Every year, the financial world eagerly anticipates the wisdom that will be shared by two of the greatest minds in investing – Warren Buffett and Charlie Munger – during the annual Berkshire Hathaway gathering. The insights provided by these experts transcend the world of finance and investing, often serving as life lessons for personal growth, ethics, and communication. The 2023 meeting was no exception, with Buffett and Munger offering nuggets of wisdom. In this article, I distill these insights into key takeaways that can serve as guiding principles for readers, regardless of whether they’re navigating the corporate world, their business, investing, personal relationships, or personal finance.
The Berkshire Hathaway annual meeting Q&A session in 2023 lasted for six hours, but the transcript below is the best 20 minutes. [1]
If Silicon Valley Bank’s Deposit Had Not Been Fully Covered
When asked, “If Silicon Valley Bank’s deposit had not been fully covered, what do you think the economic consequences would have been to the nation?” Buffett responded, “Well, I’ve just simply say it would have been catastrophic, and that’s why they were covered. Even though the FDIC limit is 250,000 dollars – that’s what the statute reads – but that is not the way the US is going to behave. Any more than they’re going to let the debt ceiling cause the world to go into turmoil. I can’t imagine anybody in the administration, in the Congress, and the Federal Reserve, whatever it may have been, FDIC… I can’t imagine anybody saying, ‘I’d like to be the one on television tomorrow to explain to the American public why we’re only keeping 250,000 insured, and we’re going to start a run on every bank in the country and disrupt the world financial system.’ So, I think it was inevitable. Charlie, do you have anything to add?” Charlie Munger simply added, “No, I have nothing to add.”
Artificial Intelligence and Its Impact on Industries
Diving into the realm of artificial intelligence, they discussed its growing influence. Munger noted, “If you get into BYD’s factories in China, you would see robotics going in at an unbelievable rate. So, we’re going to see a lot more robotics in the world. I am personally skeptical of some of the hype that has gone into artificial intelligence. I think old-fashioned intelligence works pretty well.” Buffett added, “There won’t be anything in AI that replaces the gene, I say that unqualifiedly.”
Buffett continued, “AI can do amazing things. Bill Gates brought me one of the latest versions of AI tech. It did these remarkable things – although it couldn’t tell jokes well. But it could do all kinds of things, like checking all the legal opinions since the beginning of time. When something can do all kinds of things, I get a little bit worried because I know we won’t be able to uninvent it. For a very good reason, we invented for very good reasons the atom bomb in World War II, and it was enormously important that we did so. But is it good for the next 200 years of the world that the ability to do so has been unleashed? We didn’t have a choice.”
He finished his thought with a quote from Einstein. “Einstein said after they invented the atomic bomb, ‘This has changed everything in the world except how men think.’ And I would say the same about AI. It can change everything in the world except how men think and behave.”
Elon Musk
Munger said, “I think Elon Musk overestimates himself, but he is very talented. So, he’s meeting someone who doesn’t need to overestimate to be very talented. Buffett adds, “There’s a Bill Maher program, about a week old, maybe two weeks old, but he interviews Elon, and Elon does a terrific job going toe to toe with Bill Maher. It’s worth watching.”
“Elon, he’s a brilliant, brilliant guy and I would say that you know, he might score over 170, but he dreams about things and his dreams have got a foundation.” Munger adds, “He would not have achieved what he has in life if he hadn’t tried for unreasonably extreme objectives. He likes taking on the impossible job and doing it. We’re different, we are looking for the easy job that we can identify.”
Buffett adds, “Yeah if we can do it playing Tic-Tac-Toe, we’ll do it.” Munger adds, “You know, I mean, we have a totally different way.” Buffett adds, “Yeah, but we don’t want to compete with Elon in a lot of things.” Munger says, “I mean, you know, we don’t want that much failure.” Buffett continues, “It takes over your life and I mean in a way that it just doesn’t fit us.”
“But there are going to be, well, there have been important things done by Elon already, and it requires… fanaticism is the word.” Munger agrees, “Yeah, it is the word.” Buffett continues, “Well, it isn’t quite the word, but yeah, it’s dedication… dissolving the impossible. And every now and then, they’ll do it, but it would be torturous to me or Charlie.”
Commercial Real Estate
“Charlie, please elaborate on what’s going on in commercial real estate. How bad will the losses be, and what sectors or geographies look particularly bad? I’ll just add an addendum from another viewer who wrote in and wanted to know if Berkshire would be more active in commercial real estate as a result.” asked Becky Quick.
“Berkshire’s never been very active in commercial real estate. It works better for taxable investors than it does for corporations taxed the way Berkshire is. I don’t anticipate huge effects on Berkshire, but I do think that the hollowing out of the downtowns in the United States and elsewhere in the world is going to be quite significant and quite unpleasant. I think the country will get through it alright, but as they say, it will often involve a different set of owners.”
Buffet adds, “Yeah, the buildings don’t go away, but the owners do. But most people like to buy with non-recourse in real estate. One time, I asked Charlie, there was some real estate guy we were talking to him, and you know, how do they decide how much a building like this is worth. And it’s the answer is; it’s whatever they can borrow without signing their name, and if you look at real estate generally, you’ll understand what the phenomena is happening if you remind yourself that that’s the attitude of most people that have become big in the real estate business. And it does mean that the lenders are the ones that own the property and, of course, they don’t want the property usually. So, then the real estate operator comes on, negotiating with them, and the banks tend to extend and pretend.”
“There’s all kinds of activities that arise out of commercial real estate development which occurs on a big scale but it all has consequences. And I think we’re about to start seeing the consequences of people who could borrow at two and a half percent, find out it doesn’t work at current rates, and they hand it back to somebody that gave them all the money they needed to build it.”
“Charlie’s had more experience in real estate. Really, Charlie got us started in real estate.” Charlie replied, “Yes, it’s difficult. I like what we do better.”
Reserve Currency
Warren Buffett explains, “It’s very interesting. I mean, we are the reserve currency, and I see no option for any other currency to be the reserve currency. I think that nobody understands the situation better than Jay Paul, but he’s not in control of fiscal policy. Every now and then, he drops a few hints.”
“There was no question when the pandemic broke out. I mean, it was a semi-war-like situation, but nobody knows how far you can go with paper currency before it gets out of control, particularly if you’re the world’s reserve currency. Nobody knows the answer to that, and you don’t want to try and pick out the point of where it does become a problem because then it’s all over.”
“I think we should be very careful. We all learned Keynesianism and we applied it in World War II to the advantage of the country. We did everything we could to prevent inflation during the war, and then the war ended in August ’45. And I think in January ’46, the rate of inflation was something like one percent or thereabouts, and by the end of the year, it was like 15 percent. Again, I’m doing this from long memories.”
“It’s easy for America to do a lot, but if we do too much, it’s very hard to see how you recover once you let the genie out of the bottle, and people lose faith in the currency. They behave in an entirely different manner than they do when they feel that if they put some money in the bank or have a pension plan, that they’re going to get to have something with roughly equal purchasing power.”
“It just changes the whole economy, and all kinds of things can happen then. I can’t predict them, and nobody else can predict them, but I do know they aren’t good.”
“I’ve voted for both parties. It’s not limited to politicians of either party. People take positions. Some of them understand what they’re doing, and some don’t understand what they’re doing. If they put me on some medical board, I don’t understand what I’m doing. There’s nothing wrong with the fact that you can’t master everything.”
“We are not as well off in relations to curbing inflation expectations, which become self-fulfilling. We are not as well off as we were earlier and Berkshire is better prepared than most investments for that kind of a period. But as I said in the annual report, we aren’t perfectly prepared because there’s no way to perfectly prepare. You don’t know what course of action will occur.”
“It’s a very political decision now, it’s a tribal decision to some degree. You hope for leadership that actually recognizes the problem. America is an incredible society. We have everything going for us, but that doesn’t mean we can just print money indefinitely.”
Make Less
Charlie Munger says, “Value investors are going to have a harder time now that there’s so many of them competing for a diminished bunch of opportunities. So, my advice to value investors is to get used to making less.”
Buffett interjects, “Charlie has been telling me the same thing the whole time we’ve known each other.” Munger responds, “We are making less.”
Buffett responds, “When we were younger, we never thought we could manage 500 billion. No one did. But I would argue that there will be plenty of opportunities.”
“Part of the reason there are going to be plenty of opportunities is that the tech doesn’t make any difference. If you look at how the world’s changed since 1942 when I started, you may wonder how a kid that doesn’t know anything about airplanes, cars, or electricity can cope. But that’s not the point. The world changing or new things coming along don’t take away the opportunities. What gives you opportunities is other people doing dumb things. In the 58 years we’ve been running Berkshire, I would say there’s been a great increase in the number of people doing dumb things, and they do big dumb things. The reason they do it, to some extent, is because they can get money from other people so much easier than when we started.”
“You could start 10 or 15 dumb insurance companies in the last 10 years and you could become rich if you were adroit at it, whether the business succeeded or not. The underwriters got paid, the lawyers got paid, and that creates opportunities. If that’s done on a large scale, which couldn’t be done 58 years ago, you couldn’t get the money to do some of the dumb things that we wanted to do.”
“Fortunately, investing has become so much more accessible in this huge capitalistic market that anybody can play in. But the big money is in selling other people ideas, not in outperforming. I think if you don’t run too much money, which we do, but if you’re running small amounts of money, the opportunities will be greater.”
Disagreements with Charlie
“Charlie and I have always differed on this subject. He likes to tell me how gloomy the world is, and I like to tell him we’ll find something. So far, we’ve both been kind of right.”
Munger says, “There is so much money now in the hands of so many smart people, all trying to outsmart one another and not promote one another in getting more money out of other people.”
“It’s a radically different world from the world we started in. I suppose it will have its opportunities, but it’s also going to have some unpleasant episodes.
Buffett adds, “They try to outsmart each other in arenas that you don’t have to play in. If you look at the Government Bond Market, the Treasury Bond Market, for example, you’ll see this. There’s one bill that’s out of line with the others. We bought over three billion of them the other day. The world is overwhelmingly short-term focused. On an investor relations call, they’re all trying to figure out how to fill out a sheet to show the earnings for the year. The management is interested in feeding them expectations that will slightly be beaten.”
“That is a world that’s made to order for anybody that’s trying to think about what they should do over five, ten, or twenty years. I would love to be born today and go out with not too much money and hopefully turn it into a lot of money. Charlie would too. Just like he would find something to do. I guarantee you, it wouldn’t be exactly the same as before, but he would have a big pile.”
Emotional Decisions
Buffett says, “We make bad investment decisions plenty of times. I make more than Charlie because I like to think it’s because I make more decisions, but probably my batting average is worse. However, I can’t recall any time in the history of Berkshire that we made an emotional decision. I know the movie had Jamie Lee in there, but that was for laughs. She’s good, but she’s not good enough to get me or Charlie to make an emotional decision.”
Emotion and Business
Charlie says, “It’s a different movie than is shown in most corporate meetings. Have you ever made an emotional decision in business?”
Buffett says, “Emotional decisions in business? No, you don’t want to be a no-emotion person in all of your life, but you definitely want to be a no-emotion person when making an investment or business decision.”
“We probably made an emotional decision when a manager has been with us for some period, and we’ve ignored the fact that perhaps they weren’t quite what they were earlier. But our businesses are so good that they’ve run better sometimes, even when the management hasn’t been top-notch.”
Avoiding Emotional Decisions
“I would say that we made an emotional decision perhaps when a manager has been with us for some time, and we’ve ignored the fact that perhaps they weren’t quite what they were earlier. But our businesses are so good that they’ve run better sometimes even when they are not being managed optimally.”
“I could argue that if Charlie and I hadn’t liked Louie as much as we did, we might have spotted a little bit early that the management was deteriorating. But I don’t think it made any difference in the results. Would you agree with that, Charlie?”
Making Good Choices
“Charlie and I behaved the way we did at Wesco, and I’m glad we did. What was worth a few tens of millions became worth two or three billion. The major mistake you can make is being born in the wrong place. You’re lucky if you’re in the United States. People around the world don’t have a lot of choices in some places.”
“You should write your obituary and try to live up to it. That’s something you get wiser on as you go along. The business mistakes, you just want to make sure you don’t make any mistakes that take you out of the game or come close to taking you out of your game.”
Investment Advice
Buffett on investing, “You should never have a night when you’re worried about investing. Assuming you have any money to invest at all, you should just spend a little bit less than you earn. You can spend a little bit more than you earn, and then you’ve got debt. The chances are you’ll never get out of debt.”
“I’ll make an exception in terms of a mortgage on your house, but credit card debt, for instance, is something we should avoid. We’re in the credit card business big time, and we’ll stay in the credit card business. But why get behind the game? If you’re effectively paying 12 or 14 percent or whatever you’re paying on a credit card, you’re saying you’re going to earn more than 12 or 14 percent on money. If you can do that, come to Berkshire Hathaway.”
Words of Wisdom
“So, as Charlie often tells me, it’s straight out of Ben Franklin. It’s not that complicated. I’ll give you a couple of lessons. Tom Murphy, the first time I met him, said two things for me. He said, “You can always tell someone to go to hell tomorrow.” That was great advice, then, and think about what great advice it is when you can sit on the computer and screw your life off forever by telling somebody to go to hell or something else in just 30 seconds. And you can’t erase it. You haven’t lost the option, though, to think before you act,” Buffett points out.”
Embrace Positivity
Buffett adds, “Praise by name, criticize by category. What makes more sense than that? Who do you like to criticize you all the time? You don’t need to vilify anybody to make your point on subjects of discussion.”
The Power of Kindness
“They also shared another general piece of advice. “I’ve never known anybody that was basically kind that died without friends,” says Buffett. “I’ve known plenty of people with money that have died without friends, including their family. But I’ve never known anybody who was genuinely kind who died friendless. And then I’ve seen a few people, including Tom Murphy Senior and maybe Junior who’s here, but certainly his dad. I watched him for 50 years. I never saw him do an unkind act. I didn’t seem to see him do many stupid acts, either. He was not discriminating; he just decided that there was no reason to do it. What a difference that makes in life!”
Simple Rules for Success
“Charlie then weighs in. “It’s so simple to spend less than you earn and to work industriously. Avoid toxic people and toxic activities, and try to keep learning all your life. Do a lot of deferred gratification because you prefer life that way. And if you do all those things, you are almost certain to succeed.”
Luck and Manipulation
“And if you don’t follow these guidelines,” Charlie warns, “you’re going to need a lot of luck, a lot of luck. And you don’t want to need a lot of luck. You want to go into a game where you’re very likely to win without having any unusual luck.”
“I’d add one more thought, too,” Buffett interjects. “You need to know how people can manipulate other people, and then you need to resist the temptation to do it yourself.” Munger adds, “The toxic people who are trying to fool you or lie to you, who aren’t reliable in meeting their commitments.”
Key Takeaways
8 Most Important Lessons from Warren Buffett and Charlie Munger in 2023:
- Digital Responsibility: One should exercise discretion while communicating online, understanding that words posted online are permanent and can significantly impact oneself and others.
- Respectful Criticism: Giving constructive feedback without personal attacks or vilification is important. Praising people by name and critiquing actions broadly can lead to a healthier communication culture.
- Value of Kindness: True kindness can lead to genuine, lasting friendships. People who demonstrate consistent kindness rarely find themselves without friends.
- Observation and Learning: Watching the actions of others, particularly those who consistently exhibit kindness and wisdom, can provide valuable life lessons.
- Financial Prudence: Living within your means, saving, and investing wisely are fundamental to achieving financial success.
- Avoiding Toxicity: Staying away from toxic people and harmful activities can lead to better personal growth and success.
- Preparation over Luck: It’s better to prepare and create conditions for success rather than rely on sheer luck. This involves planning, consistent effort, and making informed decisions.
- Resisting Manipulation: Recognizing manipulative behaviors in others and consciously avoiding such behavior oneself is crucial for maintaining the integrity and building trustful relationships.
Conclusion
In essence, the principles shared in the 2023 Berkshire Hathaway Annual Meeting advocate for a conscious, respectful, and disciplined approach to life. Online interactions should be handled carefully and carefully, avoiding impulsive actions that could cause irreversible damage. A kind, thoughtful demeanor should be adopted to foster healthy relationships, while toxicity should be firmly shunned. Success, according to this wisdom, lies not in the hands of luck but in the consistent application of robust life principles like frugality, industriousness, continuous learning, and the practice of deferred gratification. Lastly, being cognizant of manipulative tendencies in others, and choosing not to indulge in such behavior, is a crucial part of personal and professional integrity. These insights guide personal conduct and form a blueprint for success in today’s complex and interconnected world.
