5 Top Lessons from 2022 Berkshire Hathaway Annual Meeting

Hello, fellow compounders. I'm very excited about presenting this video. This is the first time I have attended the Berkshire Hathaway's Annual Meeting in person. I'm going to be sharing my experiences and key takeaways from the trip. At the end of the video, I'm also going to be giving away six months of premium membership to the Always Be Compounding Newsletter, to the first 20 people who post in the comments below the name of the second stock that Warren Buffett bought in his lifetime. I'll be mentioning the name of that stock in the video later on.

Hi, for those who are new to the channel, I'm your host Dennis Chen. I'm a full-time investor, entrepreneur, financial book author, Wharton MBA and CFA charterholder. On our channel we share ideas on how to build, grow and enjoy wealth. Welcome aboard.

Here are the five key takeaways that I got from the meeting.

Number one. Berkshire Hathaway purchased about $51.9 billion worth of stock in equities in the first quarter of 2022. The net purchases were $41.5 billion. The major purchase out of that $51.9 was Chevron stock for $21 billion. In the second purchase Berkshire Hathaway was able to buy about $8.8 billion, or 14% of Occidental Petroleum during that period. Actually, it bought it over a period of two weeks in the first quarter. This would have been hard to do, if it weren't for so many gamblers in the market, as Warren Buffett and Charlie Munger explained,

Takeaway number two. The abundance of gamblers and speculators in the market is what gives opportunities to the investors. These are opportunities that Charlie and Warren took advantage of in the first quarter of 2022, with the purchase of Occidental Petroleum shares. Remember that they are investors and they're not speculators. Warren said that investing is laying out money or purchasing power now to get more in the future. Warren actually gave a story of a trip that he had to Las Vegas with his wife when he was 21 years old. He saw many people from Omaha that he knew that were playing craps, which made it mathematically, those in favor of players. And after seeing that, he told his wife that he was certain that he was going to be rich. And the requirement of an investor is to be sane, and rational.

Takeaway number three. Workouts, or what some people call merger arbitrage, can still be done. Once in a while by the big guys. Buffett bought more Activision, taking the stake of the Berkshire stake up to 9.5% of the company, or around $5.6 billion. If you recall, on January 18 of this year, Microsoft announced that it was acquiring Activision for $95 per share, Warren decided to do what he calls a workout. He's counting on a short-term trade, where Microsoft will be buying the shares and paying $95 per share by June of 2023. Let me walk you through the analysis of this trade.

So, here we have Microsoft offering $95 per share for Activision Blizzard. And it's proposing to close by June of 2023, on or before June of 2023. So if Activision you could buy it right now at around $77, today is May 10 of 2022, and the deal closes, you will make $18 of profit which is about 23% return on investment. And here we have two 13 months, that means 13 months to the end of the closing of the deal. That means that the annual return on investment would be 21%, if the deal closed that 12 months it would be exactly 23%.

But let's leave it at 30 for now. And what happens if it doesn't close? If the deal doesn't close? Let's say that the stock will go back to what it was trading at in the range of 60 to $65 per chair. So I'll put it at 60 to be conservative. That means that if you buy it for $77, that deal doesn't close for some reason, then you will lose $70 per share. So, we take the expected value of these two scenarios, let's say that there's a 90% chance that the deal will close, I'm assuming that Microsoft did its due diligence. And, you know, talk to the regulators and, and they estimate that it's going to close. So I've given it a 90% probability of closing. And that means that 10%, we will not go. So our expected return, this was expected profit, would be $14.5 per share.

So if the deal or profit that we expect from the deal, profit expected, here is wrong, and we change this expected profit $14.50, and closing in 13 months, that means that our expected ROI, annual return on investment, we are at 70%. So that's the deal that is presented to us at this moment. Buffett probably got a little bit better than $77 per share. But we can actually, we could actually copy Berkshire Hathaway, if we wanted to buy Activision Blizzard expecting to make around 70% on this investment.

Of course, you should think about what’s your cost of capital, I mean, obviously, don't take the deal if your cost of capital is higher than 70%. And you also should think about what your opportunity cost is. So you should have a hurdle for taking these type of deals, because you can either invest in something like this, which is short-term, or you might have the possibility right now, given the current environment of the market to find good investments that will give you a longer, longer runway of compounding your wealth. This is a one time event, very short-term.

And the other question, obviously, is do you have the funds to allocate? Buffett or Berkshire Hathaway had a lot of funds, he had over $150 billion dollars. Now it's less, it's around $100 billion of cash to work with. And he allocated $5 to $6 billion to this, this is relatively small, a small bed for him. And for it well, for when I say him, I mean, Berkshire Hathaway.

So there you have it, there's the analysis. Let's continue.

Take away number four. A student named Daphne, who has been to the meeting five times, asked, what is the best stock to own for this inflationary environment. And Warren said that the best thing you can do is to be exceptionally good at something. The best investment really is to develop oneself. He kind of like skipped the tip, giving you a stock. But that is his advice

Here.

“ - Mr. Buffett, and Mr. Munger, my name is Daphne. I'm from NYC, and this is my fifth annual shareholders meeting.

• We appreciate you coming. We do, sincerely.
  
• As you know, for the past four consecutive months, we've been going through inflation within the inflation wave, north of 7%. For the first time, since 1982. You both have experienced this before, from 1970 to 1975. At a time where your portfolio took paper losses, and yet you made some of the best investment choices of your life. Reflecting on that, my question is, if you had to pick one stock, to bet on.
  
• You kind of snuck up on us there for a second
  
• … and be resilient, and the inflation which would you choose? And what specifically enables that stock to do very well and why very likely It’d be a difficult market?
  
• Well, I'll do something even better than that one stock. Maybe we'll get to one stock, but the best thing you can do is to be exceptionally good at something. You're the best. If you're the best doctor in town, if you're the best lawyer in town, if you're the best whatever it may be. No matter whether people are paying you with a zillion dollars or paying… They're going to, they're going to give you some of what they produce in exchange for what you deliver. And if you've got it, if you're the one they pick out to do any particular activity, say, you play baseball, or either lawyer, whatever it may be, whatever abilities you have can't be taken away from you, they can't actually be inflated away from you, somebody else will give you some of the wheat they produce, cotton, or whatever it may be. And they will trade you for the skill you have. So the best investment by far is anything that develops yourself and again, not tax. So that's what I would do.
  

Takeaway number five. Bitcoin is crap. Warren Buffett would rather have 1% of all the farmland in America, for $25 billion, or 1% of all the apartments in America for $25 billion, then owning all of the Bitcoin available in the world for $25. He wouldn't pay $25 for all the Bitcoin in the world. Why? Bitcoin isn't a productive asset, it doesn't produce anything of tangible value. This is similar to what he said about gold, a while back. Basically, he said that having all the bitcoins in the world, even if he had to pay whatever amount, he wouldn't be able to get anything out of it. He would have to try to sell it to someone else who would be willing to pay more for it. It's totally speculative. That asset doesn't build anything .A farm can grow corn, can do other stuff. And real estate can provide, you can rent it out, provide some service to people. So that's the reason why Bitcoin is crap.

And Charlie added that Bitcoin is stupid, evil and foolish. Stupid, because it will probably go to zero according to Charlie, because it undermines the Federal Reserve System, that takes care of the legal tender in the US and probably the world. And it makes us look foolish compared to the Communist leader in China who banned cryptocurrency and Bitcoin altogether. And by the way, earlier in the session, Charlie made a comment “Just say no to putting Bitcoin in your retirement account”. He was making reference to the fidelity of allowing cryptocurrency in their retirement offerings. So there you have it.

So that's it. Those are the five takeaways that I got from the meeting. Many people probably got more, and I invite you to if you haven't gone or haven't watched it yet, to watch the meeting on cnbc.com. They have the recording of the entire six hours worth of meeting. It's probably worth your time.

So with that, let's go to some trivia, trivia information that seemed pretty interesting, if you decide to go to the annual meeting next year.

I highly recommend that you go early. A lot of good stuff finishes on the first day. So get all your shopping done on Friday. So you can have Saturday to go through and enjoy the meeting.

What we did is we went on Saturday, we went early and lined up at 6 am. It was kind of cloudy and it had rained on Friday night. I estimated that the attendance wasn't as much as in 2019, my friend and I were able to get very great, very good seat. We even bumped into Tom Gaynor, the CEO of Mark Hill in the same area where I was sitting. The meeting started at 8:30 in the morning with a movie. We weren't allowed to record anything once the meeting started. So unfortunately, you'll have to take my word for it. The movie was a great collection of advertisements of the different businesses of Berkshire Hathaway and some short skits featuring Charlie ward. It was very entertaining.

The mornings question and answer session starts with Warren, Charlie, Reg Abel and Ajit up front and ready to answer questions. There were questions coming from the audience and also from Becky Quick from CNBC, whose work was curating the questions that were coming from the people that were seeing it remotely. After that it was followed by a lunch break. And then there was an afternoon session of questions and answers.There was only Charlie, Warren was answering the questions in the afternoon.

All right, let me show you some of the things that I bought at Berkshire Hathaway's exhibit.

Coffee Mug. You can see O also got some hats, Berkshire Hathaway hats. Berkshire Hathaway, hats. Some See's Candy. This is actually my last box. I bought a whole bunch of boxes that didn't last too long. And obviously I got a polo shirt. And also at Fruit of the Loom, you can get these boxer shorts that say, Berkshire investor. So I highly recommend it to everyone.

Everybody who's a Berkshire Hathaway owner, you'd have one of these.

And finally, I got my capitalist card. I'm a card carrying capitalist now. And here's the back side of the card with Warren and Charlie.

And there you have it. And of course, I had some daily bars and other things that I consumed on premises. It was a great experience. I highly recommend everybody who goes to buy a whole bunch of stuff.

So here's some fun facts about the meeting.

So number one, only seven questions were answered in the first half of the meeting, which is a new low for Warren. First half of the meeting was three hours and he only answered seven questions. That means that they were pretty long.

Number two, See's Candy actually brought 11 tons of candy or chocolate to be sold in the 2022 meeting. That's a lot of chocolate. I bought some of it here.

And number three, the second stock that Warren Buffett bought in his life was Texas Pacific Land Trust at the age of 13 or 14.

And the fourth piece of interesting information is that there is an estimated of $3.5 million investment accounts in the world that owned Berkshire Hathaway stock. That's 3.5 million accounts that actually own a share of Berkshire Hathaway.

Thank you very much for watching the video. Please comment below with any questions you may have. And as I said earlier, I'm giving away 20 Premium memberships to the Always Be Compounding Newsletter to the first 20 people that comment below that mention the name of the second stock that Warren Buffett bought in his lifetime. So go ahead, comment below, put down the what I said just a couple of minutes ago of the name of the second stock that he bought in his life.

So thank you very much. Take care for so long, and always be compounding.