Warren Buffett on Charlie Munger, Cash Piles and Forever Stocks

As
in
prior
years,
Buffett’s
2023
shareholder
letter
is
less
about
“what’s
new”
and
more
about
offering
investors
useful
reminders
about
how
to
invest
successfully
–
expressed
in
Buffett’s
unique,
folksy
way.
Yet
there
are
some
notable
comments
in
this
year’s
letter
about
whether
Berkshire
will
pay
a
dividend,
who
Buffett’s
successor
will
be,
and
which
stocks
Buffett
expects
to
be
long-term
holdings.

Warren
Buffett
on
Charlie
Munger:
‘The
Architect’

In
a
separate
note
to
readers
before
the
shareholder
letter
begins,
Buffett
pays
tribute
to
Munger.
Long
credited
for
pivoting
Buffett
(and
subsequently
Berkshire)
toward
quality
companies,
Buffett
calls
Munger
the
“architect”
of
present
Berkshire,
with
Buffett
acting
as
the
“general
contractor”
who
carried
out
Munger’s
vision.

According
to
Buffett,
Munger
told
him
in
1965:

“Warren,
forget
about
ever
buying
another
company
like
Berkshire.
But
now
that
you
control
Berkshire,
add
to
it
wonderful
businesses
purchased
at
fair
prices
and
give
up
buying
fair
businesses
at
wonderful
prices.
In
other
words,
abandon
everything
you
learned
from
your
hero,
Ben
Graham.
It
works
but
only
when
practiced
at
small
scale.”

Buffett
on
How
to
Invest

Plenty
of
ink
has
been
spilled
from
the
pens
of
the
financial
press
about
how
to
invest
like
Warren
Buffett.
But
there’s
nothing
like
hearing
an
annual
reminder
from
the
Oracle
of
Omaha
himself
about
how
to
build
a
portfolio
to
last.
Such
reminders
are
especially
useful
in
today’s
market
climate.

Observes
Buffett:

“Though
the
stock
market
is
massively
larger
than
it
was
in
our
early
days,
today’s active participants
are
neither
more
emotionally
stable
nor
better
taught
than
when
I
was
in
school.
For
whatever
reasons,
markets
now
exhibit
far
more
casino-like
behavior
than
they
did
when
I
was
young.
The
casino
now
resides
in
many
homes
and
daily
tempts
the
occupants.”

Buffett’s
new
letter
reiterates
some
of
the
things
that
have
made
Berkshire
so
successful
over
time,
including:

•
Have
a
clarity
of
purpose
when
investing

•
Focus
on
quality
investments,
or
in
Buffett’s
words,
“wonderful
businesses.”

•
Favour
companies
run
by
good
managers.

•
Hold
on
for
the
long
term,
as
“patience
pays”.

•
Practice
“fiscal
conservatism.”

Warren
Buffett
Won’t
Sell
These
Stocks

Buffett
talked
in
last
year’s
letter
about
two
stocks
“that
leave
us
comfortable”
and
that
he
expects
Berkshire
Hathaway
to
own
indefinitely:
Coca-Cola
(KO)
and
American
Express
(AXP).
And
not
surprisingly,
Berkshire
maintained
its
positions
in
these
stocks
in
2023.
“When
you
find
a
truly
wonderful
business,
stick
with
it,”
he
writes
this
year.
“Patience pays,
and
one
wonderful
business
can
offset
the
many
mediocre
decisions
that
are
inevitable.”

This
year,
Buffett
highlights
two
other
“Rip
Van
Winkle”
investments
he
expects
Berkshire
to
own
indefinitely,
both
of
which
the
firm
added
to
in
2023.

The
first
Buffett
stock
for
the
long
term
is
Occidental
Petroleum
(OXY).
Berkshire
owned
27.8%
of
the
company’s
stock
at
the
end
of
2023
and
also
owns
warrants
that
will
allow
Berkshire
to
increase
its
stake
if
it
so
chooses
at
a
fixed
price.
As
Buffett
has
stated
before,
Berkshire
has
no
interest
in
owning
Occidental
outright.
Rather,
Berkshire
likes
the
company’s
vast
oil
and
gas
holdings
in
the
United
States
and
its
leadership
in
carbon-capture
initiatives.

The
second
investment
Buffett
expects
Berkshire
to
own
indefinitely
is
the
firm’s
stake
in
five
large
Japanese
financial
conglomerates:

Itochu,

Marubeni,

Mitsubishi,

Mitsui,
and

Sumitomo.
Berkshire
now
owns
about
9%
of
each
company,
says
Buffett,
and
has
pledged
not
to
take
its
ownership
stakes
above
9.9%.
The
managers
of
these
companies
run
their
firms
like
the
team
runs
Berkshire,
following
what
Buffett
calls
“shareholder-friendly
policies
that
are
much
superior
to
those
customarily
practiced
in
the
US.”
To
that
end,
these
firms
repurchase
shares
when
the
price
is
right,
retain
cash
flow
to
build
their
businesses,
and
pay
their
executives
reasonably
rather
than
excessively.
Lastly,
Buffett
suggests
that
Berkshire’s
investments
in
these
five
Japanese
firms
“may
lead
to
opportunities
for
us
to
partner
around
the
world.”

Can
Berkshire
Hathaway
Outperform?

Buffett’s
latest
letter
also
addresses,
in
some
cases,
subtly,
some
frequently
asked
questions
about
Berkshire
Hathaway.

One
of
those
questions
is:
at
its
current
size,
can
Berkshire
Hathaway
possibly
outperform
at
the
rate
that
it
did
in
the
past?

Buffett
admits:

“There
remains
only
a
handful
of
companies
in
this
country
capable
of
truly
moving
the
needle
at
Berkshire,
and
they
have
been
endlessly
picked
over
by
us
and
by
others.
Some
we
can
value;
some
we
can’t.
And,
if
we
can,
they
have
to
be
attractively
priced.
Outside
the
U.S.,
there
are
essentially
no
candidates
that
are
meaningful
options
for
capital
deployment
at
Berkshire.
All
in
all,
we
have no possibility
of
eye-popping
performance.”

What
should
investors
expect
from
Berkshire?
That
it’ll
do
slightly
better
than
the
average
company,
says
Buffett.

When
Will
Berkshire
Hathaway
Invest
Its
Cash
Pile?

Another
common
question
about
Berkshire
is
when
it
will
invest
its
sizeable
cash
hoard.

Buffett
acknowledges
that
Berkshire
holds
cash
and
Treasury
bills
“far
in
excess
of
what
conventional
wisdom
deems
necessary.”
Part
of
the
reason
for
the
significant
cash
pile
is,
of
course,
because
there
aren’t
enough
attractively
priced
opportunities
among
the
types
of
businesses
that
Berkshire
likes.

Other
factors
are
at
play,
though,
too;
Berkshire
practices
what
Buffett
calls
“extreme
fiscal
conservatism”;
Buffett
compares
the
sizeable
cash
position
to
“an
insurance
policy
on
a
fortress-like
building thought to
be
fireproof.”
Buffett
plans
to
safeguard
the
savings
that
have
been
entrusted
to
Berkshire
and
not
expose
those
savings
to
any
permanent
loss
of
capital.
Cash
naturally
plays
an
important
role
in
that
strategy.

But
the
cash
stockpile
also
ties
into
a
theme
that
isn’t
talked
about
quite
as
much:
Berkshire’s
goal
to
be
an
asset
to
the
United
States
when
financial
fires
need
extinguishing,
as
they
did
in
2008-09
when
Berkshire
invested
in
Goldman
Sachs during
the
global
financial
crisis
or,
a
few
years
later,
when
Berkshire
“saved”
Bank
of
America.
Given
this
mindset,
it’s
hard
to
imagine
a
time
when
cash
will
not
be
king
at
Berkshire.

Will
Berkshire
Hathaway
Pay
a
Dividend?

Related
to
the
cash
question
is
whether
Berkshire
will
begin
to
return
some
of
that
cash
to
shareholders
in
the
form
of
dividends.

Buffett
gives
no
indication
that
a
dividend
is
forthcoming,
but
he
doesn’t
close
the
door
entirely
on
the
idea,
stating,
“Berkshire
does
not
currently
pay
dividends,
and
its
share
repurchases
are
100%
discretionary.”

Morningstar
strategist Greggory
Warren,
who
covers
Berkshire
Hathaway,
thinks
it
is
unlikely
that
Berkshire
will
pay
a
dividend
while
Buffett
is
still
calling
the
shots. Says Morningstar’s
Warren:

“He
doesn’t
like
to
give
away
something
and
not
get
something
in
return.
And
I
think
the
other
thing
is
that
I
think
he
still
wants
to
leave
that
as
a
tool
for
the
next
guys.
Because
they’re
going
to
have
to
have
something
to
sort
of
placate
longer-term
investors
to
convince
them
to
continue
to
stay
with
the
firm,
while
they
figure
out
how
best
to
handle
capital
allocation
over
the
long
run.”

Who
Will
Succeed
Warren
Buffett?

Berkshire
followers
have
long
assumed
that
Greg
Abel,
who
manages
Berkshire’s
noninsurance
operations,
is
Buffett’s
heir
apparent.
Buffett
all
but
confirmed
that
thinking,
noting
in
this
year’s
shareholder
letter
that
Abel
“in all aspects
is
ready
to
be
CEO
of
Berkshire
tomorrow.”

Investors
may
hear
more
about
that
during
Berkshire
Hathaway’s
annual
meeting
on
Saturday,
May
4,
in
Omaha.

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