We respect Mr. Buffett and Mr. Munger for all that they have accomplished with their shared 150 years of investment experience. This dynamic duo has made it a life-long crusade to educate people on their investment thesis. The appreciation from owning Berkshire (BRK/A) since 1965 speaks for itself, but comments about technology and innovation are way beyond their expertise. Buffett admitted he missed the boat in his career by not investing in technology. While success has been found with the investment in Apple, the foray into IBM was a big miss. (Note the chart does not date back to the founding of Berkshire, but the Shareholders reports spells it all out clearly.)
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Nevertheless, in reading Cinthia Murphy’s report, What We Learned from Buffett and Munger at BRK 2022, I was reminded of the many parallels that exist between the HODLers of Berkshire stock and those of Bitcoin and crypto. With this in mind, perhaps they are not as pure as the headlines read? One billion dollars is not chump change.
- Tribal: Warren Buffett said “People are becoming more tribal. My general assumption — there’s no way to prove it — but essentially, people are now behaving somewhat more tribal than they have for a long time.” Wait, no way to prove it? Isn’t there evidence from the fact that 30,000 Berkshire shareholders attended the Berkshire meeting, and 20,000 or so people attend conferences for Bitcoin, crypto and blockchain on a quarterly basis? (Note that members of the investment team at Toroso will be attending Consensus 2022. Members of the ETF Think Tank should email us to receive a special discount on the $1,599 admission price.) Bottom-line, social media has made it easy to be tribal. Why else do you have 1.720 million followers on your Twitter account @WarrenBuffett? Sometimes folksy and simple responses are how you communicate, but through all this time you inspired a cult like following.
- Faith and Trust: Investing in Berkshire Hathaway stock presumes that Warren Buffett, Charlie Munger and the entire conglomerate will continue to generate tremendous value through the almost $90 billion in 2021 earnings and $144 billion cash HODL. This is a leap of faith no matter how you cut it, and at different points has been tested. The magic touch was not evident for almost 12 years; especially in 2019 and 2020.
- Fundamentals and Intrinsic Value: Remember, Berkshire does not pay a dividend, and the Company is basically controlled by Mr. Buffett, who continues to hold the Chairman and CEO title. Investors in Berkshire have won big by HODLing their shares – not because Berkshire stock does not go down in value or go through rough patches of underperformance, but because they had faith in the long-term investment philosophy. An investment philosophy or “thesis” is not a guarantee of success, but rather a strategic discipline. To this point, we would argue that Berkshire stock currently trades around $46,500 because of expectations around the value of its assets more than anyone truly knowing what the assets are really worth. Who wants to guess what the intrinsic value of Geico cash flows are to the Shareholders of Berkshire? Do you think Bill Gates, through the Bill and Melinda Gates Foundation (which owns about $10 billion in BRK/B shares), has done the calculus?
- War Chest: Buffett is ready to spend his war chest? Given that Berkshire announced that they invested $40 billion in this first quarter, he is likely on the hunt. Desperate times are the best of times for a bullet proof balance sheet like Berkshire. Berkshire does not market time, but look for Mr. Buffett to accelerate his spending if markets continue their decline.
- Crypto Truth: Buffett and Munger’s comments about Bitcoin and crypto were not 100% aligned with how they invest. Berkshire’s crypto exposure does exist through Nubank, where the firm has a $650 million loan and some billions invested. Of course, Nubank may end up being a great investment for Berkshire. As a Fintech platform company, paving the way in Brazil with 54 million client accounts, Nubank offers a taste of Fintech for Berkshire. Sorry Warren – maybe it was just bad timing and forgotten during your Shareholders meeting.
We are not picking a fight with Berkshire investors or value investing in general. It is, however, a surprise to see Berkshire listed among the top shareholders of NU Holdings, given the other shareholders that are listed as investors are all aligned with growth mandates. At our core in the ETF Think Tank, we believe in diversification and have advocated for value investing. Readers of these Blog posts will recall us highlighting Distillate Capital (DSTL).
Summary
In Omaha, folksy is cool and simple is straight forward. Thank you, Cinthia Murphy, for attending the BRK2022 event. We all have much to learn from 150 years of experience. The question is whether the wisdom of value investing is transferable to Fintech. Moreover, even if NU Holdings is the leading-edge disruptor of NEO banks in Brazil, why are you saying disparaging comments about crypto when you are trying to capitalize on a platform that is offering 54 million people access? Stay in your lane!
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