On the ground in Omaha
A personal perspective from Rothschild & Co equity analyst Shannon Magee after this year’s Berkshire Hathaway AGM.
On a Saturday in May each year, tens of thousands of people descend on the otherwise fairly unremarkable Midwest city of Omaha for the Berkshire Hathaway AGM. In theory, an annual meeting for shareholders, in practice, something in between an investment concert and a religious experience for the disciples of Warren Buffett and Charlie Munger.
Every year members of our investment team at Rothschild & Co attend, not only as engaged shareholders but also as investors – there is no other place in the world where quite so many like-minded people passionate about investing, gather, connect, and exchange views.
As a team, our ‘on the ground’ approach is key to our process, and we really believe that there is only so much we can learn reading at our desks! One of our richest sources of inspiration is discussing and developing ideas around both the businesses and sectors that we know well and also meeting leaders from sectors with which we are less familiar.
Hughie Jessel (Head of Fund Investments) in the arena during the event.
On my flight to Chicago, I noticed that the passenger next to me was reading the AGM agenda and realising that we were both heading to the same place, we immediately struck up conversation. He was a senior UK fund manager with a similar investment philosophy to our own and finding ourselves on the same connecting flight out to Omaha we continued chatting. The investment world is often labelled as something of a ‘old boys club’ but as a younger woman it is exactly this type of experience that confirms that this is not always the case – this was my second visit to Omaha, and I have found it to be a great leveller with attendees from around the world of all ages.
Shannon Magee in front of the entrance to the Annual Shareholders Festival.
During my stay I also met up with a US fund manager with whom I had connected at last year’s AGM. Unlike the UK fund manager on the plane who had a similar philosophy to us at Rothschild & Co, this manager has a different style, but there is real value in discussing businesses with people who see the world in another way and who challenge our views. That said, I was quietly pleased to hear that Ryanair, which we have owned since 2011 had just appeared on his radar as a great business!
Given the importance that we place on partnering with third-party fund managers who share our approach and values, it is not surprising that several of the managers we invest in attend each year, giving us a great opportunity to catch up. In fact, we first met the team from Bares at the AGM in 2015 and invested with them just over a year later.
As long-standing shareholders of Berkshire Hathaway, attending in person also gives us access to the board members. After the AGM, Mark Wallace (Portfolio Manager) and Dean Lush (Client Adviser and Executive Vice Chair) attended a dinner with several board members of Berkshire.
On the day itself, the queue to get into the conference centre started at around 04:00am and the rush to get into the main room when doors opened at 07:30am was more akin to a sell-out concert than a company AGM with two nonagenarians. The centre was filled with exhibitors from the 50-plus businesses owned by Berkshire, an eclectic mix of companies ranging from BNSF - the largest freight railroad in the US, to Duracell, See’s Candy and Jazwares - the maker of the bestselling toy in the US in 2022 - the Squishmallow (and no, we had not heard of them either!).
The AGM itself is best described as a marathon and not a sprint, lasting the whole day. After a brief presentation from Warren, most of the day was given over to audience Q&A and this year’s questions covered many familiar topics which come up year after year. New this year was the hot topic of AI, and it would be fair to say that neither Warren Buffett nor Charlie Munger shares quite the same verve as some on the topic (“I think old-fashioned intelligence works pretty well”).
It is hard to draw out key takeaways as an investor when the whole day was filled with interesting material, but here are three things that stood out for me:
The power of buy and hold
Berkshire bought an 11% stake in American Express in 1995. It has not added to the holding but as a result of share buybacks it now owns over 20% of the company. They paid $1.3bn for the shares which are now worth $25bn and pay dividends of over $330m per year. “We own publicly traded stocks based on our expectations about their long-term business performance, not because we view them as vehicles for adroit purchases and sales. That point is crucial: Charlie and I are not stock-pickers; we are business-pickers”
Cash is key
The insurance business within Berkshire Hathaway generates a huge amount of cash and they are currently sitting on around $125bn - to put that in context, that is enough to give $370 to every single person in the US! This is the cash that they can use to invest. For years, this earned very little (around $50m each year), but with higher interest rates this cash pile is earning closer to 4% ($5bn). When you can earn 4% on cash you can afford to be picky with the shares you buy!
Succession is in-hand
Both Warren Buffett and Charlie Munger are still remarkably switched on but given their age, Buffett is 92 and Munger an impressive 99, the question of succession has been carefully planned for years. Despite this, “what happens when Warren retires?” is asked every year. As a nod to this, the meeting opened with a montage of AGMs stretching back over twenty years where the same question was asked repeatedly - a light-hearted way of making the point that they probably should be given the credit for having thought about this a lot! The new CEO, Greg Abel, was far more visible and vocal this year and came across as a very safe pair of hands.
Mark Wallace (Co-Head Portfolio Management), Francisco Saragga Leal (Assistant Director) and Dean Lush (Executive Vice Chair) in front of the entrance to the Annual Shareholders Festival.
Both Warren and Charlie are famous for their wise words and as always, a lot of what was said can be applied to life outside investing. On that note, I cannot think of a better way to end than with one of Warren’s best musings of the weekend. “If you want to figure out how you want to live your life, you write your obituary and reverse engineer it”.