By Tom Ozimek
Billionaire Warren Buffett said during Berkshire Hathaway’s annual meeting in Omaha that he’s bullish on America’s economic prospects despite the bitter political divisions of today, although value investors like himself should get used to “making less” in part because so many are following similar strategies.
In the annual event that Buffett calls the “Woodstock for Capitalists” that draws tens of thousands of people to Omaha, the world’s sixth-richest person addressed issues like artificial intelligence, political division in Washington, and the debt ceiling standoff.
Buffett, who has run Berkshire Hathaway since 1965, and his business partner Charlie Munger, were set to answer questions all day Saturday inside a packed Omaha arena.
He said that artificial intelligence may change the world in various ways, but new technology won’t take away opportunities for investors.
“New things coming along doesn’t take away the opportunities. What gives you the opportunities is other people doing dumb things,” said Buffett.
But while Buffett said that he might not be able to learn the technical aspects of some businesses, it’s not crucial to do so if one can understand other factors and keep learning.
“I don’t understand the phone at all, but I understand consumer behavior,” Buffett said while singling out Apple, of which Berkshire owns nearly 6 percent. He said that the iPhone’s status among consumers makes it an “extraordinary product,” which makes him happy to own stock in the company.
“Apple has a position with consumers where they’re paying 1,500 bucks or whatever it may be for a phone,” Buffett said. “And the same people pay $35,000 for having a second car, and [if] they had to give up a second car or give up their iPhone, they give up their second car.”
“I mean, it’s an extraordinary product,” Buffett added.
His comments came hours after Berkshire Hathaway posted a significant increase in quarterly profit and said it had purchased $4.4 billion of its own stock in a move that suggests the company considered the shares undervalued. By contrast, it sold $13.3 billion worth of stocks from other companies.
Berkshire’s net income increased more than sixfold to $35.5 billion, mostly reflecting gains from the company’s stock holdings, including Apple.
Get Used to Less
During discussions about Berkshire Hathaway’s performance, Buffett mentioned that a majority of its operating businesses might face a decline in 2023 due to slowing economic activity, but rising investment income could help offset the losses.
He also revealed that Berkshire Hathaway purchased $7 billion of Treasury bills in April and recently invested another $3 billion at close to a 6 percent yield.
Munger doubted Berkshire Hathaway’s major move into artificial intelligence, stating that “old-fashioned intelligence works pretty well.”
But he also said value investors such as himself, Buffett and many of their fans “should get used to making less,” in part because so many investors are following similar strategies.
Buffett also addressed the impact on investments of the high interest rate environment as the Federal Reserve has hiked rates at the fastest pace since the 1980s in a bid to quash soaring inflation.
He said Berkshire Hathaway is well-positioned as rising rates help its insurance units generate more income. Berkshire’s insurance unit, which includes Geico and a number of large reinsurers, recorded a $911 million operating profit, up from $167 million last year, driven by a rebound in Geico’s results.
At the same time, higher interest rates have pressured the profits of banks, which have an easier time making money when rates are low.
Buffett said it would have been “catastrophic” for regulators not to step in to protect depositors of Silicon Valley Bank, which was seized in March after depositors rushed to withdraw their savings in a classic bank run.
Buffett also said that the regular partisanship in Washington has deteriorated into a form of “tribalism” where people talk past each other.
“The problem now is that partisanship has moved more towards tribalism, and in tribalism, you don’t even hear the other side,” he said.
However, Buffett reiterated his long-term optimism about the prospects for America even with the bitter political divisions.
“We have to refine, in a certain way, our democracy as we go along,” he said. “But if I still had a choice, I would want to be born in the United States. It is a better world than we’ve ever had.”
Addressing the debt ceiling standoff, Buffett also said that he could not imagine the government letting the country default on its debt, which he said would lead the world’s financial system to “go into turmoil.”
The United States bumped up against its $31.4 trillion debt ceiling in January, leaving it to Congress to raise the cap and allow the government to keep paying its bills.
Democrats have insisted on legislation with no preconditions to raise the debt ceiling, while Republicans have demanded spending cuts in exchange for their support to lift the borrowing cap.
Two years ago, Buffett said that Greg Abel, who oversees all of Berkshire Hathaway’s noninsurance businesses, would eventually replace him as CEO—even though he has no plans to retire.
Buffett said in Omaha that he has total confidence in Abel to lead Berkshire Hathaway in the future, and he doesn’t have a second choice for the job because Abel is remarkable in his own right. At the same time, Buffett said much of what Abel will have to do is just maintain Berkshire’s culture and keep making similar decisions.
“Greg understands capital allocation as well as I do. He will make these decisions on the same framework that I use,” Buffett said.
Abel, who was also in attendance, followed that up by assuring the crowd that he knows how Buffett and Munger have handled things for nearly six decades.
“I don’t really see that framework changing,” he said.
At the end of this year’s first quarter, Berkshire Hathaway held $130.6 billion cash, up from about $128.59 billion at the end of last year.
Besides a number of major businesses, Berkshire Hathaway owns an eclectic assortment of dozens of other businesses, including a number of retail and manufacturing firms such as See’s Candy and Precision Castparts.
Reuters and The Associated Press contributed to this report.