Much like the 1975 Billboard top 10 hit song, Feelings, Warren Buffett and Charlie Munger laid out their feelings on a variety of issues in Omaha at the Berkshire Hathaway (BRKB) Annual Meeting. We believe even the greatest investors of all time are being influenced by a mirage. This mirage comes from historically low interest rates and fantastic returns coming out of a narrow group of technology stocks. Buffett and Munger’s feelings ranged from optimism to pessimism and included some very mixed feelings on important subjects. Overall, we at Smead Capital Management are very encouraged by what we learned and think that our opportunity is to not let our feelings become a part of this mirage.
Optimism
1. Buffett: By sharing the newspaper headlines from 1942 and explaining how well stocks have done over long-duration time periods, Buffett expressed great optimism and redirected investors’ focus away from the temporary ups and downs.
2. Buffett and Munger: Both men feel the parent company will be able to take advantage of many of the same competitive advantages in common stock and private equity ownership that exist while they are at the helm of the company. They think the talent pool at BRKB is strong in stock picking (Todd Combs and Ted Weschler), financial strength and corporate management.
3. Buffett: Warren is very optimistic about the United States. He pointed out that he has lived under 14 presidents and the people who would have you believe that this is the most divided we’ve ever been don’t know history or aren’t old enough to know.
4. Wells Fargo (WFC): Buffett reminded investors that large companies will make big mistakes from time to time. For example, Buffett said there is probably an employee of Berkshire doing something very wrong every business day. Wells Fargo created incentives, which led to very bad behavior. Buffett pointed out that he never would have owned American Express (AXP) if they had not made a bad decision about running warehouses on the docks of New York in 1964. Munger pointed out what a good job Harvey Weinstein has done in changing behavior.
5. American Express (AXP): Buffett and Munger sang the praise of AXP and called it a “wonderful company.” They seemed very optimistic, even though the stock market has had an ongoing love affair with Visa and Mastercard. Buffett gave us a sense that he would love to own a much larger position in American Express.
Pessimism
1. Buffett: “Bonds are a terrible investment at anywhere near current yields.” He continued, “The only time bonds were interesting was in the early to mid-1980’s.”
2. Cryptocurrencies: Buffett explained that cryptocurrencies are an “unproductive asset” like gold and rely on the ability of the speculator to have someone come along behind them to buy at a higher price. He added, “It’s a breeding ground for “charlatans” who take opportunities to rip off people trying to get rich in something they don’t really understand.” Munger: “I like cryptocurrencies a lot less than you do,” replied Munger, 94. “To me, it’s just dementia. It’s like somebody else is trading turds and you decide you can’t be left out.” You might say that cryptocurrencies create something of a mirage.
Mixed Feelings
1. The health-care partnership with Amazon (AMZN) and JPMorgan (JPM): Buffett doesn’t seem to be sure at all about what they are going to accomplish in the partnership. He said they would hire a CEO, but that they wouldn’t form a company to do it.