What We Learned from Buffett’s Last Meeting as Berkshire CEO

[00:00:01] This is The Canadian Investor, where you take control of your own portfolio and gain the confidence you need to succeed in the markets. Hosted by Braden Dennis and Simon Belanger Welcome to The Canadian Investor Podcast. I'm back with Dan Kent. We are doing a fun episode today because there was the Berkshire Hathaway annual shareholder meeting that happened last weekend on Saturday.

[00:00:28] So they always stream it live. You can watch it. I think it's always a partnership with CNBC. It's about six hours. So it's quite the lengthy meeting. As we were talking before we started the recording, sometime it'll be a little bit dry, but still a lot of good information coming out of that. And of course, the big news that Warren Buffett will be leaving as CEO at the end of this year. However, he did mention that he was going to stay on.

[00:00:56] Well, he didn't mention that during the meeting, but the day after the Monday, the board approved that he would stay on as chairman of the board. So he's still going to have a strategic place in Berkshire Hathaway, at least for a little bit, of course, until he doesn't want to do it or passes away. Because Lord knows that he jokes a lot about passing away during the meeting. Almost every meeting.

[00:01:24] Oh my God, he must have mentioned it like several, I don't know how many times, but he joked quite a bit about that. So he's well aware that he's closer to the end, but he's all still good and fun and makes fun of himself. Yeah, I think he, like, I think this is going to be a situation where he ultimately sticks around to the end. Like, I don't see him just cutting ties for what, probably the last, maybe he gets another 10 years. Like, if he's lucky, that would put him, what, at 104 or 105?

[00:01:53] But I think he'll stick around. I mean, that meeting, apparently they've set records for three consecutive years or something in terms of attendance. He didn't know for sure if this year would be a record, but he seemed pretty set that it would be. And yeah, I mean, a lot of people tune into this meeting. I mean, I don't listen to the full thing because like you said, there's a lot of, I don't want to say he rambles on, but he goes on kind of a bit of tangents where like you kind of fall asleep.

[00:02:22] They had one guy they were talking to about the meeting. He said he had fallen asleep, but, and he woke up to the applause when he said he was going to resign. So that snapped him out of it, woke him up. But yeah, they're very interesting meetings. Yeah. And speaking of the applause, so after, of course, he made the announcement, really at the end of the meeting, like literally like a few minutes before the meeting was over, he basically announced that he was stepping down as CEO.

[00:02:49] And Greg Abel, who is Canadian, by the way, will be taking over as CEO. And the round of applause was pretty amazing, well-deserved, but you can also tell, and you know, I'm that kind of person as well. Like I like, I do the podcast and stuff, but I don't like to be the center of attention when there's like groups of people and meeting. That's how I am. And you could tell he's the same thing because he was touched by it.

[00:03:17] You could tell he was definitely touched by the round of applause, but you can also tell that he doesn't like to be the center of attention. And as quickly as he could, he's basically like, lack of a better word, he pretty much said the news and then he was like, okay, see ya at the meetings. And that's pretty much how it happened. There was a round of applause, but I've been guilty of doing that before, even when I left my job, which I was at for like eight years. Sometimes I, a couple of meetings where I, people I worked with over the years,

[00:03:46] I would just like, would say I was leaving my work to pursue the podcast. And then I continue on, on what we were talking about. And I've had a few people, I kind of had to stop me. It's like, wait, wait, what did you say? Like, oh, it was just like, it's no big deal. And it's, it felt a little bit that way for Buffett where it wasn't a big deal for him. He didn't want it to be all on him. Uh, that's really the sense I got when he announced that. Yeah. I mean, he's a pretty modest guy. Yeah.

[00:04:13] I mean, he's arguably the, the best investor of all time. And I mean, he doesn't want any attention on himself. He primarily focused it mostly on the fact that it's going to be in good hands really. So yeah, I mean, it's, uh, the end of an era for sure. He was what? Well, he said that was his 60th meeting. 60th. Yeah. Six decades. Yeah. Yeah. I started, uh, around your age and, uh, and my God, what a, what a track record.

[00:04:41] And I don't, I might've lost for words, but there was some really good takeaways. So we broke it down. We'll give our commentary and what we think about what he said. So the first thing, one of the first questions he was asked, um, was the kind of his thoughts on trade. Of course, that's also in the, with the background of that, like fake video saying that he was embracing tariffs and it was the best movie of thought, uh, that went on social media and

[00:05:09] got reposted by Trump, which by the way, the Berkshire site still has a notice saying that basically Buffett was not like, it was not him. And they're not endorsing that. Uh, it still is on their Berkshire Hathaway website. But to get back to the trade, he said the U S should do what it does best. And the rest of the world should do what it does best when it comes to trade. So if a country is better at producing certain goods, they should focus on that.

[00:05:36] And if the U S is better at producing certain other goods, they should focus on that. And then trade kind of resolves everything in the middle and trade should not be a weapon because it can be seen as an act of war. And that is, I mean, he's not wrong and it's not to scare people, but yes, like, I mean, you oftentimes will start seeing embargoes and trade wars before all out actual, uh, military wars break out. So yes, he's not wrong.

[00:06:05] I'm here hoping that we're not going to see that, but he's not wrong by saying that. And it's a mistake to have 7.5 billion people who don't like you very well, speaking of the world versus the U S and the most prosperous the rest of the world becomes, the safer the U S will feel. And I don't think he's wrong on those two things either, because at the end of the day, I think, you know, even before Trump country around the world had various trade barriers,

[00:06:35] whether it was through tariffs, currency manipulation or regulations. And from a U S perspective, it's not hard to find very smart people that agree with Trump on the actual problems like unsustainable fiscal situation, eroding middle-class trade unfairness, where the issue I think we're seeing the more is more the approach that the Trump administration is taking because they are using force and it erodes trust with allies. And in a lot of cases it pisses people off with a lack of better words.

[00:07:04] And that's going to hurt the U S like Buffett said, when people don't like you, when you don't like a certain country, are you going to start to book travel to that country? You are not going to go and travel to that country because you want to stick it to them and you don't want to encourage them. And that lack of travel. And that's just an example. It's going to impact their whole hospitality industry, restaurants, the ripple effects that happens there.

[00:07:30] So it's not necessarily a good thing, especially when you can think about allies to do that, because we've already seen it with airline companies that are saying that there's been a substantial drop in Canadians traveling to the U S but also international travel. I mean, I can't remember. I think it was Air Canada or WestJet that just announced recently that they're kind of reducing the amount of routes that they have to the U S and increasing them to the rest of Canada and internationally.

[00:07:57] So that's just an indication that yes, I agree with him. You have to really be careful the approach you take because the unintended consequences can be pretty big for your country and thinking about it from a U S perspective. Yeah. I mean, these tariffs have the chance to like materially impact the economies of many of these countries. And I mean, that like that type of situation, that type of, I don't really know the correct

[00:08:25] word for it, but it doesn't just go away after trade agreements are made either. I mean, there's, there's damage there. I mean, you know, even if, even if say Canada and the United States, you know, come to an agreement, I still think people would be a bit bitter in that regard. And I mean, yeah, like there's no doubt the U S is going through some issues, but I mean, to take this hyper aggressive of an approach is probably, you know, what people really don't like overall.

[00:08:52] And yeah, I mean, I don't, I don't have too many more comments on the trade side of things. I think we've talked about it enough for the last while that, yeah, it's kind of, I mean, this Buffett has said this, it wasn't even at the AGM only. I mean, he said this over the last six months when they've been asking him on it. Uh, ultimately they're not really, really good long-term. Hopefully they get resolved quickly before anything escalates. Yeah. No, that that's fair. Yeah. And the trust thing, right?

[00:09:21] Like if people want to wrap their heads around that, just think about it, right? Like you've seen whether it may have happened to you, whether you've seen it with other people, you can have like a marriage or long-term relationship with someone and the trust that's built over 20, 30, 10 years, whatever the amount of time can be lost in a moment because of one action, uh, you know, the, the couple in the relationship. So that's a little bit, uh, the comparison that I would make here is yes, you could have

[00:09:50] been an allied for so long, but now this one action is really putting that trust into, into that. Now Buffett, when he had a question on his cash holdings, because they are at records high, I posted something on X that showed the, uh, the current, uh, cash compared to the assets or the cash and short-term investments, mostly in the form of us treasury bills. And it's right around 30%. It's just been increasing. And that's really the ratio you want to look at.

[00:10:20] You have to, you want to be careful just thinking about absolute dollars, because, um, as I responded to someone who was saying, well, don't they mean the same thing? Not really, because if you look back in the past decade, there were actually decades where their cash pile actually increased, but their cash as a percentage of their total asset actually decreased during that same period of time. So that's why the ratio is so important because it puts things in perspective.

[00:10:48] But he said that they run a business that is very opportunistic. They've made a lot of money by not being fully invested all the time. Buffett said that Charlie Munger used to say that over the span of 50 years, they'll make most of their money on eight or nine ideas. So that's, uh, that's really interesting. I think that's a lot, that's worth reflecting on it a little bit, because I think I know you, I know myself, I know Brayden too. When we look at our portfolio, it's always, he's not wrong.

[00:11:18] Like there's usually just a couple names that are really driving the returns of the portfolio. And then you'll have maybe a handful that are doing pretty well, but maybe like more in line with what the market is doing as a whole. And then you'll have a few laggards, but you really want to have those like top names, really those top ideas. Those are the ones that will drag your portfolio. And he continued and said, nobody knows what the market will do next week, next month, next year.

[00:11:45] At some point, he doesn't know when they'll be bombarded with amazing opportunities that, and they want to make sure that they have the cash to act on those. So what are your thoughts on that? I have some more thoughts on it, but I'll let you go while I drink a little bit of my energy drink. Yeah. Yeah. I think it was Buffett that said, I think it was Buffett that had the quote that, you know, you never get, you're never going to get rich off your seventh best idea or something like that. I don't know.

[00:12:13] Which is, yeah, I think it was either him or Munger that said that. But in terms of the cash holdings, I think the one thing that a lot of retail investors misinterpret when they see Buffett sitting on a large cash stockpile is they should somehow, you know, mimic, you know, a similar strategy. And I really don't think this is a case. I mean, there's a difference between a retail investor managing their five, six, seven figure

[00:12:39] portfolio and like a conglomerate business managing hundreds of billions of dollars. I mean, when you're deploying this amount of money into the market, you get into a situation of liquidity issues. And there's also an element that this scale of money is generally difficult to move around and deploy. I mean, a retail investor making, you know, routine weekly dollar cost averaging purchases

[00:13:05] is a tad different than Berkshire dumping a hundred billion plus into equities. It's an entirely different situation. And there's also an element that Berkshire is an insurance company. I mean, there's regulatory requirements in terms of the liquidity they have to have. And I mean, there's also that added element that they are a conglomerate and they do invest heavily in the businesses that they already own.

[00:13:29] So, you know, there's a strategic focus here on keeping some cash on hand because, you know, some businesses may require capital, things like that. What I guess I'm trying to say is if you're hoarding cash because Buffett is your, I mean, your financial position and Berkshire's financial position couldn't be farther apart. It's a very different type of situation. I mean, it's, it's a, you're just not talking about, about small amounts of money here.

[00:13:57] So, I mean, a lot of people, they just use this cash pile to, you know, kind of make some, some headlines about how, you know, he's stockpiling cash. The market is going to crash, things like that. Like it's really an entirely different situation. And it's important that you kind of take that with a grain of salt. That said, he has, like, he does view the market generally as expensive. So I do believe that to a degree, like the buildup in cash position is because he thinks stocks are expensive.

[00:14:26] I mean, I don't even think he, I think he even stopped buybacks of his own shares here. So that is an element to it. But there's also, there's a lot of moving parts when you're talking about a trillion dollar conglomerate with, you know, hundreds of different companies. Yeah, exactly. It's, it's very different. And obviously you'll talk about that a bit later. But essentially they, they view it as a huge advantage over other companies as well.

[00:14:54] So they, they can't rely and they don't need to rely on any third party. They have sufficient money to do basically whatever they want. So lack of better words. So that gives them a lot of flexibility. And like you said, like there's limits to what Berkshire can do because first of all, if they, you know, there are certain companies that are worth just a few billion dollars.

[00:15:17] I mean, they'd have to literally buy out the company outright for it to move like the needle a tiny bit. And if they don't want to buy it outright, then it would just won't move the needle. And won't make any difference. So they, that's just an example where retail investors don't have that issue. And I know a lot of people aren't fully invested or have just small allocation of cash. And that's completely fine.

[00:15:41] I think given the highest valuation we're seeing, the uncertainty with trade, economic growth, the ever-growing risk of a sovereign debt crisis, which I, you'll see what Buffett talks about a bit later on that he clearly is stating that in the way he talks that he also thinks that it's not, it's a, it's a very real possibility, a sovereign debt crisis. You know, I think there is definitely some value in having some cash. I can, you can get easily right now, 3% or more on your cash.

[00:16:11] So whether you get that through treasury bills or like Buffett does, or you put in a bank account or sponsor a Q bank offers some very competitive rates. It's not that hard to get at least 3% on your cash right now. So if you have a little portion of cash, it doesn't have to be 30. It could be just 5%, couple percentage. That's fine. So that you can be opportunistic. If there's some really good opportunities, I don't think that's, there's anything wrong

[00:16:36] with that, but you have to be careful with having too much cash because long-term that's going to get debased and it's not going to keep up with inflation. I mean, that is a near certainty. Nothing is certain in life, but that is a near certainty that holding cash over long periods of time will, will mean that you will lose purchasing power. Yeah. And I mean, I think like Buffett, he talks about, you know, the fiscal policy.

[00:17:04] I think he's talked about that his entire career and he does warn that they, they've come pretty close to it a few times, but yeah, in terms of the cash, like I think a lot of people might see a headline about how Buffett has, or Berkshire has $350 billion in cash. And that's some sort of, you know, that seems like a large amount of money. So it kind of instills some sort of, you know, panic that the markets are going to go down. I mean, obviously I have a small cash position. It's, it's completely appropriate.

[00:17:33] It's not, uh, not the end of the world, but if you're, you know, hoarding cash because you think the markets are going to, are going to bomb or something like that. I mean, I think that's where, uh, it gets pretty difficult. It can come in my camp. I'm hoarding some cash. Yeah. No, but, uh, people who follow on joint TCI would know that, uh, yes, my aim was to get around 15 to 20% cash. It's way higher. It's above 30% right now, mostly because, uh, you know what it is. Since I left my job, I had money from my pension.

[00:18:03] And instead of having the pension plan for sell my investment before transferring it to quest trade, I decided to sell them on my own accord if you'd like. So put all the money in a money market fund because things were so volatile. And that's why I gain a pretty large cash portion. Because when you're looking at pensions, you cannot do a fun to fun transfer. You can't do a, an in-kind transfer has to be a cash because those investments are institutional grade.

[00:18:33] They cannot be bought through retail platforms. So that's why, but I am slowly deploying capital, uh, more on a dollar cost average basis. So yes, my cash hoard is slowly coming down, but still pretty elevated. Yeah. Diminishing. Exactly. The next year is Buffett on the U S dollar and fiscal spending. So like I was referencing earlier, the first thing, so I'll go over what he said, really interesting comments. So fiscal policy scares him in the U S uh, uh, governments will debase currency over time.

[00:19:01] It is not limited to the U S it's all over the world. So for those who say the U S dollar is going into the drain, I mean, I'll show you, uh, another like 50 examples of governments that are spending way beyond their means. It's not just the U S the U S has the luxury of being the reserve currency. So when they print, there still is typically quite a bit of demand for that asset compared to, you know, who the hell needs a Canadian dollar outside of Canada? Not a lot of people. Right.

[00:19:30] So that's the easiest example of people, uh, can I wrap their heads around it? And there was a really good quote here. The natural course of government government is to make the currency be worth less over time. And it's got important consequences. So I think that's the word remembering because you can look at whatever chart you want. You can remember when you were a kid and the cost of things, I mean, things that you could buy a Coke.

[00:19:57] I think when I was a kid for like a can of code 50 cents or a dollar, that was pretty common. I don't think you can see them see that anytime now. So there are the examples are all around us. He's very, he's a hundred percent correct. He's not wrong about that. No, definitely not. I mean, it's, yeah, I don't know. It just kind of, I don't know. I have nothing else to say. He, he made a good point on, especially when he starts getting into, to doge about how

[00:20:23] he doesn't want to have that job because government, government spending, like there's no real way to monitor it. And he definitely wouldn't want to be the person who's got to crack down on this because it's like, as he mentioned, and like I said, as he mentioned for, you know, 50 plus years, like government spending, um, it's getting more out of hand now. I think he did say it's, it's getting worse now than it has been prior, but, um, yeah, I mean, it's no, he's not wrong.

[00:20:54] And he had like, so the main points on doge and, uh, for those not familiar, doge is the department of government efficiency that was ran by Musk, Elon Musk and, uh, Vivek, I believe in the U S were the two main figures there. So he just said that, and he had a question specific to that around the four, four hours, 46 mark. If I remember correctly, government like corporations can always be run better. That's what he answered.

[00:21:19] That's why the future of the currency concerns him because government can print money and he's not wrong there. It's easy to spend money for elected repress representatives, but it's much harder to cut spending. It's very difficult to make major changes in an elected system. The problem is how you control revenue and expenses, which has never been fully solved. The U S is operating on a fiscal deficit that is not sustainable.

[00:21:45] And if things are not sustainable, they cannot go on forever. At some point you just end up losing control. And the U S has come close to that multiple times. Like you had mentioned earlier, and he wouldn't want the job to reduce the deficit because there is a significant challenge ahead because right now, and he's, he's not wrong. These are the correct figures. There's a 7% gap between the revenues and the expenses.

[00:22:12] So the government in the U S is taking basically is spending 7% more than it gets in tax receipt and other revenues. And that's a problem. And Ray Dalio has said that in his view is around like a 3% deficit is where the target should be in that longer term is more sustainable at the point it is now. And the U S is very close to that. You get into a point where your interest expense just starts ballooning and ballooning and ballooning

[00:22:40] because you just, the debt gets bigger. The interest costs gets bigger. It just compounds over time. And that's, that's what the U S is flirting with right now. And it's a job that should be done, but Congress doesn't seem to want to do it. And he said, look, um, it's not something you'd want to do, but he also said that Berkshire is in a position that when there is trouble for the government or the financial system, they are an asset and not a liability. Yeah.

[00:23:09] And I mean, if you think about it, like what, who would want to actually be responsible for that? Cause I mean, once you start cutting spending, you start, you know, hitting a lot of different areas. Yeah. Like it, yeah. Yeah. Because a lot of people don't even, you know, a lot of people don't even pay attention to stuff like this. All they would see is something like that. You know, a lot of things getting cut and you know, again, you just don't get reelected and obviously, you know, you need, you need a job. And I mean, yeah, it just gets to the point.

[00:23:37] I mean, if you think, if you think of this from a personal perspective and you can't even, you know, you can't just make money out of thin air from a personal perspective, but if you're spending 7% more than you're making, I mean, eventually you're going to have to pay the piper. There's going to come a time where it's, it's unsustainable. And yeah, I mean, again, he's talked about this for quite a while and it hasn't, you know, ever really become a huge issue.

[00:24:02] But again, he did mention that it's been amplified as of late, which obviously brings more issues overall. And I think it's been amplified for in the last, well, ever since the pandemic, but I think it obviously, I think it started after the great financial crisis. Financial crisis. Yeah. Yeah. But it definitely was amplified with the pandemic and the fact that governments around the world were spending after the pandemic, the economy was reopened.

[00:24:31] They were still having these massive deficits when the economy was doing well. Typically, when the economy does well, the logic is that you spend less because the economy is going well, you have more tax receipt, you have more revenues coming in. So you don't need to stimulate the economy either because it's going well. So you should be reducing those deficits and hopefully balance the budget. But that's not what governments did. And now they're in a situation where they could potentially be facing a slowdown.

[00:25:00] So what do they do? Of course, they'll want to spend more because they'll want to stimulate the economy. So you didn't really get to reduce your debt, reduce those deficits. You're just going to have to increase them again. And that's, I think, is the difficult situation that we are entering right now, not just in Canada and the US and around the world. So I thought it was pretty fascinating. I like this kind of stuff, but that's just me. Now, they had a few questions on insurance.

[00:25:30] I know we have some notes there. So Ajit Jain, I believe, is their head of insurance. I'm probably butchering the name here. He was asked if their thoughts on what AI, what kind of impact AI would have on the insurance business. And he said, no doubt that it will have an impact on the insurance business. But they are doing a wait and see approach because there's no point in spending, in his

[00:25:57] view, huge amounts of money without knowing the benefits it will provide. And he said, companies are already spending tons of money on AI, other insurance companies. And they're happy to just sit back and see what works. And that's probably a really good approach. That's actually a very smart approach because we're seeing it in others, not just in insurance, but all this hype around AI.

[00:26:23] You're seeing companies spend millions, if not billions of dollars to get AI into their business. And what you are seeing more and more is that the investment might not, the return on investment might not be as good as they thought. So I think it's really comes down to, yes, you want to leverage AI. Yes, you want to be more efficient with it.

[00:26:46] But why not do it in a way where you're maximizing your return on your investment in AI? Yeah, I mean, wait a little bit till the technology is more developed. I mean, the one thing like you would think once artificial intelligence gets good enough, it should be able to just completely replace human underwriting. Yeah. I mean, at this time, I don't think it's quite there yet. Insurance is a bit nuanced and certain risks are probably difficult for AI to judge.

[00:27:16] But I mean, what I can imagine happens over the short term, at least as insurers move to more of a hybrid model and let artificial intelligence manage the simple stuff where humans kind of manage the complex cases. I mean, but we're in the very early innings, I would say, of AI. And I just can't see this not being a thing in the next decade, couple decades. I mean, if we look to, this is a different industry, but Propel Holdings, which is an alternative lender, Canadian traded alternative lender that primarily focuses in the United

[00:27:46] States. I mean, they utilize AI for their underwriting. I don't think it's 100% AI, but they use a ton of AI to kind of make their underwriting decisions. And I mean, if it gets good enough, these insurance companies would probably be able to become ridiculously efficient and probably make a lot less human errors. But again, as you mentioned, I don't really think there would be any particular advantage to being the first ones to be in that area.

[00:28:13] So I can definitely see why they aren't necessarily in all that big of a rush. Yeah, no, exactly. And then there was a question he was asked about US exceptionalism. So something that's been cited quite a bit that a bit less now, I would say with now the markets being a bit more choppy. But last year, that was pretty prevalent where you saw the US market just reach new all time highs after new all time highs.

[00:28:42] And the common thing was like, well, this time is different. The US exceptionalism is really showing itself. That's why it's trading at a premium. And it makes the whole sense in the world that it is trading at a premium. Well, Buffett said that the US has faced periods of changes throughout its history and has adapted well. So he thinks that the US will be able to adapt to whatever big challenges will happen in the future.

[00:29:10] So that was kind of interesting. Not a whole lot that he said there was a pretty quick question and answer. Not sure if there's anything you wanted to add to that. No, not really. I guess the only thing I would say is he did, this wasn't at the AGM, but I think he mentioned a few months ago that they're still going to invest the vast majority of their portfolio in US equities. They're still pretty bullish on the US.

[00:29:34] Whereas a lot of people might not feel the same after the last few months here, but they're still going to be big time players in the US market, which I mean, makes sense. It's been killing it over the last while. Yeah, exactly. And one of the questions was about, you know, acting quickly and being patient and their approach. So what the answer was really interesting might sound a bit bizarre, contradicting.

[00:30:01] What Buffett and Greg said, Greg Ables, of course, when asked the question about acting quickly was that they want to have confidence to take quick action if a very good deal comes their way. That's because that deal may or may not be on the table for very long. So they want to make sure that when a really good deal comes their way, they are ready to pounce. And what they do is that when they are being patient, they use that time to research and

[00:30:28] do their due diligence on a bunch of different investment ideas or opportunities that might come or investments that they like. But maybe the price is not the right price. But they know these investment very well so that when they do come, they're ready to pounce. And I think that's really important if you like to invest in individual companies, because it's not super hard to find quality.

[00:30:52] What really is hard is finding quality at a reasonable price. And you really want to also make sure that when you find quality companies, you understand these businesses well. Because at some point, it may take some time, but that quality company will have a drawdown. And you have to know the company well enough to know whether this is just a blip on the radar.

[00:31:20] And the company will do well 5-10 years down the line. It may struggle a little bit. It may be some headwinds in the short term, but you know it well enough that you say, you know what? This drawdown is actually a great buying opportunity. Yes, there might be some short-term headwinds, but long-term, it's going to be fine. Or, you know, you've researched a company, you know it very well, and then there is a drawdown, but you know it well enough to say, you know what?

[00:31:48] This drawdown is actually warranted. And I have some doubts about the long-term prospects of this company. So I'm not going to pounce on it because it's actually a falling knife. It's not a buying opportunity. So I think that's how, in my view, individual investors can incorporate this kind of hybrid between acting quickly and having a patient approach. Yeah, I think it's pretty much a key element for, you know, the know what you own and why you own it. Yeah.

[00:32:16] I mean, it probably goes back to what I would view as probably the most important chapter of any book for individual investors. And that would be chapter eight of The Intelligent Investor, which is like, it was written by Ben Graham, who is a big Buffett, you know, a big mentor for Buffett. And I mean, the book in its entirety would probably put most investors to sleep. But I do think chapter eight is pretty important. Chapter 20 is very important as well.

[00:32:46] Those two chapters are, I think, are pretty much a mandatory requirement for investors. And chapter eight introduces a concept of, you know, Mr. Market and kind of illustrates how prices are erratic, but fundamentals aren't. The difficulty with taking advantages of the fluctuations due to that Mr. Market type mentality is that if you don't have a strong understanding of the businesses you own, you have no idea whether it's an emotional drawdown or it's actually a fundamental shift.

[00:33:13] So, I mean, I think that's what they're getting at by, you know, patient approach to acting quickly. But the only way you can act quickly is if you truly understand the businesses you own, which I mean, not all retail investors, but I think a lot of people, especially with, you know, the amount of stuff on social media these days, I mean, a lot of people don't really fully understand what they own.

[00:33:39] They might just own it because somebody else does or, you know, concepts like that. And I mean, I think it will eventually get you into trouble. Usually it doesn't during, you know, bull markets. But yeah, it's, it's, that was a good, a pretty good segment. Yeah. Yeah. And like Brayden would always say, can't, you cannot borrow conviction. So that's really. Well, a lot of people do. But it doesn't end up working out too well.

[00:34:06] Then he had a really good quote on balance sheet. I guess I put a random quote, but I'm still paraphrasing here. So he said, Wall Street doesn't really pay attention to balance sheets, but I like to look at balance sheets over a eight to 10 year period before I look at an income statement. And in his view, you learn more from a balance sheet than most investors give it credit for. And this is so true. Like there's, it's a hundred percent true here.

[00:34:34] If you look at financial media, I mean, even us, we are guilty of that sometimes when we do earnings because we're looking at the earnings, but we do try to look at the balance sheet as well. It's something when I look at investment, I always have a good look at the balance sheet because at the end of the day, it's super important to know exactly the strength of the business. Because the income statement is fine.

[00:34:59] You have to be aware of it and don't get me wrong, but it's about sales and earnings and that's important. But the way I view the balance sheet is the foundation of a company. So if it's poor, then all of its operations could be in jeopardy at some point in the future. And just take a company that has a lot of debt and is due to refinance at a much higher rate. If you're not looking at the balance sheet and understanding that debt and when it is due, earnings might look okay right now.

[00:35:28] But if you start looking at the balance sheet, you'll know that there's a big risk that interest expense can go up, that actually earnings may be going down the gutter because they're going to have to put so much to pay the interest payments. Or they're going to have to find a way to actually pay off a chunk of that debt, which will impact their results as well.

[00:35:48] So it's really important to not just focus on the income statement, but also understand the balance sheet of the company that you own pretty well or you're looking to buy. Yeah, I think you can still drive profitability over the short term, but destroy long-term value. And the balance sheet is probably going to show you where that is actually happening.

[00:36:15] I mean, obviously, yeah, on the news, we talk about top and bottom line numbers because that's probably what's going to attract the headline clicks. So that's what investors are naturally going to focus on the most. And it is important, but I mean, the balance sheet, particularly along the lines of, say, something like retained earnings, debt to equity can give you a pretty good picture for a wide variety of things.

[00:36:36] I mean, a company that can consistently grow retained earnings over the years is probably one that's operating in an industry with large moat, pricing power, things like that. I mean, if we think of two acquisition heavy companies in Canada, two tech companies, we can look to something like Constellation Software. So retained earnings on the balance sheet have grown from $350 million in 2015 to over $4.2 billion today.

[00:37:04] And then you can look at a company who is another tech company who was also acquisition heavy and is one I also owned. I actually did end up selling. It would be Lightspeed Commerce. I mean, retained earnings have fallen from a loss of $248 or a negative balance of $248 million to a negative balance of $3 billion. So, I mean, obviously, as a shareholder, you own those retained earnings. So, I mean, you can see a lot of value there.

[00:37:33] And, you know, it can also give you a snapshot of the company's overall health and, you know, what's to come. Companies with, you know, heavy current liabilities relative to current assets might be in a position where, you know, they have to issue more equity or more debt to satisfy a lot of those, you know, short term obligations. And, again, like, you know, it'll give you a better snapshot of overall health where, you know, the income statement is more so a immediate picture of profitability.

[00:38:00] But, again, I mean, companies can easily drive profitability over the next year or two. And the balance sheet can kind of give you a figure as to, you know, whether or not it's sustainable. Yeah, no, exactly. So, I think just reinforcing the balance sheet is definitely important. You should understand. I think I agree wholeheartedly with what you said. I think for me it's the foundation of the company. You should be aware of it, especially if you're a long-term investor.

[00:38:28] If you're a trader, then, you know, have at it. It probably doesn't matter as much as long as they don't go bankrupt while they're trading this stock, I guess. On the future with Greg, Greg Ables, who will be coming with the – becoming the next CEO at the end of the year. Greg mentioned something really interesting. They want to keep having a fortress balance sheet and they consider their large cash pile as a huge asset and advantage. Not surprising. Even Buffett reinforced that during the meeting. Berkshire has great values and culture.

[00:38:57] That sets Berkshire well for the future. He wants to maintain the reputation of Berkshire and the various companies they own. They want to continue having a fortress balance sheet. I guess I put that twice in my notes. I apologize here. Their cash is an enormous asset and is a strategic asset for Berkshire as it allows them to not be dependent on anyone, like I had mentioned a bit earlier in the podcast. They want to keep managing risk carefully and that's on all of their managers, not just him.

[00:39:26] They have a great set of operating companies that produce significant cash flow and they want to ensure that it continues to be a strength of Berkshire going forward. And they will keep the same philosophy as they always have. They want to use the cash they have to first support the companies they own and second, purchase new companies that they can bring under the Berkshire Hathaway umbrella.

[00:39:50] So I think that's very in line with what Buffett and Munger had done over the years. My own view is that I really don't have much concerns about Greg Abel's becoming CEO. Very little concern. I don't know about you, but I'm not. I know some people are. There's probably some people going to be selling because Buffett is leaving.

[00:40:16] But personally, I thought it was actually a good opportunity to start a position in Berkshire on Monday when the shares were down about 5-6%. Greg has been with Berkshire over 25 years. I know he's not Buffett, but if you listen to him, you notice a lot of similarities with Buffett. He's also very humble. He looks like a very patient and good human being, if I had to put it as well, just like Buffett as well.

[00:40:43] So, I mean, I don't have any concerns. Plus, Ajit Jain is staying on as the head of their insurance division and having listened to Buffett over the years. He deflects Ajit a whole lot when it comes to the insurance business. Like, he relies on him, and that's not going to be any different. So that's a big part of their business. And the guy leading it will still be there for probably some time. Yeah, I mean, this has been...

[00:41:10] Well, I think he officially said that he plans for Greg Abel to be the successor. I think it was in like 2020 or 2021. Yeah, it's been a while. He's been with the company so long. I mean, if a lot of people could probably understand that Buffett has been very, very good, arguably the best ever at picking companies to invest in. And you would imagine he would be pretty good at identifying a successor to take over the company.

[00:41:38] So, I mean, it's not really a worry for me. I mean, he'll never be replaced. But there's been a lot of talk as to what is going to happen when he's gone as if the company probably hasn't been working on this for the last decade. Because, I mean, even 10 years ago, he was 84 years old. It's probably coming to the point where they're like, yeah, we probably got to do something. It was a young whippersnapper. Yeah. There's a guy. And I mean, like he has the final say.

[00:42:07] But, I mean, he has two investment managers, Todd Combs and Ted Weschler, who have been managing many... I believe they take over like the smaller equity portions. And I mean, back in 2013 at their AGM, Buffett had mentioned that he gave them $1 billion to do with whatever they pleased with. He didn't pay attention to it. He gave them each a billion dollars to invest. And as of the end of 2023, I believe they're handling $30 billion. So, I mean, it's...

[00:42:37] Yeah, yeah. Yeah, I don't know if that... I don't know if they actually... Yeah, there was additional capital. If they gave them more money or if they've actually done that. Yeah. It's tough to say because I've never outright said. But, I mean, these guys are very smart. They're actually one of the driving forces of Buffett buying Apple because he did not want to buy it. And they convinced him to buy it. And that's probably one of his greatest investments over the last while, at least. And I mean, as you mentioned, the insurance side of the business is staying intact.

[00:43:05] And I think he has like relatively little involvement with that. And that's arguably been one of the best performing segments of the business over the last few years. Which is a big reason why I started a position because I didn't have any exposure to insurance. And it's something that is honestly like... I understand insurance generally. But if you want to really understand insurance, it gets pretty complicated.

[00:43:31] So, that is something that I'm happy to leave in the hands of Ajit. Yeah. And let him take care of that. And I think the whole thing about Buffett leaving... And I think a lot of people got caught by surprise for whatever reason. But, like, take a step back. Like, the guy's 94. Like, I think people were almost like in the mindset like he's going to be, what, immortal or something?

[00:43:58] And he's going to stay on until, like, forever? Like, I'm not quite sure. But you're right. Like, it's been several years that we've known that Greg would be the one taking over when Buffett steps down. So, that's not news. I think it's just surprise people that it would be this year. But again, he's 94. Like, how surprised can you be? I don't know. That part was a bit of a head-scratcher for me. I would have personally guessed that he would have ran it until he passed away. That would have been my guess.

[00:44:28] I would have thought he would have never stepped down. I think this is a good way to do it. Like, you get a bit, you still have a role. But you take a little bit of a step back as chairman of the board. And you act there more as kind of a strategic voice. And Greg and the rest of the management team can bounce ideas off of him while he's still with us. Hopefully for years to come. So, I think that's a pretty smart way to go with it.

[00:44:56] I think it's definitely the better way to do it. Because if he passes away and it's just an immediate transition, he's not around anymore. Whereas this, you know, he passes on the reins and he's still involved for a while. Probably providing some guidance, things like that. But, I mean, this was a long, long time coming. I mean, it was going to happen. And we knew... The one thing that kind of confuses me about the dip is, like you said, we knew who was taking over. I mean, I believe they have to... They would obviously have... The board would have to vote him in.

[00:45:26] But, I mean, they're gonna. Yeah. I don't know if it was the announcement. I think they also had... And we didn't touch much on the actual earnings. Just because I think there's more value in listening to what he was saying. Yeah. The actual earnings. But I think they had a bit of a dip on the operational earnings, if I remember correctly. It was a bit of a soft quarter. Yeah. Soft quarter. So, maybe that was part of it. But, who knows? Now, you took some note.

[00:45:53] I had a segment on Japan, but I wasn't sure if I wanted to add it. So, you added it back. So, I'll let you lead the way there. Yeah. Yeah. So, he spoke on five Japanese companies they took major positions in. And I think they started buying these companies six or seven years ago. And they've kind of continued to accumulate them. And they've upped their overall... Which they love, by the way. Yeah. Yeah. They really, like... They went on about how much they love those Japanese companies. Yeah.

[00:46:22] They're pretty bullish. And I mean, they've even upped their stakes over the last while. I think, like, it's not exactly 10%, but they own pretty close to 10% of all of them. And they did mention that, you know, the customs, traditions, you know, ways of operating the businesses are certainly different there. But they're kind of, you know, looking for ways to learn and adapt. But again, yeah, they're bullish. They even outright stated that they see these companies being inside the portfolio for 50 plus years, likely indefinitely.

[00:46:51] And they also did mention that it was Greg who was primarily dealing with these companies. I would imagine that's because at Buffett's age, he probably doesn't want to be flying back and forth to... Yeah, I did mention that. To Japan. Yeah. He wasn't a fan of flying all that much anymore. Yeah. Yeah. That's quite the flight, especially 94 years old, a couple times a year. So it owns high single-digit weightings. And I'll probably... I might butcher some of these names, but Mitsui, Mitsubishi, Sumamoto, Itouchi, and Maru Beni.

[00:47:20] So these are called Japanese trading companies. I guarantee you, you butchered some of these names. Yeah. Not the Almighty probably. And they're... I would have as well. So yeah. They're called Japanese trading companies or general trading companies. And they're effectively conglomerates that deal with a ton of variety of products. And I think these are pretty popular in Japan. So for example, Mitsui, did I get that one right? Do you know that one? I think so. I don't know. I'm not...

[00:47:49] I need to brush off my Japanese a little bit. But they... My Mandarin's a bit better, but... Yeah. My Japanese now. They deal with like steel. We're talking infrastructure development. They have like health and wellness, cell phones, IT, food. So I mean, they do these... They buy the... They bought stakes in these huge conglomerates. And I mean, Buffett pretty much says they just take a cheer and clap approach.

[00:48:16] They let them run themselves and let the companies do their thing. And I was just... You know, the commentary on how bullish they are on these Japanese companies was pretty interesting. Yeah. No, exactly. That's what I had with my notes. It was just I was trying to condense things a little bit. But that's okay. We had enough time to continue. And I know you had... I missed that one. I thought I listened to the whole thing. But I must have missed it in one of the questions slip up. Yeah. So do you want to go over that?

[00:48:45] This might be the best portion of the annual meeting. But they had a guy that flew in for the meeting and got the opportunity to ask a question. And if you don't know about the meetings, like I'm pretty sure they run it like a lottery. So you kind of sign up and they'll draw names and you get to ask a question, like if you get drawn. And I don't exactly know how hard it is, but I would imagine it is crazy hard to be able to get up and ask him a question.

[00:49:14] So this guy flew in for the meeting and got the opportunity to ask a question. So he asked Buffett about Portillo's hot dogs and why they decided to pull the trigger on the company. And this was, I think it was like back in 2014. And Buffett pretty much stated he has absolutely no idea about any of that. He must have not been involved in that acquisition. I mean, these guys, they do make a lot of acquisitions. They own a lot of companies. So I mean, to keep tabs on all of them would be effectively impossible.

[00:49:44] So he deferred the question to Greg and then Greg proceeded to pretty much say he has absolutely no idea about the acquisition. He actually said he had to use his phone a friend lifeline. But I mean, this is because Portillo's was actually acquired by Berkshire Partners back in 2014, not Berkshire Hathaway. So Berkshire Partners is a private equity firm. So, I mean, it was just kind of comical to try, you know, these two to try and figure out like where this was coming from.

[00:50:14] They were trying to like, you know, figure out whether it was like a subsidiary of a company that they owned in Chicago, but couldn't really wrap their heads around it. And yeah, it was just it was probably one of the more the funnier portions of the AGM. I mean, you finally, you know, get the opportunity to ask a guy a question and you don't do the you don't do the research to figure out it's not even the the actual company that acquired this hot dog company in Chicago. So he got the chance and I feel bad for him, but he completely blew it.

[00:50:45] Yeah. Before you're going to ask a question, maybe you should. Yeah. Should do your research. But, you know, the first name is the same Berkshire. So I guess I don't know. Must have done a quick Google and just saw Berkshire and just assume it was Berkshire Hathaway. Yeah, that's funny. But that was overall, I think a really good, really good annual meeting. Like I said, I think in the previous episode, like these are pretty long.

[00:51:12] What I usually do, I'll listen to them at like one point five to X speed. And then I slow it down when there's something that really piques my interest. I feel like that question didn't really pique my interest. I must have just kind of skipped it and kept the two X going until the next one. Yeah, it was a pretty funny question because he's talking about this hot dog stand and Buffett's you could tell he has absolutely no idea what he's talking about.

[00:51:40] So he just kind of tosses the grenade over. But yeah, yeah, it was a good. I mean, these meetings, again, like I said, they're kind of a bit of a snooze fest through a lot of it. But then you do find a lot of valuable information inside them. They're definitely worth a watch or, you know, a summary from somebody else because, yeah, it's hard to find the information if it's not timestamped because they talk about a lot of stuff. Yeah, exactly.

[00:52:06] Like they had a question, I think, like what he thought about like, you know, educating teenagers for like investing and stuff like that. Like I'm just kind of paraphrasing because those are some of the questions that I did not reduce the two X speed. But there are like for some people, it would be really interesting. So if you want to see what he had to say on a various of other topics and he talks about whole different kind of stuff.

[00:52:32] And sometimes he does go a little bit on a rant, too. Yeah. Sometimes he'll kind of answer something. It doesn't have to do really with the question. But it's still I mean, I I still love listening to him talk. And I mean, I hope that I don't know what form is going to take next year, but I would hope that he still is at the annual meeting. I assume that I would imagine so.

[00:52:58] Yeah, I would imagine that he will and that we have at least, you know, a good five years to go with to Buffett, if not more. I mean, obviously at 94, it doesn't have that too many years left in front of him. But every time I listen to him, I feel like I learned something. Yeah, 94 Coca-Cola and sausage McMuffins. Yeah, exactly. That's it. Well, I think that's a good point to wrap it up. Thank you, everyone, for listening.

[00:53:29] We had some fun here. It was a really fun episode to do. Took a lot of time listening to to the annual meeting, taking the notes. I'm having to rewind some of the segments because I wanted to take as much notes as I could. I know you as well. So it was fun to do. Took some more work. But it's something I feel like we just can't pass pass over when the most famous investor,

[00:53:54] I would say, of our generation or not our generation, but our lifetime as an annual meeting. And he announced he's leaving the role of CEO. Oh, you got to do a deep dive on that. Yeah, the end of an era. Exactly. So thanks again for listening, everyone. The Canadian Investor Podcast should not be construed as investment or financial advice. The hosts and guests featured may own securities or assets discussed on this podcast.

[00:54:22] Always do your own due diligence or consult with a financial professional before making any financial or investment decisions.