Warren Buffett warns of US slowdown, China risks: Key takeaways from Berkshire Hathaway's annual meeting

Warren Buffett

The Berkshire Hathaway annual general meeting (AGM) was successfully conducted on May 6, 2023. Warren Buffett, the billionaire investor, and Charlie Munger chaired the meeting and shared their views on a range of topics. They covered a lot of ground, including regional banking troubles, their skepticism around artificial intelligence “hype” and the dollar’s status as a reserve currency, while offering up crucial advice on investing.

Below is the list of key takeaways from the annual general meeting: -

Buffett has issued a warning to shareholders, indicating that the US economy could experience a slowdown this year.

He identified the commercial property sector, banking system, and tensions with China as the major risks to watch out for. Buffett expressed his concerns about the escalating tensions between Beijing and Washington and urged the two countries to avoid pushing too hard. He warned that inflammatory or authoritarian actions could result in severe consequences, considering that both sides have more tools of destruction than the world has ever had.

Poor regulation in failed bank cases criticized 

Buffett has criticized poor regulation and communication by regulators, politicians, and the press and believes executives should be held accountable for mistakes that caused the banks to fail. The liquidation of a crypto-friendly lender in March led to turmoil that spread to three other regional banks. Buffett even used sign boards “available for sale" and “held to maturity” to emphasize his point about accounting treatment. He also criticized First Republic Bank for offering non-government-backed mortgages at fixed rates for ten years, which he called a "crazy proposition." JPMorgan Chase recently acquired First Republic Bank.

Auto business 'too tough' for investments

During Berkshire Hathaway's AGM, Buffett also stated that the company is unlikely to invest in automakers like General Motors (GM) or Ford Motor (F). Buffett and Charlie Munger have long believed that the auto business is too challenging, citing an anecdote about Henry Ford's difficulties in the industry in the early 1900s. According to Buffett, the industry has too many global competitors, making it difficult to generate attractive returns. Additionally, with the transition to electric vehicles, the industry faces significant capital costs and risks in the near term. Berkshire Hathaway prefers the auto dealership business, with ownership of 78 dealerships across the US. These dealerships generate over $8 billion in annual revenue, making Berkshire one of the largest dealership groups in the US.

Views on the current cash pile of Berkshire Hathaway and the dominance of dollar as a reserve currency

Buffett stated that Berkshire Hathaway would rather do a deal than sit on $130 billion in cash. He further discussed the company's nearly $130 billion in cash and Treasury bills on its balance sheet, as well as ongoing speculation about what the company might do with it. While Buffett would rather do a deal for a large company than sit on the cash and earn interest, he noted that the prices for such deals are generally expensive these days. He highlighted the complexity of buying a publicly traded company due to the longer timeline, shareholder vote, and other rules, and stated that there just aren't many private companies of the required scale available. However, he also mentioned opportunities that emerged during the global financial crisis in 2008 and stated that he expects Berkshire to get similar calls in the future. In the meantime, Berkshire is earning close to 5 percent on its T-bills and has been buying stock in recent years. On the question of dollar and its reserve currency status, Buffett stated that there’s no option for any reserve currency other than the US dollar currently.

Berkshire Hathaway aims to reduce Carbon Footprint by 50 percent in 2030

Buffett and Vice Chairman Greg Abel spoke about the company's efforts to increase its participation in renewable energy generation. Abel, who oversees Berkshire's non-insurance businesses, including Berkshire Hathaway Energy, highlighted the utility company's target to reduce its carbon footprint by 50 percent in 2030 relative to 2005 levels. Berkshire Hathaway Energy is investing in windmills and other clean energy generation, and extending transmission lines to more renewable energy sources that are more distributed than traditional power plants. According to Abel, this presents a good business opportunity for the company.

Warren Buffett and Charlie Munger differ on prospects for value investing

Buffett and Munger offered different views on the future of value investing. Munger warned that value investors will face greater competition for opportunities and may earn less, while Buffett believes there are still ample opportunities due to an increase in "people doing dumb things." Despite Berkshire's current scale, Buffett emphasized the importance of a long-term investing horizon for realizing value. Munger joked that he'd like his net worth to remain unchanged.

Buffett and Munger expressed skepticism about AI, Robotics

Some shareholders asked Buffett and Munger for their thoughts on artificial intelligence and robotics. While Munger was impressed by the level of automation at BYD factories in Asia, he emphasized that "regular old intelligence works just fine." Buffett joked that there won't be any AI that could replace Ajit Jain, the company's vice chairman, and warned about the potential risks of AI, drawing a parallel to the development of the atomic bomb.

Buffett reaffirmed confidence in successor Greg Abel at Berkshire Hathaway's annual meeting

During the AGM, Buffett faced multiple questions regarding his appointed successor, Greg Abel. In 2021, Abel was named heir apparent and has since had a more prominent role within the company. Buffett expressed his complete comfort with the decision and suggested that the transition would be mostly business-as-usual. He lauded Abel for his comprehension of capital allocation and noted that he would make decisions within the same framework that Buffett would. Abel, who has transformed Berkshire's energy business into one of the biggest in the US, joined Buffett and Munger on stage for the meeting.

Buffett on US debt ceiling and its importance for the US economy

As lawmakers race to resolve standoffs around the US debt ceiling, Buffett said he couldn't see how Washington would allow the US to default on its debt. As such an outcome would tip the financial system in turmoil. Buffett hence has reiterated his faith in America being an "incredible society" and the lawmakers will definitely resolve the issue in time thus preventing the US from falling into technical default.

Berkshire on share buybacks and the road ahead

This has been a big quarter for buybacks for Berkshire i.e., during the first quarter, and especially in March (presumably when the banking crisis drove the entire market lower), Berkshire was highly active when it came to share buybacks. In the three-month period, Berkshire purchased a total of 5,103 Class A shares and about 6.7 million Class B shares. According to the average share prices paid, Berkshire spent about $4.4 billion on repurchases during the quarter -- a rather aggressive pace.

For context, this is significantly higher than the $2.6 billion Berkshire spent on buybacks in the fourth quarter. However, it's worth noting that this is below the buyback cadence of 2020 and 2021, when the company regularly exceeded $6 billion in quarterly buyback spending.