Every first weekend of May something special happens, the annual shareholder meeting of Berkshire Hathaway. It’s called Woodstock for Capitalists. Each year, two of the world’s most successful investors take the stage. They answer journalists’ and investors’ questions. They entertain with pointed language and plenty of wit. Yes, it’s always great to listen to Warren Buffett and Charlie Munger. At 91, Buffett is the CEO of Berkshire. Munger, a sprite 97, is Vice-Chair of the firm. This weekend, Buffett and Munger again “oraculated” aptly.
Who is Warren Buffett?
Warren Buffett has succeeded in what few people do. He has become a legend in his lifetime. In 1956, at 26, Buffett bought the textile factory, Berkshire Hathaway.
He built it into a gigantic investment group. His business partner Charlie Munger became his deputy in 1978. Since then, both of them have been at the helm of their asset management company.
Berkshire Hathaway is currently one of the most expensive shares in the world. Class A shares hit a new historic high of $417,905 last month.
Why so high? Buffett and Munger do not advocate for stock splitting. They prefer to make it an institutional holding that is less likely to experience lots of swing trading. It is a long-term hold.
As the largest Berkshire shareholder, Buffett’s fortune has surpassed $100 billion in recent months. Not bad work if you can get it.
Talking Central Banks
So, what did they say that drew attention?
The Oracle of Omaha finds himself at odds with the stance of the Federal Reserve. Fed boss (Federal Reserve Bank) Jerome Powell is mainly avoiding the topic of U.S. dollar devaluation. He says that inflation would only be a temporary problem.
The truth is this: Powell has no other choice than to talk down the inflation problem.
If he publicly admitted the truth, market participants’ confidence would plunge. Market interest rates would immediately end their now 6-week-long lull and continue their rise since August 2020.
Warren Buffett Predicts Inflation
Buffett said that COVID-19 created an unusual recession. He expects a hot-running (“red hot”) economic recovery from the pandemic. But he warns that the U.S. economy will face rising inflation at the same time.
Warren Buffett thus confirms my assessment, which I’ve advocated for several months. I expect an increase in inflation to burst well beyond what the Fed expects (or should expect?).
At some point in the next few weeks, the resulting consequences will overturn the narrative that currently still prevails among market participants — “that the central banks will save them yet.”
SPACs: Talking About Reverse IPOs
The statements on the so-called SPACs (an acronym for Special-Purpose Acquisition Companies) were also interesting. Their sense (or rather nonsense) is quickly described:
Large investors bring a company shell to the stock exchange and collect millions for it, with the promise to buy or take over a company from it within usually two years. If the promise is not kept – i.e., no company is acquired – the assets flow back to the shareholders.
Of course, minus the management fees of usually 2% per year of the collected assets. A fine deal, especially for the SPAC initiators.
Buffett’s opinion on these investment vehicles is stark.
“If you put a gun to my head and asked me to buy a business within two years, I’d probably do it – but not very much of it,” he said.
Cryptocurrencies are “Disgusting”
Cryptocurrencies also “got their comeuppance.”
Charlie Munger attacked artificial currencies like Bitcoin. He explained they are a guide to money laundering:
“I can’t welcome a currency that is so useful for kidnappers, extortionists, and the like! Nor do I like shoveling billions and billions of dollars to someone creating a new financial product out of thin air! I guess I should say it in a moderate tone that I think the whole damn development is disgusting and contrary to the interests of our civilization,” he said.
Ouch! That hit home!
More than ten years ago, I enjoyed attending Berkshire Hathaway’s annual shareholder’s meeting in Omaha. To call this a shareholder meeting doesn’t hit the mark. It’s more like a folk festival that starts the day before with a company’s presentation (similar to a trade show) owned by Berkshire Hathaway.
Here you have the opportunity to buy all the great products of these companies at a slight discount and thus contribute not only to their well-being but also to asset management, to a not inconsiderable extent.
At the actual event of the Annual General Meeting, you will be sitting in an arena with around 40,000 like-minded people. But you won’t be watching a sports event. You’ll be listening spellbound to the statements and wisdom of Warren Buffett and his congenial deputy Charlie Munger.
Even if only some highlights were considered here, they speak to me as an investor with 41 years of experience.
And once again, the latest oracles will ultimately turn out to be true.
Inflation will probably be the first on the agenda.