5 key takeaways from Berkshire Hathaway chat

On Saturday, Warren Buffett and Charlie Munger fielded hours of questions from Berkshire Hathaway’s shareholders at the company’s annual meeting. Here are five highlights investors should know:

1. HOW WILL BERKSHIRE SPEND ITS CASH HOARD?

In Berkshire’s first- quarter earnings report, the company revealed a cash stockpile of $ 96.5 billion. And unlike many companies with massive stockpiles of cash, Berkshire’s is mostly stashed in the U. S., meaning it could easily be put to work.

Unfortunately, good opportunities are getting more difficult to find.

Essentially, Buffett said that Berkshire wants to acquire businesses that will have a competitive advantage over the next five to 10 years, whose management teams are strong and that are offered at a fair price.

2. WHAT WOULD LOWER BUSINESS TAX RATES MEAN?

Tax reform has been a major news item since President Trump took office, with a particular focus on the prospect of lowering the corporate tax rate from 35% to 15%.

Buffett said that any change in how Berkshire’s investment gains are taxed would directly benefit shareholders, while some of the savings for businesses would likely be passed on to customers, with the amounts differing by business.

3. BUFFETT IS STILL A BIG FAN OF INDEX FUNDS

For most investors, Warren Buffett says that a simple S& P 500 index fund is the best investment that they can make.

When asked why this was, Buffett said, “It’s the best investment for people looking for the least amount of worry.” Previously, Buffett has referred to an investment in an S& P 500 index fund as a bet on American business.

4. AIRLINES, RAILROADS ARE VERY DIFFERENT BUSINESSES

Berkshire surprised many investors with its investment in the four largest U. S. airlines, but there’s one comparison Buffett wanted to address. Specifically, many analysts have compared Buffett’s airline investments to his railroad investments.

However, when asked about the airline investments, Buffett rejected this logic, saying that there’s no comparison between the two. Airlines simply don’t have the competitive advantages of railroads. So why did Buffett buy the airlines after years of negativity? Essentially, he feels that after having gone through years of consolidation, the few major airlines that are left are positioned to grow revenue over the coming years.

5. ALL BUSINESSES HAVE PROBLEMS

Not surprisingly, one of the first questions was about Wells Fargo and the company’s “fake accounts” scandal. Later in the meeting, Buffett was asked a similar question about some of Berkshire’s other investments.

“We did not buy American Express or Wells Fargo or United Airlines or Coca- Cola with the idea that they would never have problems or they would never have competition. But we did buy them because we thought they had very, very strong hands.”

In other words, all businesses have problems, and as long as the problems are dealt with responsibly, Berkshire doesn’t abandon its investments because of hiccups.