Takeaways from 2022 Berkshire Hathaway Annual Shareholders Meeting - July 18, 2022

Takeaways from 2022 Berkshire Hathaway Annual Shareholders Meeting
You probably know about Woodstock Music Festival. Now, have you ever heard of the Woodstock of capitalism? That’s what they call Berkshire Hathaway annual shareholders meeting. It's always interesting to hear from the chairman and chief executive Warren Buffett and the vice chairman Charlie Munger. We identified several topics addressed at the last Berkshire Hathaway annual shareholders meeting, which we believe will be of interest to each investor.

Don’t let non-GAAP metrics fool you

Warren Buffett pointed out that at Berkshire Hathaway, they prefer to use operating earnings after depreciation and interest and taxes, “unlike other companies that prefer to tell you anything but what they earned”.

Indeed, the use of non-GAAP measures (GAAP = generally accepted accounting principles) in corporate financial statements is not uncommon. Non-GAAP figures, which exclude non-recurring one-time effects, can sometimes provide a more accurate measure of an enterprise’s earning power. However, investors should take into consideration the risk of disinformation. Companies tend to present KPIs which are more attractive compared to the numbers calculated according to the standardized accounting rules. Loss-making businesses can use weird KPIs to look cool and raise capital. 

Make investments and stay away from unintelligent speculation

Warren Buffett compared today’s stock market to a casino or to a “gambling parlor” due to investors’ speculative behavior. According to Charlie Munger, “it’s almost a mania of speculation that we now have.”

Investment is a transaction which promises a satisfactory return and security of capital on the basis of a thorough analysis. Speculation and risk-taking may be justified after a careful analysis. What investors should avoid is unintelligent speculation, which is unjustified risk-taking without appropriate analysis.

Don’t try to time the market

As Warren Buffett puts it, “We haven't ever timed anything.” He admitted that “we haven’t the faintest idea what the stock market is going to do when it opens on Monday”. It is difficult to predict economic developments as well. Investors shouldn’t buy or sell based on expectations of what the market is going to do. Rather, they should invest when they get enough for their money.

Protect yourself against inflation

According to Warren Buffett, the best protection against inflation is your own personal earning bar: “the best thing you can do is to be exceptionally good at something.” If you do something better than other people, they will pay you for the skill you have. Therefore, he emphasized that “the best investment by far is anything that develops yourself.”

Just say “no” to bitcoin

Charlie Munger has some advice for us: “When you have your own retirement account, and your friendly advisor suggests you put all the money into bitcoin — just say no.”

Warren Buffett added that bitcoin is not a productive asset, it doesn’t multiply, it doesn’t produce anything. He emphasized that Bitcoin is based on the greater fool theory as it is “something that depends on the next guy paying you more than the last guy got.” He also underlined the other disadvantages and risks related to cryptocurrencies like costs, fraud, lost passwords, lack of wide acceptance. Therefore, he doesn’t see any value in bitcoin and wouldn’t buy all the bitcoin for $25.

Understand the nature of the business you invest in

Warren Buffett also noted that some companies tend to deceive investors about the nature of their business in order to raise money. He gave an example where an insurance company claims to be a technology company. In fact, it is an insurance company, they have raised a lot of money and they have lost a lot of money. 

We know a lot of examples when companies changed their names to be in tune with the spirit of the times and attract customers and investors. Remember internet related prefixes or suffixes in the dot-com bubble era or using words like “blockchain” or “technologies” in modern times. However, including hot buzzwords in the company name does not change the value of the business. Neither does acting as if the company is engaged in a different, a more popular among investors kind of business. 

The bottom line 

The things we mentioned above may sound little new to many investors. However, we believe there is always value in recalling important common sense investment rules. In this way, investors can achieve their long-term objectives and avoid losing a lot of money.

Disclaimer: This analysis is for general information and is not a recommendation to sell or buy any instrument. Since every investment holds some risk, our main business policy is based on diversification to minimize threats and maximize profits. Innovative Securities’ Profit Max has a diversified portfolio, which contains liquid instruments. This way, our clients can maintain liquidity, while achieving their personal investment goals on the long term.