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At 92, Warren Buffett seldom ventures out to meet the managers of the companies he owns. But this week he and Greg Abel, Berkshire's Vice Chairman of non-insurance operations, found themselves in Japan. Buffett’s first visit to the country in over twelve years aroused intrigue and, naturally, CNBC followed him over there. On April 12th, 2023, Buffett sat down1 with Becky Quick to discuss why he was in Japan, the economy, the Federal Reserve, and the US banking system.
Here are twelve takeaways from the discussion.
1. A seal of approval for Japan
In the fall of 2020, Berkshire acquired a 5% stake in five of Japan’s largest trading companies. According to Buffett, the purchases were motivated by the fact “they were companies that I generally understood - somewhat similar to Berkshire in that they owned lots of different interest” and “they were selling at what I felt was a ridiculous price”. Today Berkshire owns ~7.4% of each business, and the pair made a trip to Japan to meet with the CEOs of each company, in person.
When asked if this grant’s a seal of approval for Japan, Buffett suggests that one could have observed his actions years prior for confirmation.
2. Banking crisis is not 2008
The system regularly trips up, but this isn’t 2008, says Buffett. “It gets back to that old story, you know, when the tide goes out you learn who’s been swimming naked. And, you know, we actually ran into a nudist colony here”.
3. Nobody is going to lose deposits in a US bank
Buffett took notice early on and this is what led him to sell down most of his bank positions recently; some of which Berkshire had held for more than 25 years. He keeps his lips tight on the specifics, but would reveal that he thought “banking could get in a lotta trouble” and that he “didn’t like the banking business as well as I did before”. Every time the interviewer referred to a banking crisis, Buffett ensured to add that depositors’ money was safe.
“It’s important, it’s important the banks retain the confidence of the public, and they can lose it, you know, in seconds. And we saw a country that was not worried about banks, you know, till about Wednesday or Thursday of the week when Silicon Valley fell apart and then all of a sudden everybody was worried about it all over the country”.
He did keep one holding, however. Bank of America, run by Brian Moynihan who Buffett claims to like “enormously” while admitting that he “just [doesn’t] wanna, I don’t wanna sell it”.
4. Domestic banks don’t scream value
Because Buffett appeared confident that the banking sector will be okay in the end, he was later asked if regional banks, such as First Republic, represented a steal from a value perspective. In short, they are not.
5. Bank failures not over
While he remains confident the US will be okay, he feels there are more bank failures to come.
“But I will be glad to put a million dollars of my own money in the bank that or any place else actually that anybody takes a differing view takes and have them put a million dollars in, and at the end of the year from when we do it if any American depositor has lost money from a bank failure, the other fellow gets to name where the $2 million goes to what charity”.
6. How to cure moral hazard in banking
Sometimes banks lose money in traditional ways. Other times they dream up new ways to lose money. One of the constants in the sector is moral hazard. The ones running these institutions seldom have anything to lose of things go bad. Buffett feels that curing moral hazards may cure the frequency and severity of the times when things go south.
7. Unforgiving to commercial real estate
Commercial real estate is supposedly at a crisis point and some people feel the government have to step in to backstop the plethora of loans that are maturing between now and 2025. With credit conditions tightening, many will struggle to refinance. Buffett is unsympathetic to these people; “if you make mistakes in business - you pay for ‘em”.
8. Approval of Powell
CNBC asked Buffett a number of questions about the Fed, Powell, if rates were too low for too long if they need to continue hiking, and so on and so forth. Buffett sidestepped most of them, straying into a tangent about how we can’t forecast the macro. Rightfully so. But where he did elaborate, was for his support of the actions and mentality of Jerome Powell, the sitting Chair of the Fed.
9. Inflation
Most of the inflation questions were sidestepped too, but when asked whether he fears a recession or inflation more, Buffett remarks that both have the potential to cause problems, but he is unsure what happens from here.
10. Apple China risk
Buffett has expressed concern about the China risk pertaining to Taiwan Semi. When asked if he feels the same way about Apple’s exposure to China, he avoids the question; simply citing that he “weighed that in”. Instead, he uses the time to explain why he thinks Apple is worthy of such an enormous weighting in the Berkshire portfolio.
11. Succession
Some interesting context on succession plans. While Buffett was born into the business, Abel had to work from scratch after joining Berkshire; regularly conversing with his portfolio company managers. Because of this, he has a more hands-on style when it comes to dialogue to that of Buffett. But at the same time, he understands that managers are left to run their companies.
12. Positive affirmations
Finally, it might feel like the near-term outlook for the world is bleak; but there is a lot to be optimistic about when you zoom out a little.
Thanks for reading,
Conor
watched squawk box live last night, lots of his comments are worth contemplation! (Side track: for all the Buffett interviews that I went through, I cannot help myself but wonder why it is always Becky that interview Warren! (Becky is fantastic! but I’d be curious what flavours Mr. Buffett’s CNBC interview will be if he is interviewed by Joe or Andrew)
Pretty good summary. Easy to read as well!