Buffett on cryptocurrency and Amazon

By Morningstar |  07-05-18 | 
 

At the annual Berkshire Hathaway shareholder meeting, Warren Buffett and Charlie Munger answered various queries. Here is just a look at their perspectives on a few investments.

On their preference for Apple

Berkshire took a bigger bite of Apple and its stake is now Apple’s third largest shareholder, behind Vanguard and BlackRock. In the first quarter of this calendar year, Berkshire Hathaway bought 75 million additional shares of Apple, adding to its earlier stake.

Buffett explained that he invested in Apple because he “came to certain conclusions about the value with which the capital was being deployed and about the ecosystem.”

Buffett credited Apple with developing "extremely sticky" products to which consumers become attached. He said that it is an "unbelievable company" that “earns almost twice as much as the second most profitable company in the United States."

Buffett endorsed Apple's decision to buy back $100 billion of its shares, saying it was the technology company's most productive use of cash. Munger added that he and Buffett don’t approve of every buyback plan but doubted Apple would find an acquisition target at a good price.

On why they never invested in Amazon and Alphabet

He admitted to making the wrong decision on both the companies and said, "We've looked at it. I made the mistake in not being able to come to a conclusion where I really felt that at the present prices that the prospects were far better than the prices indicated."

On admitting that he underestimated Amazon’s ability to disrupt retail and cloud computing at the same time with such a rapid pace, he opined that he has “watched Amazon from the start, and I think what Jeff Bezos has done is something close to a miracle. The problem is if I think something will be a miracle, I tend not to bet on it.”

On Wells Fargo

Berkshire first invested in Wells Fargo nearly three decades ago and is currently the bank’s biggest holder with a nearly 10% stake valued at around $25 billion.

Buffett was forthright when he said that the scandal-plagued bank had committed the "cardinal sin" of incentivising employees into a "kind of crazy conduct" but continued to believe that the bank was not "inferior", as an investment or morally, to its main rivals. He also is of the opinion that all big banks have had troubles of one sort or the other and what happened at Wells Fargo could have happened anywhere. “Wells Fargo is a company that proved the efficacy of incentives and it’s just that they had the wrong incentives.” He believes that the bank will only get stronger in the long run as it sorts out these issues.

On cryptocurrencies

Buffett believes that cryptocurrencies will come to a bad ending.

They are not a “productive asset.” That means the value of cryptocurrencies is determined solely by what someone is willing to pay for it. He also believed that cryptocurrencies would attract a lot of “charlatans” and “people of less than stellar character.”

Munger was more harsh and brutal on this front: “I like cryptocurrencies a lot less than you do. To me, it’s just dementia. It’s like somebody else is trading turds and you decide you can’t be left out.”

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