Greetings to the audience, welcome to “Qin Peng Observation”.
Today is May 6th on the US East Coast, and May 7th in Beijing, Hong Kong, and Taiwan.
### Today’s Focus:
Last Saturday, the stock market guru Buffett spent 5 hours sharing and answering questions at the annual shareholder meeting. What are the key points worth noting? Different people have interpreted his speech differently, but the authenticity varies. Today, let’s share Buffett’s five major insights.
It’s interesting that almost everyone can quote some of Buffett’s investment sayings, such as “If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes,” “Be fearful when others are greedy, and greedy when others are fearful,” “Only when the tide goes out do you discover who’s been swimming naked.” Buffett always manages to say something each year that captures people’s attention. This year, he mentioned, “Many people are constantly waving their baseball bats, while we only swing our bats at the right time,” and also said, “Those who focus on stock prices every day end up not making money.”
However, many people often forget that behind Buffett’s principles, there are some unspoken truths.
For example, this year, when asked if he would continue to invest in Chinese companies, Buffett said he doesn’t understand the Chinese culture, and stated, “The main investment targets will be in the US, that’s what we firmly believe.” This is actually one of Buffett’s biggest secrets to success, often overlooked intentionally or unintentionally by people.
Buffett also mentioned, “I understand the rules, weaknesses, strengths, etc., of the US, but I don’t understand other cultures. If Berkshire insists on a US-focused approach, it’s less likely to make major mistakes.” He emphasized that investments like Coca-Cola or American Express, which have global business expansions, are hard to find globally. Comparing investments in companies like BYD to the ones made in Japan five years ago, he noted the similarities.
Regarding the new investment hotspot in India, Buffett admitted that there are investment opportunities in India, but he would rely on future management to explore them. He questioned whether they had any advantages, either insights into those businesses or connections that could facilitate certain deals with India.
From these statements, it can be seen that Buffett’s investment in China and Japan has come to a halt, and he has no new plans for India. But is the reason behind this really just because he doesn’t understand the culture of countries like China? Certainly not.
Buffett once told a story about buying a company’s stock with his first wife, Susan, in 1955. The stock seemed safe at any given time, but the company’s assets were in Cuba. When Castro started the socialist revolution, the assets were seized, rendering the stock meaningless. Despite protesting, it was to no avail. He kept the stock as a reminder that laws in some countries can change overnight.
Born in 1930, Buffett made his first stock purchase at the age of 11. Over the past 50 years, his investment’s compounded annual growth rate has been as high as 20%. Many people praised this success, but few mention the broader environment: over the past 80 years, the US has been in a prolonged bull market, with the S&P 500’s compound growth rate exceeding 8%. This is the crucial factor for Buffett’s success. If he had grown up investing in Chinese A-shares, he would certainly not have achieved the Buffett miracle.
Recently, many Chinese people have been spreading rumors about the US national debt size being too large, leading to economic collapse and a significant devaluation of the dollar. Coincidentally, at this year’s meeting, someone asked Buffett a similar question: whether he was concerned that the rising debt levels would harm the US Treasury’s position?
Buffett stated that his “best guess is that US Treasury bonds will remain acceptable for a long time because there aren’t many choices.” He also praised Fed Chairman Powell for guiding the economy in the past few years but pointed out that the Fed needs lawmakers’ help to control the growing US deficit.
This speech actually shows Buffett’s confidence in the US system because of the separation of powers, which effectively safeguards the US government’s debt issuance, ensuring money doesn’t flow massively into corrupt officials’ pockets, and the Treasury must repay on time. This is different from China’s one-party dictatorship; if they release too much liquidity, it would differ fundamentally from US QE, leading to different outcomes.
At the meeting, Buffett revealed an important piece of information: by the end of the first quarter, the company’s cash and Treasuries totaled over $180 billion, which would reach $200 billion by the end of the second quarter.
Why hold so much cash? Buffett explained they want to spend it, but only when they believe the risks are minimal and can bring significant returns. They want to swing their bat like they do in baseball, “only taking a swing at the right time.”
Why is this part important? It implies that US stock prices are currently overvalued, and Buffett is waiting for a market correction before making significant purchases.
So when will this adjustment happen? I believe the stock market will remain strong in the first half of the year, but there might be a decline in the third quarter. Traders currently estimate a 68% probability of a rate cut by the Fed in September.
Apple’s CEO Tim Cook also attended Buffett’s shareholder meeting. The future of Apple was a key topic of discussion because Apple is one of Buffett’s best investments, now becoming one of his riskiest.
Buffett confirmed that Apple will remain Berkshire’s largest stock position, “unless there’s a truly dramatic change in capital allocation.”
Regarding why he recently sold some Apple stock, Buffett mentioned, “The budget deficit will be the problem, and the US government may raise taxes to address it.”
Interestingly, Buffett started investing in Apple relatively late, avoiding tech stocks for a long time. In 2016, Berkshire began betting on Apple, initially purchasing nearly 10 million shares worth about $1 billion. They ramped up investments in 2017 and 2018, spending around $36 billion over two years to acquire a quarter of their entire stock portfolio in Apple by the end of the third quarter of 2018.
This move has brought substantial profits to Buffett. Currently, Berkshire’s Apple stock is valued at about $157 billion, with nearly $120 billion in unrealized gains—a remarkable investment in Buffett’s long career, unmatched by any other.
Many people believe that Buffett’s investment in Apple contradicts his long-term investment philosophy. In reality, it does not. Buffett is impressed by iPhone’s 95% retention rate among users, repeatedly praising it. He said, “I see the powerful ecosystem to an unusual degree,” and if consumers had to choose between buying a second car and an iPhone, they’d give up the car.
However, Apple is currently facing challenges, including antitrust issues, slowing sales in the Chinese market, and criticism for lagging behind in AI technology. Berkshire Hathaway shareholders are also somewhat concerned about Apple’s long-term performance.
The Wall Street Journal noted that Buffett has not sold a significant amount of Apple stock so far, possibly because he struggles to find better uses for the cash.
At the meeting, Buffett candidly expressed his concerns about artificial intelligence (AI). He likened AI to the atomic bomb, believing that both could bring destructive consequences to society.
“When we developed nuclear weapons, we released a genie from the bottle.” “AI is somewhat similar—it’s partially out of the bottle.”
Recently, Buffett saw his image and voice replicated by an AI tool, creating an incredibly realistic output that even fooled his wife and children. Buffett believes that such misuse of technology will make scams more successful.
Although Buffett hasn’t invested in AI, his successor, Abel, revealed that the company has begun using AI in some operations to help employees increase efficiency.
It is well-known that Xi Jinping is vigorously promoting the new energy “new three things,” while Western societies are also discussing new energy. Interestingly, while Berkshire continues to invest in solar energy, they maintain significant investments in traditional energy sources. Abel stated that the shift towards renewable energy won’t happen overnight, and in the foreseeable future, natural gas will remain an essential resource and backup.
Buffett agreed with this, mentioning that some natural laws must be adhered to, like the impossibility of making nine women pregnant for a child to be born in a month.
It is widely known that Buffett has been conservative in his investments in information technology companies, consequently facing criticism. He not only bought Apple later, but Microsoft’s Bill Gates served on his board for 20 years, yet Buffett never owned Microsoft. However, what remains commendable about Buffett is his honesty; he said, “I don’t understand it, so I don’t invest in it.” Even though he missed many opportunities, he successfully avoided many pitfalls as well.
At this point, I believe that the younger generation can have a broader perspective because they are more familiar with new technologies, enabling them to invest in related fields, paying the right price, and holding long-term positions.
However, we must not forget about some worthwhile investment areas. For example, AI is currently in a competitive era, making it challenging to predict which company will come out on top. Nevertheless, some companies belong to the gold rush era of selling tools and jeans, like NVIDIA, TSMC, and various energy companies because AI consumes a significant amount of electricity.
Every year, Buffett’s shareholder meeting is dubbed as the “investment industry’s Spring Festival,” with around 30,000 people arriving as scheduled in Omaha, the US, including many Chinese investors who refer to themselves as Buffett fans. However, there has always been ongoing debate. This year, mainland tech media “TMTpost” published an article saying, “Don’t go on a pilgrimage to Omaha; you won’t learn from Buffett!”
On one hand, the author admits Buffett’s success, achieving an annualized 20% return over 50 years. But on the other hand, the article argues that Buffett’s value investing comes with many implicit conditions, such as the unique environment in the US. When Buffett says gold has no investment value, what he really means is he can find higher returns elsewhere. When he mentions that people are fearful of him being greedy, he’s implying he can identify when the market is close to the bottom and find investments with excess returns.
The article suggests that learning from Buffett shouldn’t be taken universally; a more comprehensive understanding is essential. Copying Buffett in a blanket manner is akin to seeking a boat under a sword.
I believe this awareness is accurate. However, I don’t share the viewpoint of some who claim that the “value investing” philosophy is entirely useless in China, even though it is widely known that China’s stock market is more like a gambling den. This is because, as Buffett mentioned at the meeting, “Munger taught me one thing – consumer behavior is critical.” He said, if we were to buy a furniture store, we’d soon realize it’s a mistake, but this blunder would help us better consider the asset allocation process. In this process, we slowly learn about consumer behavior.
Consumer behavior, company customers, value, etc., are vital underlying business logic and economic principles that, even in a market distorted by government actions like in China, still play a role. If we can understand these aspects, we’ll know that real estate will ultimately find buyers, and factors like demographics, income, investment bubbles, etc., will eventually shatter the frenzy in the Chinese real estate market.
In this regard, the couple, Li Ka-shing and Pan Shiyi, are worthy of our learning. They foresaw economic and social trends, recognized the greed of the masses, and cleverly made their exits!
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