Warren Buffett discusses Apple, cash, insurance, artificial intelligence (AI) and more at Berkshire Hathaway’s annual meeting.

tens of thousands Berkshire Hathaway (BRK.A -0.56%) (BRK.B 0.07%) Last week, investors flocked to Omaha for the annual tradition of listening to Warren Buffett’s muse talk about big business, financial markets and more than 93 years of life wisdom. But this year’s meeting felt different.

Longtime Vice Chairman Charlie Munger passed away in late November. His wry sense of humor, witty sayings, and fun relationship with Buffett are sorely missed. But there was another notable difference between this meeting and those of previous years. It was just vigilance.

Let’s take a look at the key takeaways from the meeting and how they could impact Berkshire’s next move.

Image source: The Motley Fool.

Berkshire is selling about 13% of its stake in Apple.

The elephant in the room was Berkshire’s decision to reduce its stake. apologize (AAPL 5.98%) During the first quarter. Berkshire sold more than 116 million shares of Apple stock in the first quarter, reducing its position by about 12.9%. This is the largest sale of Apple stock since it began purchasing shares in 2016, and is significantly larger than the 10 million shares Berkshire sold in the fourth quarter.

Buffett mentioned the sale in his first answer during the Q&A session. “Unless something dramatic happens that really changes our capital allocation and strategy, we will continue to have Apple as our top investment, but as things stand now, we don’t mind at all. Our cash position is different from the alternatives available in the stock market and in the world. “If you look at the composition of what’s happening, I think it’s quite fascinating.”

In addition to concerns about valuation, market conditions, and wanting to build a cash position, Buffett also mentioned federal interest rates on capital gains. Buffett said this ratio has risen to 21%, up from 35% not long ago, and even to 52% in 2019. past. Fear that tax rates could rise under fiscal policy and the need to reduce the federal deficit are other reasons why Buffett and his team decided to book profits on Apple stock now rather than risk higher tax rates in the future.

Accumulate a treasure trove of cash

Buffett has long talked about the trust Berkshire shareholders have placed in him and his team to protect and grow their wealth. Berkshire is known to be fairly risk-averse, and is attracted to businesses with stable cash flow, such as insurance, railroads, utilities, and top brands such as: Coca Cola (watt hours 0.29%), american express (AXP -0.74%), and Apple. Another asset Berkshire loves is cash.

Berkshire’s cash and Treasury positions reached $182.3 billion at the end of the first quarter, up from $163.3 billion at the end of 2023. Buffett said he expects his cash position to exceed $200 billion by the end of the second quarter.

You might think Berkshire is hoarding cash because of higher interest rates and better returns on risk-free assets. But just before lunch, Buffett said that even if interest rates were 1%, Berkshire would still have a lot of cash because he doesn’t swing at balls because Berkshire only swings at the balls he likes and he simply doesn’t throw them. While doing it. He said Buffett said, “Things are unattractive, there are certain ways they could change, and we’ll see if they actually do.”

This comment is a potential sign that Berkshire is becoming even more defensive than usual.

Complex but highly profitable insurance environment

Berkshire’s underlying business is doing exceptionally well. Berkshire’s first quarter operating profit surged 39.1% compared to the same period in 2023. This was driven by higher profits in its insurance business and Berkshire Hathaway Energy (which had an unusually weak first quarter last year). But Buffett warned that it was a particularly strong quarter and that it would be unwise to simply multiply insurance income by four for a year, given that the third quarter tends to be the quarter with the highest claims risk.

Many Q&A sessions were spent discussing the future of insurance and utilities based on the new regulations. Rising prices due to climate change and increased risk of natural disasters; The potential impact of autonomous driving in reducing accidents and lowering insurance costs.

Answering a question about cybersecurity insurance, Ajit Jain, Berkshire’s chairman of insurance operations, said the market is big and profitable and will probably get bigger, but it’s not worth the risk until there are more data points. There was another question about rising insurance premiums in Florida, which Berkshire believes has made it more difficult to do business in Florida due to climate change, increased risk of catastrophic losses, and a difficult regulatory environment.

The advantage is that Berkshire prices many contracts at yearly intervals, so it can adjust prices as the risks increase and begin to outweigh the rewards. Or, as Jain puts it, “Like inflation, climate change, if done right, can be a risk-taker’s friend.”

As for the impact of self-driving cars on insurance, Buffett said the problem is far from resolved and that automakers have been considering insurance for some time. Insurance “can be a very tempting business when someone pays you and you hand them a little piece,” he said. “There is,” he said. “On paper.” In other words, it’s not as easy as you think. Accident rates have decreased, and it would be helpful to society if we could further reduce accident rates through autonomous driving, but insurance will still be needed.

Opening Pandora’s AI Box

Buffett’s answer to a question about the potential of artificial intelligence (AI) was similar to his answer at the 2023 annual general meeting. They compared it to an atomic bomb and called it a genie in a bottle because it has tremendous power, but they may regret letting it go.

He spoke about his personal experience watching AI-generated videos of himself. The video was so vivid that his children or wife could discern if it was really him or his voice, except for the fact that he would never speak. Things shown in the video. “If I were interested in investing in fraud, it would be the growth industry of all time,” he said.

Ultimately, Buffett stuck to his long-standing practice of staying within the bounds of his capabilities, saying he doesn’t know enough about AI to predict its future. “It has tremendous potential for good and tremendous potential for harm, and I don’t know how it will work.”

infinite opportunities

Despite his cautious sentiments, Buffett’s optimism about the U.S. economy and the stock market’s ability to multiply wealth over time was very clear.

Often people pay too much attention to Berkshire’s cash position as a gauge of its views on the stock market. While it’s certainly defensive that Berkshire maintains large cash positions, it’s valuable to understand the context of its various business units and the history of specific positions, such as Apple.

Berkshire probably never intended for Apple to own 40% of its publicly traded shares. Taking on some risk makes sense for Berkshire, especially given its low tax rates, especially if it believes it will need more reserve cash to deal with the changing dynamics of its insurance business.

In terms of life advice, the 93-year-old Buffett said it’s a good idea to think about what you want to read in his obituary and choose the educational path, social path, spouse and friends that will get you where you want to go. go. “The opportunities in this country are basically limitless,” Buffett said.

We can all learn a lot from Buffett’s firm understanding of the needs of Berkshire shareholders and the effort it takes to select a few investments and communicate numerous opportunities.

In investing, it is important to adjust your risk tolerance, investment goals, and holdings to achieve and balance your financial goals regardless of market conditions. In today’s fast-paced world filled with rapid change, staying true to our principles is more important than ever.