's $100B cash position.
2017 Annual Meeting
Date: May 6, 2017 Location: Omaha, Nebraska Attendees: Warren Buffett (86), Charlie Munger (93) Source: Full Transcript
Overview
The 2017 annual meeting featured Warren Buffett and Charlie Munger addressing shareholders during a period when Berkshire's cash pile exceeded $90 billion. The meeting covered the Wells Fargo scandal, autonomous vehicles as an existential threat, defense of airline investments, and Munger's wisdom on learning and life.
Opening
Buffett opened with his classic line:
"That's Charlie. I'm Warren. You can tell us apart because he can hear and I can see. That's why we work together so well."
On welcoming shareholders:
"It's a terrific city. Charlie's lived in California now for about 70 years, but he's still got a lot of Omaha in him."
Buffett introduced Carrie Sova, who organizes the event:
"She puts on this whole program. She has two young children. She's amazing."
Directors introduced alphabetically: Howard Buffett, Steve Burke, Sue Decker, Bill Gates, Sandy Gottesman, Charlotte Guyman, Charlie Munger, Tom Murphy, Ron Olson, Walter Scott, Meryl Witmer.
Business Results
Q1 2017 Performance
Buffett on operating earnings:
"We do not make earnings forecasts. On March 31st, we have over $90 billion of net unrealized gains."
GEICO's Record Growth
A highlight of the quarter:
"In the first four months, GEICO's had a net gain of 700,000 policyholders. Last year that figure was like 300,000."
On competitor self-inflicted wounds:
"Several major competitors cut back on new business because new business carries significant loss in the first year. That's made to order for us."
Float Growth
"We increased our float by $14 billion in the first quarter. Our cash and cash equivalents, including Treasury bills, now exceeds $90 billion."
Jack Bogle Tribute
Opening tribute to Vanguard founder:
"Jack Bogle changed the way Americans invest. He was a true pioneer."
Morning Q&A Highlights
Wells Fargo Scandal
Buffett was direct about the bank's problems:
"Wells Fargo didn't act quickly enough to stop bad behavior. This was a cultural problem."
On what went wrong:
"When you create incentive systems that reward cross-selling to the point where people open fake accounts, you've got a problem that comes from the top."
Driverless Vehicles Impact
Buffett warned about disruption:
"Driverless vehicles would hurt BNSF and GEICO. The insurance market would change dramatically."
On the threat to auto insurance:
"If cars drive themselves, the accident rate drops dramatically. That's great for society but challenging for insurance."
See's Candies Origin Story
On buying the business:
"We bought See's Candies from someone who preferred 'girls and grapes.' That's what he told me he wanted to spend his money on instead."
The Moat Under Attack
Munger on competitive threats:
"There are going to be marauders at the moat. You have to keep building and reinforcing it."
On staying vigilant:
"Our competitors are not sleeping. They're trying to take apart our moat."
AIG Reinsurance Deal
On the significant reinsurance partnership:
"We think we'll do well with the AIG reinsurance deal. It's a large, complex arrangement."
On insurance opportunities:
"The insurance business offers opportunities that others can't see or won't take."
Munger on Learning
One of the memorable quotes:
"A life properly lived is just learn, learn, learn. You never stop thinking about why you were wrong."
IBM, Google, Amazon Mistakes
Buffett admitted errors:
"I made mistakes with IBM, Google, and Amazon. I should have understood them better before investing."
On tech investing:
"I don't have the intellectual equipment for tech. I know consumer behavior better."
Airline Investment Defense
Buffett defended the airline purchase:
"I defended investing in the competitive airline industry. But we buy businesses, not stocks."
On why airlines:
"The airline industry has consolidated significantly. That's changed the competitive dynamics."
Coca-Cola Recognition
Humorous segment:
"Coca-Cola and Buffett got a 'Black Planet Award' from some group. I found it amusing. Apparently they don't like sugary drinks."
Intrinsic Value Calculations
On valuation methodology:
"Intrinsic value projections depend heavily on interest rates. Lower rates mean higher present values."
On book value:
"Book value is a whole lot less relevant to Berkshire than it used to be. Intrinsic value is what counts."
Post-Death Investment Advice
On what to do after he dies:
"I want my wife to own an index fund after I die. It's the best way for most people to invest."
Elaborating:
"If you're married to someone who isn't financially sophisticated, an index fund is the right answer."
Unilever Deal Miss
On the failed Kraft Heinz attempt:
"Berkshire probably would have put $15 billion into the failed Unilever deal if it had gone through."
On deal discipline:
"We walk away from deals when the price is wrong. That's not a mistake."
Executive Compensation
On CEO pay:
"Most financial advisors don't deserve their fees. Same goes for some CEOs."
On aligning incentives:
"The best compensation is ownership. When managers own stock, they think like owners."
Precision Castparts
Buffett expressed enthusiasm:
"I love the fact we bought Precision Castparts. It's a tremendous business with exceptional management."
On why he bought:
"PCC makes things that are very hard to make. The aerospace business has high barriers to entry."
Berkshire's Acquisition Advantage
On why Berkshire can do deals others can't:
"There just isn't anyone else who can do what we do. That gives us a huge advantage."
On reputation:
"The reputation belongs to Berkshire now. We can close deals on a handshake."
Succession Planning
On next CEO requirements:
"Berkshire's next CEO needs a 'money mind' - someone who understands value and capital allocation."
On internal candidates:
"Greg Abel and Ajit Jain are extraordinary. Either could run Berkshire."
Artificial Intelligence
On AI's impact:
"Artificial intelligence impact is hard to predict. It will change many businesses in ways we don't yet understand."
Buffett compared it to past technological shifts:
"Every revolution looks larger from inside than it actually is."
Afternoon Q&A Highlights
3G Capital Partnership
On the partnership and job cuts:
"Berkshire and 3G have different approaches to running businesses. We prefer a more stable workforce."
On 3G's efficiency focus:
"3G runs lean. They cut costs aggressively. That's not our style at Berkshire."
Cash Deployment Challenge
On deploying the growing pile:
"Pressure to deploy Berkshire's cash grows as it nears $100 billion. We're patient but responsible."
On minimum cash:
"$20 billion cash cushion is an absolute minimum. We need to be ready for opportunities."
Bank Regulation
On capital requirements:
"Banks need to hold more capital. That's good for safety but limits returns."
On the too-big-to-fail problem:
"Systemically important financial institutions create moral hazard."
Berkshire Retail Challenges
On internet competition:
"Online competition hasn't yet significantly affected Berkshire retailers, but we're watching carefully."
On furniture retail:
"Furniture is hard to ship. That's protected us somewhat."
Munger on China
On Chinese stocks:
"Munger is more interested than Buffett in Chinese stocks. The valuations are attractive."
On risks:
"China has political risks. But the growth potential is real."
Tax Reform Impact
On corporate tax cuts:
"Who benefits from corporate tax cut varies by industry. Some businesses pass it on, others keep it."
On Berkshire's tax rate:
"We pay a lot of taxes. Any reduction helps, but we're not dependent on it."
Notable Quotes
"That's Charlie. I'm Warren. You can tell us apart because he can hear and I can see."
"A life properly lived is just learn, learn, learn."
"There are going to be marauders at the moat. You have to keep building and reinforcing it."
"Most financial advisors don't deserve their fees."
"Book value is a whole lot less relevant to Berkshire than it used to be."
Key Themes
- Cash Mountain - $90B+ waiting to be deployed
- Autonomous Vehicles - Existential threat to insurance and rail
- Wells Fargo - Cultural problems at trusted institutions
- Airline Investment - Defending the controversial purchase
- 3G Partnership - Different approaches to business management
- Succession - Next CEO needs "money mind"
Related
- meeting-2018 - Next year's meeting
- meeting-2016 - Previous year's meeting
- warren-buffett
- charlie-munger
- berkshire-hathaway
- precision-castparts
This summary captures 37 detailed Q&A topics from the full 2017 transcript.