This year, around 40,000 shareholders attended Berkshire Hathaway 2023 annual meeting to see Warren Buffett speak.

Why?

Because he spends several hours answering questions and talking about the stock market, society, and answering philosophical questions about how to live a good life.

Last year, I went to Omaha to see it (from there the picture). This year, I had to stream it from home and take notes.

What was the most important thing he said in 2023?

In this blog post, I’ll look at the most important things he said at this year’s meeting about stocks and the economy. In the next blog post, I’ll look at his life advice.

If you still want to see a recording of Berkshire Hathaway 2023, you can watch it on CNBC here. You can also save a lot of time by digesting my summary here.

1. Berkshire Experiences a Slowdown

Warren Buffett started by presenting Berkshire Hathaway’s financial statements.

Berkshire Hathaway owns over 60 different companies and therefore has a lot of input in various industries. You can see the companies that Berkshire Hathaway owns here.

He said that we’ve just come out of an extraordinary period of consumption stimulated by government support, but now they are experiencing a slowdown across various businesses.

“It was an exceptional time, but it’s over now. It’s different from just six months ago. People are not in the same frame of mind,” Buffett said.

2. Buffett Avoids Banks

He talked a lot about how Americans don’t understand how banks work, and how that’s worrying.

You don’t have to line up to make a bankrun today, but it can happen in seconds.

He said that the US authorities have no interest in letting a bank fail. Depositors are protected (shareholders are not), but the American public don’t seem to understand it.

Both politicians, regulators, and the press have been bad at explaining it.

“In such a situation, we are very cautious about owning banks,” he said.

Berkshire sold off some banks during the pandemic in 2020 and has sold more in the last six months. He also said that Bank of America is an exception. “We really like the bank and really like the management,” he said.

 3. There Are Problems in Commercial Real Estate 

Buffett was asked if real estate investments are important to Berkshire, and he rejected that. He went on to say that there are big problems in (especially commercial) real estate markets right now.

“We’re seeing the consequences of people being able to borrow at 2.5% interest. Now they’re finding out that it doesn’t work, and the properties have to be given back to those who lent them the money,” Buffett said.

4. There are Opportunities for Value Investors Today

Warren Buffett’s partner Charlie Munger believed that it is harder to be a value investor today because there are more people competing for the same opportunities.

Warren Buffett completely disagreed with him.

“What creates the opportunity is that other people are doing dumb things,” he said, emphasizing that there are even more such opportunities today.

“In the 58 years we’ve been running Berkshire, I would say there’s been a great increase in the number people doing dumb things, and they do big dumb things,” he said,” Buffett said.

He indicated that he would be able to achieve the same success in building wealth if he started over today. “I would love to be born today without too much money and turn that money into a lot of money,” Buffett said.

 5. The Dollar Continues as a Reserve Currency

The dollar is not threatened according to Warren Buffett. He simply can’t see which other currency would take over the position.

“We are the reserve currency, I see no option for any other currency to be the reserve currency,” he said

A Lot of Life Advice 

Warren Buffett and Charlie Munger were also asked about how to live a good life.

One of the things I love most about the annual meetings in Omaha is precisely these philosophical questions about life.

In the next blog post, I will summarize the most important life lessons that came out of this year’s meeting, so stay tuned.

To read a summary of last year’s meeting, click here.

If you want to learn more about how to invest like Warren Buffett, you can read more in my e-book here.

Imagine piling 32 billion dollars in a stack of newly printed $100 bills. 

How high would it reach? 

Warren Buffett knows the answer: it’s 21 miles high – or three times the level commercial airlines usually fly at. 

He took the time to figure that out, because 32 billion USD is how much Berkshire Hathaway has paid in taxes over a decade. 

Why is that important? 

Taxes and philanthropy are a theme in Warren Buffett’s shareholder letter for 2022.

I’ll tell you why in this blog post. 

The Shareholders Can Be Proud

Warren Buffett says that everyone who is a shareholder in Berkshire Hathaway can honestly say that “they gave at the office.”

If there were just 1,000 other taxpayers that paid that much, the other 131 million taxpayers in the United States would not have to pay any taxes at all.

Why are taxes a big subject in this year’s shareholder letter? 

By illustrating so graphically what the shareholders are indirectly contributing to by paying taxes through Berkshire, Buffett makes a few points: 

The Deficit is a Big Deal

One important point is that the fiscal deficit is too huge, and it has become a threat that can destabilize the American economy. (Well, he doesn’t exactly say anything about threats, because he is a softspoken and diplomatic man.)  

Over the past decade, the US Treasury received $32 trillion in taxes, but it spent just under $44 trillion.

Buffett doesn’t go into detail – he doesn’t scold any individuals, companies or politicians – but he simply emphasizes that a “huge and entrenched fiscal deficit has consequences.”

He also explains that he and Charlie Munger, as shareholders, mainly focus on the companies, not the macro policy… but that this “attribute is far from perfect.” 

Coming from Warren Buffett’s careful mouth, these are serious words. 

There Would Be No Berkshire Success Without the Success of America

He points out that he’s proud that Berkshire Hathaway pays such a large part of the tax bill and that he hopes to pay more taxes in the future.

That statement would probably make many people clear their throats, but Warren Buffett has yet another point, and he makes it clear. 

Berkshire is like the ivy growing up a tree. 

Berkshire Hathaway has only done well for so many years because they’ve profited from the success of America. 

“We owe it to America,” he says, referring to Berkshire’s tax bill. 

Why? Because the dynamism of the United States has contributed to Berkshire’s success.

“We count on the American tailwind,” he writes in the letter to shareholders for 2022, which was published at the end of February. You can read it right here.

Here are some of his other points from this year’s letter to shareholders:

Foolish Stock Market Prices Made His Success

The stock market has made it possible for Berkshire Hathaway to buy wonderful companies at wonderful prices. 

As Buffett says:

“It’s crucial to understand that stocks often trade at truly foolish prices, both high and low. ‘Efficient’ markets exist only in textbooks. In truth, marketable stocks and bonds are baffling, their behavior usually understandable only in retrospect.” 

His Success Depended on a Few Well-chosen Stocks

He singles out Coca-Cola and American Express as some of the few investments where he has done well, and he explains that without those, Berkshire Hathaway would have achieved mediocre results. 

“Our satisfactory results have been the product of about a dozen truly good decisions – that would be about one every five years,” he writes. 

Berkshire invested $1.3 billion in Coke in the 1990s that turned into $25 billion (year-end 2022) plus dividends. 

AmEx was also a $1.3 billion investment, and it grew to $22 billion (year-end). 

“The weeds wither away in insignificance as the flowers bloom. Over time, it takes just a few winners to work wonders.”

This, of course, also applies to you as a private investor. Learn to pick the winners and let them run. To find out more, read my free e-book Free Yourself. You can download it right here. 

Men take up a lot of space when it comes to stock investing, but women are better investors.

Men are equity analysts, equity experts, shareholders, board chairmen, CEOs and financial experts. Men debate in posts and make up 90% of participants in most stock-related social media groups.

But when it comes to generating returns, women actually do better than men.

This has been illustrated by several studies, including, among others, those of Cal-Berkley, Warwick Business School and Fidelity. If you want to dive deeper into the data, I’m sure you can get Google to show you.

Here I’ll suggest some possible reasons as to why women are better investors than men.

Reason 1: Women Are Risk-averse

Women are very aware that they can lose money on stocks.

They think twice before investing, and they tend to choose companies that they recognize from their own lives, companies with products that they know are good, solid products. They invest in things they like. 

Some men tend to have a lottery-like mindset when it comes to stock investing. By that I mean they tend to choose stocks that they believe have a potential to skyrocket – but not necessarily with a sound product in the real world. This could be a biotech company with no revenue but some exciting research and potential medicine in the pipeline.

Reason 2: Women “Forget” About Their Investment

Women make a decision, invest and then move on in life and “forget” to check the share price.

This means that they do not suffer as much from an overactive trigger finger, where they constantly check the share price and act irrationally based on how the price has changed that day.

Studies have shown that women buy stocks nine times a year, while men make new investments 13 times a year (Warwick study).

Reason 3: Women Do the Homework

Because women are a bit more aware of risk, they also hesitate more and spend more time familiarizing themselves with a company before investing in it.

They take some time to learn how to invest in the stock market in general, whereas men tend to toss away the instruction manual and just start by fiddling with the buttons on the platform to see what happens.

This can be both a strength and a disadvantage. Women must be careful that they don’t put off action for too long and never get started.

Reason 4: Women Are Patient

Sometimes it takes time for a stock to start showing results. Women have that patience. They don’t lose heart with a company because the stock hasn’t skyrocketed after a few weeks.

Perhaps it’s linked to the fact that women biologically wait nine months to have a child. We know that good things take time and grow slowly.

Reason 5: Women Accept a Loss and Move On

When shares in a company dive for reasons that reflect some fundamental problems in the company, you can react in three different ways:

1. You can either slam the laptop shut and forget about it (do nothing).

2. You can accept the loss immediately, sell the share and invest the money in something else.

3. Or you can dig yourself further into a hole by buying more stocks in the hope that they will turn around one day. The logic here is that you get a lower average price.

Women are good at taking the loss right away and moving on in life.

This means that they can make a good return elsewhere and that they recover faster from the loss.

On the other hand, if you throw more money at a bad investment because you find it difficult to accept defeat, you can really dig yourself a hole that is difficult to get out of.

I once met an elderly man who had blown his entire pension on a bad investment because he stubbornly kept believing that it would turn around and couldn’t accept that he had been wrong in the first place.

Start Value Investing

These qualities make women particularly good value investors.

They are very good at thinking long-term and buying stocks based on real-world rationale, judging the company’s products as a consumer. Women also patiently wait for better times when the market goes against them. At the same time, they admit it and course-correct if they realize they’ve made a mistake.  

To learn more about investing this way, download my free e-book here. 

For most stock investors, last year was a year of stock market losses. 

But not for the well-known value investor David Einhorn – it was his best year ever.

While the leading stock index S&P fell around 20 percent for the year, David Einhorn had a positive return of over 36 percent.

In other words, he did more than 50 points better than the dominant index, and in hedge fund parlance, this is called being 50 points of alpha.

David Einhorn Bet on a Bear Market in 2022 

David Einhorn describes in a letter to his investors that he has long seen a bubble in the stock market. He says he went from being cautious in 2021 to being bearish in January 2022.

The fund created different baskets of companies that they shorted, and these baskets of shorts have helped to give the fund an extraordinarily good return.

Part of the story is also that he has had some difficult years leading up to 2022, precisely because he shorted while the market was still rising.

Shorting means betting that stocks will fall. It’s a really difficult discipline to manage, because not just your logic, but also your timing has to be right. You lose money when you short if the stock in question goes up – and there are essentially no limits to how much you can lose, as there is no cap on how much a company can increase.

As John Keynes once said: “The market can stay irrational longer than you can stay solvent.”

He Shorted Tesla

David Einhorn doesn’t actually write in the letter to shareholders which companies Greenlight Capital shorted, but he has previously revealed that the fund shorted Tesla. He has quite publicly chastised Tesla and founder Elon Musk.

It sounds like David Einhorn is also critical of the well-known rock star portfolio manager Cathie Wood and her ARK Invest, although he doesn’t say so directly. 

He simply writes that Greenlight Capital has shorted parts of an “innovation ETF” – which sounds like Cathie Wood’s project:

“In early 2021, we also identified an actively-managed ETF of so-called “innovation” stocks that appeared to us to have significantly similar characteristics to our bubble names. We shorted a basket comprised of the components of that ETF in February 2021 that we ramped up to 9.0% of capital. It has declined by 76% since our first entry,” he writes.

In other words, his fund has not shorted the entire ETF, but selected companies from it.

Compared to Cathie Wood, his short position in innovation stocks has fared even better.

Cathie Wood’s flagship fund, the Ark Innovation ETF, fell 67 percent in 2022.

When you short, you make money from something falling, so in this regard it is good that the innovation stocks that David Einhorn selected fell more than her fund.

How David Einhorn Defines a Bubble

David Einhorn talks a lot about bubbles in his letter. They’re mentioned around 30 times. 

But what exactly is a bubble? How does he define it?

“We define a bubble stock as one that if we look at the company’s current and projected financials – counting stock compensation as an actual expense – and perform a traditional valuation analysis, it could fall at least 80% and still not appear cheap to us,” he writes.

In other words, he and his team are calculating the value of a company. If the stocks of that company were to drop 80%, and it would still be too expensive for them to consider investing in it – then it belongs in bubble territory.

However, they will only start shorting when it looks like the stock will stop rising and instead start falling.

“The goal is to short when the bubble appears to have popped,” he writes.

He Became Famous When He Shorted Lehman Brothers 

David Einhorn established Greenlight Capital in 1996 when he was just 27 years old. The fund did very well. He got a good return on shorting the dotcom bubble.

He became known in investor circles for providing some very critical and precise analyses of the companies that he shorted.

In 20o2, he accused the insurance company Allied Capital of cooking the books. The next day, the stock imploded. But he really became famous when he publicly criticized and shorted Lehman Brothers – about a year before they crashed and started the financial crisis.

Today it’s got a name. Investors call it the “Einhorn effect” when a stock falls after David Einhorn made a critical comment about it.

Value Investing May Never Come Back 

He writes in the letters to shareholders that the very long bull market from 2009 has thinned out the ranks of his peers. 

These years have been tough for David Einhorn too. He has been predicting a bubble and shorting way ahead of time. This bubble has been going on a lot longer than he expected.

For this reason, his fund has lost money some years, and this has meant that investors have fled from the fund, leaving it decimated.

For similar reasons, most investors like him have folded in this period.

“Many investors that have historically had a value bent either adapted, retired or went out of business,” he writes.

He describes how many of his competitors left the industry because value investing became unattractive when everything boomed.

He also says that it’s unlikely value investing is going to make a comeback. 

“Value investing, as an industry, is unlikely to ever fully recover. The outflows into passive and other strategies were debilitating,” he writes.

However, in his eyes, this is a positive development for his fund. It means fewer competitors.

“We believe this is positive for our strategy, as we face much less competition than we did a few years ago,” he writes.

Here I would just like to add that not all value investors have negative years when the market is going up. David Einhorn’s strategy of shorting stocks makes him more exposed and vulnerable in a bull market.

I do not short stocks, nor do I recommend that you do.

He Foresees More Stock Market Decline in 2023

Last year was a bad year – but it could get even worse in 2023, David Einhorn believes.

According to him, we are still in the middle of a bear market. 

“Although we believe we are in the middle stages of a bear market, we did establish a new medium-sized long position in Tenet Healthcare (THC) during the fourth quarter,” he writes.

What does this mean for you? 

Of course, this means that you have to be careful and calculate what companies are really worth. You have to open the accounts and do the math.

David Einhorn asks if it is worth gambling with your savings and your future.

“This was a year where many of those who rode the bubble suffered losses, raising the question as to whether the risks were worth taking,” he writes. 

I would add that exactly the same applies to 2023 – and all other years… 

Is it really worth taking the risk by gambling? How do you avoid gambling? By familiarizing yourself with your investments, by opening the accounts and seeing what’s under the hood. 

You can learn how to calculate a company’s value in my free e-book Free Yourself. Download it by clicking here. 

Bill Ackman is one of the most successful stock investors of recent times.

He has made some pretty good stock market bets – among others, in the American fast-food chain Chipotle Mexican Grill, which more than quadrupled in value in the few years since he invested in them.

But he has also previously had some years where everything went wrong, such as when he shorted Herbalife.

He lost money, the investors fled, but he turned things around and became successful again. 

The tough years made him analyze what went wrong and return to the old way of investing.

Bill Ackman Rediscovered His Own Checklist

He says he and his team went astray and had to return to classic value investing. In the beginning, he followed a checklist to find good companies – with great success. 

Then he veered from the path, and the problems began to pile up.

“I went back to the core principle that had driven our success for the first 12 years. I had a member engrave them on a stone tablet, not unlike Moses’ 10 commandments,” he said in an interview with Bloomberg.

Today, he and his team go through the checklist for analyzing companies prior to each investment. 

I don’t know about you, but I’d love to get my hands on that checklist. 

Don’t worry, that’s exactly what I’m going to reveal in this blog post. 

1. The Company Must Be Simple and Predictable

It must be a single business with a single structure, operating in an industry you understand and selling a product you understand.

We want to be able to predict the future of the company. 

That means that a lot of sectors will be out of your reach. It’s difficult – for example – to predict the future for a biotech company without a product on the market.

It can also be difficult to predict the future for companies whose turnover or profit fluctuates a lot. 

2. The Company Must Have a Positive Free Cash Flow

You don’t want to invest in companies where money is pouring out the bottom. 

Bill Ackman looks at free cash flow. 

It is a key figure that is usually stated in the accounts. In case it’s not, you can calculate it yourself. You find operating cash flow and deduct maintenance capex from the cash flow statement. 

Why is it important? As Bill Ackman says:

“If we can’t predict the cash flows, we don’t know what it’s worth.”

3. They Have to Be Dominant

Bill Ackman loves companies that have a dominant position within their market: companies such as the hotel chain Hilton, the coffee chain Starbucks, the streaming service Netflix and the fast-food chain Chipotle Mexican Grill.

Why? Because it’s a sign that they have some kind of competitive advantage. 

4. They Must Have High Barriers to Entry 

Barriers to entry mean that it’s difficult for competitors to enter their business, typically because it’s costly to start business at the same level. 

It’s always important that the company you invest in has some kind of competitive advantage that protects them so other companies can’t easily steal their clients. 

Competitive advantages may be that they have a secret ingredient (e.g., Coca-Cola) or a patent. These advantages may also be that they have a direct monopoly (bridges, railways), economies of scale (Amazon, Walmart), a strong brand (Coca-Cola), costs – either in price or time – if you want to switch to another company (banks), or network benefits (Facebook, Microsoft).

5. High Return on Capital

The company must be good at making money on the capital invested in the company.

Here you can look up a key figure such as ROIC (return on invested capital).

6. Limited Exposure to Extrinsic Risks

This could be the threat that the legislators will step in and make restrictions in the area.

An extrinsic threat is something coming from outside and something out of the management’s control.

Like when the EU zooms in on Big Tech and you sense that some crackdown might be in the cards. 

7. Strong Balance Sheet

He only wants to invest in companies that do not require access to outside capital to survive.

In other words, this means that they must have low debt compared to the money they make.

A rule of thumb is that they must be able to pay off their long-term debt with the free cash flow in three years.

8. Good Management and Governance 

The company must be run by management that you trust.

This applies not only to top management, but also to the board of directors.

One way to evaluate them is to go back historically and read their letters to shareholders that you find with each annual report. 

What have they promised in the past, and have they kept it up?

9. A Gap Between Price and Value 

Sometimes it happens that the share price falls to a level below what the company is actually worth.

This is something you can calculate. It may sound big and difficult – but it is not.

I explain how you can do it yourself in my e-book Free Yourself, which you can download below.

In my free e-book Free Yourself, you can learn a lot more about the style of investing that we call value investing. You can download it here. 

To learn more about my style of investing, you can download my e-book Free Yourself here.