Newsletter - May 4th, 2025 - Berkshire 2025 Meeting
- AuditorInvestor
- May 4
- 11 min read
Dear Reader,
Attached is a list of stocks that passed value screens (e.g. low multiples of earnings, tangible assets, etc.) but don’t meet our investment criteria - and our reasoning.
This may help you avoid some ‘value traps’, and stocks that aren’t sufficiently attractive compared to opportunities available today.
For reports of stocks that pass our quantitative and qualitative standards:
Berkshire 2025 Meeting
The annual Berkshire meeting took place yesterday. Some notes below:
Be Opportunistic and Patient: Investment opportunities don't appear constantly or predictably - opportunities tend to come in clumps. Significant profits can come from waiting for the right moments rather than always being fully invested [01:08:43] - though this may be less relevant for smaller investors with thousands of stocks to choose from. Patience is key, combined with decisiveness when a compelling opportunity arises [01:35:51, 01:40:51].
Focus on Value, Not Market Timing: Nobody knows the market's short-term moves. Concentrate on identifying undervalued opportunities rather than trying to time the market [01:11:56] - this is our objective here. Buffett emphasizes value over growth [01:10:02] and notes that markets occasionally offer significant mispricings [01:11:09].
Cash Represents Readiness, Not a Market Call: Holding significant cash isn't necessarily a prediction of a market downturn, but rather a strategic position to deploy capital quickly when compelling, potentially large-scale opportunities are identified [01:07:37, 01:12:51].
We would add that for smaller investors, it doesn't make sense to hold cash if they find enough compelling investment opportunities.
Thorough Research is Crucial: Buffett highlights the importance of "turning every page" when searching for investment opportunities [01:06:01] - we look through every stock available to us to bring the best opportunities to you.
Very interestingly, Buffett emphasizes study of balance sheets over income statements [03:40:55]. Studying balance sheets over a decade or more remains powerful (as in Ben Graham's day). It's harder to "hide" or "play games" in balance sheets over a long period of time.
Look for Value in Overlooked Areas: The success of Berkshire's investment in Japanese trading companies serves as an example of finding significant value in markets or sectors others might overlook [56:12, 58:24]. (Our modus operandi is to hunt for such stocks.) Berkshire intends to hold these investments long-term [01:02:30].
Avoid Overpaying, Even for Buybacks: Discipline in valuation applies even to share repurchases; Berkshire only buys back shares when they are considered significantly undervalued [03:00:30].
Stocks Preferred Over Real Estate: This was one of the more interesting topics as Buffett revealed a young Charlie Munger would have chosen stocks over real estate if he started over. It's so much easier to find bargains among stocks - and quickly close transactions. [01:14:50] You may not get rich as fast as real estate (due to lack of leverage), but stocks can compound steadily.
Long-Term Perspective is Essential: Don't make decisions based on short-term (quarterly or annual) earnings fluctuations or market volatility [02:04:05, 02:30:37]. Focus on the long-term outlook.
Periods of subnormal earnings and depressed stock prices are tailor-made for true investors - and typical of the opportunities we report on.
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Other notes:
Summary: The 2025 Berkshire Hathaway annual shareholder meeting addressed a range of topics, including the company's significant cash position, investment strategies, the insurance and energy businesses, views on global trade and currency, and a major announcement regarding leadership transition.
Main Themes and Key Takeaways:
1. Significant Cash Position and Investment Opportunities:
Berkshire Hathaway holds over $300 billion in cash and short-term investments, a historically high figure representing about 27% of total assets.
This cash pile is attributed to a combination of factors:
Significant increase in Apple's valuation leading to meaningful stock disposals.
A market valuation that is not currently presenting many "big bargains."
The potential for a large, well-timed acquisition in the future.
Buffett and Abel emphasised that the large cash position is not a de-risking strategy in response to high market valuations, nor is it primarily intended to provide Greg Abel with a "clean slate" for future capital allocation, though it does offer flexibility.
The company is willing to deploy a "few hundred billion dollars" for a meaningful acquisition when a "bargain is available."
Opportunities for large, attractive investments are rare and do not come along frequently. Buffett stated, "Every now and then you get extraordinary opportunities and most of the time you don't have much of an edge."
The recent market volatility in April 2025 had not presented significant opportunities for Berkshire. Buffett highlighted that the recent market movements are minor compared to historical downturns.
Quotes:
"I think there was a combination of factors... Apple's valuation had increased significantly and so disposing of a meaningful amount of Apple stock has caused cash to pile up. I think that generally speaking the market is at a valuation that doesn't scream undervalued so there's not a lot of big bargains that are out there."
"We would spend well - we came pretty close to spending 10 billion not that long ago for example but we'd spend a hundred billion I mean and and those decisions are not tough to make when when something is offered that makes sense to us and that we understand and offers good value and where we don't worry about losing"
"the main thing you have to do is you have to be willing to hang up after 5 seconds and you have to be willing to say yes after 5 seconds"
"what has happened in the last 30, 45 days, 100 days, whatever you want to pick up whatever this period has been is it's really nothing - there's been three times since we acquired Berkshire that Berkshire has gone down 50% in a fairly short period of time. Nothing was fundamentally wrong with the company at any time but this is not a huge move"
2. Long-Term Investment Philosophy and Patience:
Buffett reiterated the importance of patience in investing, waiting for "fat pitches." However, he also noted that when a compelling opportunity arises, acting quickly is crucial.
The example of acquiring a business managed by Ben Rosner in 1966 for $6 million (which had significant cash, real estate, and earnings) was cited as a situation where acting fast was beneficial.
The acquisition of five Japanese trading companies about six years ago was highlighted as a very successful long-term investment, selling at "ridiculously low prices". Berkshire intends to hold these investments for "50 years or forever" and is building relationships for potential future collaborations.
Quotes:
"it's a combination of patience and a willingness to do something that afternoon if it comes to you. You don't want to be patient about acting on deals that make sense."
"Greg and I saw we like better as we went along so we got fairly close to the 10% limit that we we told the companies we would never exceed without their permission and so we asked them reasonably whether that limit could be relaxed and it's in the process of being relaxed somewhat"
"I would say they would like to present us with opportunities and we would like to receive them. We've got the money - we both get along very well with each other"
3. Views on Global Trade and Tariffs:
Buffett expressed strong opposition to tariffs, viewing them as detrimental to global prosperity and a potential act of war.
He advocated for balanced trade where countries focus on what they do best.
He believes that a more prosperous rest of the world is not at the expense of the United States but will lead to increased prosperity and safety for the US.
He criticised the idea of designing a world where a few countries "crow" about their success while others are envious, especially in a world with nuclear weapons and instability.
Quotes:
"trade can be an act of war and and I think it's led to bad things just the attitudes it's brought out in the United States I mean we should be looking to trade with the rest of the world and we should do what we do best and they should do what they do best"
"it's a big mistake in my view when you have 7 billion people that don't like you very well and you got 300 million that are crowing in some way about how well they've done and I don't think it's right and I don't think it's wise"
"I do think that the more prosperous the rest of the world becomes it won't be at our expense - the more prosperous we'll become and the the safer we'll feel and your children will feel someday"
4. Insurance Business and Risk Management:
The insurance business remains a significant part of Berkshire Hathaway. Ajit Jain, Vice Chairman of Insurance Operations, was present to address questions.
Underwriting income was down significantly in the first quarter of 2025 compared to a strong 2024, attributed to lower prices and higher risks this year.
Berkshire possesses "unusual advantages" in the insurance business, including significant float (money held before claims are paid) at a negative cost.
The company is actively addressing risks in the energy business, particularly related to wildfires, through operational focus, asset maintenance, hardening systems, and potentially de-energising lines during unusual weather events.
Private equity firms have become more active in the life insurance sector, competing for assets, but are generally less active in property and casualty.
5. Leadership Transition Announcement:
A major unexpected announcement was made at the end of the meeting: Warren Buffett will recommend to the Berkshire board that Greg Abel become the Chief Executive Officer at year-end 2025.
This recommendation will be presented to the board at their meeting the following day.
Buffett stated his intention to remain involved and potentially useful in certain situations, particularly in periods of great opportunity, but the "final word" on operations and capital deployment will rest with Abel.
Buffett expressed confidence in Abel's leadership and the future prospects of Berkshire under his management.
The announcement surprised attendees, including Greg Abel himself.
Quotes:
"the time has arrived where Greg should become the chief executive officer of the company at year end"
"I would still hang around and could conceivably be useful in a few cases but the final word would be what Greg said in operations or capital deployment whatever it might be I could be helpful I believe in certain respects if we ran into periods of great opportunity or anything"
"I have no intention - zero - of selling one share of Berkshire. It'll get given away gradually. I would add this: the the decision to keep every share is an economic decision because I think the prospects of Berkshire will be better under (Abel's) management than mine"
6. Currency Concerns and Fiscal Policy:
Berkshire has historically invested in foreign currency denominated assets unhedged, though their recent borrowing in Japanese Yen to offset currency risk in their Japanese stock investments is a first-time occurrence due to the long-term nature of the position and cheap funding.
Buffett expressed significant concern about the tendency of governments to debase their currency over time and the risks associated with fiscal policy in the United States.
He believes that the natural course of government is to make the currency worth less, and it's difficult to build effective checks and balances into the system to prevent this.
He views the value of currency as a "scary thing."
Quotes:
"obviously we wouldn't want to be owning anything that we thought was in a currency that was really going to hell and that's the big thing we worry about with the United States currency I mean it the tendency of a government to want to debase its currency over time. There's no system that beats that"
"fiscal policy is what scares me in the United States because it's made the way it is and all the motivations are to doing a lot of things that can cause trouble with money but that's not limited to the United States it's all over the world"
"the natural course of government is to make the currency worth less over time and and that's got important consequences and it's very hard to build checks and balances into the system to keep that from happening"
7. Views on AI:
Both Buffett and Jain believe AI is a "real gamechanger" for the insurance industry, impacting risk assessment, pricing, selling, and claims processing.
However, Berkshire is taking a cautious approach, waiting for the opportunity to "crystallize" before making significant investments.
Jain stated, "our approach is more to wait and see until the opportunity crystallizes and we - have a better point of view in terms of risk of failure/upside vs. downside - so right now the individual insurance operations do dabble in AI and try and figure out what is the best way to exploit it but we have not yet made a conscious big-time effort in terms of pouring a lot of money into this opportunity"
Buffett humorously added that he would not trade "everything that's developed in AI in the next 10 years for Ajit."
8. The Importance of Finding Your "Sound" and Working with People You Admire:
Buffett advised younger attendees to find work they truly enjoy, referring to it as finding their "sound," like Glenn Miller finding his unique musical style.
He stressed the importance of being very careful about who you work for, as you will take on their habits.
He highlighted the pleasure and importance of being trusted by others and working with people you admire and who have a positive impact on your life.
Quotes:
"you want to find your sound - there's a movie called The Glenn Miller Story and Glenn Miller went on from having a broken down band for 15 years to to turning out the first gold record - he found the sound"
"be very careful who you work for because you will take on the habits of the people around you"
"one of the great pleasures in this business is having people trust you and that's really the why. why work at 90 when you've got more money than anybody could count"
9. Perspectives on Setbacks and Good Fortune:
Buffett acknowledged that everyone experiences setbacks in life, and some face extraordinary bad luck.
He encouraged focusing on the good things in life and recognizing the good fortune of being born in the United States in the current era, calling it "the greatest country in the world and you got the greatest time in the world."
He also shared his personal experience of receiving invaluable help and guidance from individuals throughout his life.
Quotes:
"everybody gets setbacks and some people have particularly bad luck in that respect and others get through it with fairly minor setbacks - but Charlie had setbacks, I had setbacks, I mean it's part of life and and they're not any fun"
"if you live in the United States you know you've (won). there's 8 billion people in the world and there's 330 million in the United States - you've already won the game to a great degree and then just keep making the most of it"
10. The Changing Landscape of Public Utilities:
The valuation of Berkshire Hathaway Energy (BHE) was discussed, noting a significant reduction in value between two recent transactions.
This change in value is attributed to "societal factors," including challenges faced by utilities related to wildfires and regulatory environments in certain states, making the public utility business "not as good a business as it was a couple years ago."
Buffett noted that utilities needing significant capital should behave in a way that encourages investment.
Quotes:
"Berkshire Hathaway Energy is worth considerably less money than it was two years ago based on societal factors and that happens in some of our businesses"
"the public utility business is not as good a business as it was a couple years ago"
"if you're going to need lots of money you probably ought to behave in a way that encourages people to give you lots of money"
Additional Important Facts:
Berkshire Hathaway effectively owns nearly 5% of the entire US Treasury market due to its cash holdings.
Berkshire has not made any share repurchases so far in 2025.
Buffett mentioned that when Berkshire repurchases shares, they now effectively pay more than an individual buying shares due to taxes.
Greg Abel discussed managing the operating subsidiaries, describing his approach as empowering managers and providing direction when needed, which is different from Buffett's more hands-off approach.
Overall Impression: The meeting conveyed a sense of continuity in Berkshire's core investment philosophy despite the changing economic landscape and the significant cash position. The surprising announcement of Greg Abel's pending transition to CEO marked a pivotal moment, signaling a planned and deliberate succession, while also suggesting a continued role for Warren Buffett in significant capital allocation decisions. The discussion highlighted both the opportunities and challenges Berkshire faces, particularly in the insurance and energy sectors, and reiterated the importance of long-term thinking, patience, and a strong ethical foundation in business.