Highlights from Berkshire Hathaway, Apple’s record buyback & crypto’s record price

Bryce: [00:00:31] Welcome to another episode of Equity Mates, a podcast where we explore what is possible in the world of investing. If you have just joined us for the first time, a massive welcome to the community. My name is Bryce and today we are looking at earnings, season results and some highlights from the Burke Shire Hathaway AGM to chat through it, as always is my equity buddy Ren, how are you going? 

Alec: [00:00:52] I am very good Bryce. Very excited for this episode. Earnings season is in full swing. We are getting more and more company results, but really, we sort of mark our calendars every year. Warren Buffett's annual general meeting. Well, Berkshire Hathaway is an annual general meeting where Buffett and up until this year, Charlie Munger as well, would sit on stage for seven hours and answer questions from the audience. We were lucky enough to be there last year. And sadly, that was Charlie Munger last as he passed away. But this year, Warren Buffett up there for seven hours, over seven hours, 94 years old, munching on See's Candy boxes of chocolate and drinking Coke like there's no tomorrow. They still going? 

Bryce: [00:01:43] Still going. I think it's it's. His answers are becoming slower and longer each year. You can watch the full 7.5 hours on YouTube. 

Alec: [00:01:52] Yeah. 

Bryce: [00:01:52] But we are going to get to that.

Alec: [00:01:54] Well, we've done the work and condensed it to a tight ten minute package. So if you don't want to watch the full seven hours, stay tuned, stay tuned. But before we get there, there's a bunch of news happening. 

Bryce: [00:02:07] Earnings season continues over in the US. Quarter one results coming out. And we've got a couple of companies that we're going to talk about. But Ren, we've got to start with Apple. We've got to start with Apple. 

Alec: [00:02:18] So Apple announced a $110 billion US dollar, 110 billion US dollar buyback. 

Bryce: [00:02:25] And for those that have just joined, what's a buyback. 

Alec: [00:02:28] So a company can buy back their own stock and essentially destroy that stock. And really simply let's say equity mates split up into ten shares. It shares worth 10% of the company. If we make a profit and we choose to buy back two of those shares, that means there's only eight shares left, meaning each remaining share now has 12.5% of the company. So it's a way for companies to return money to shareholders. And in the US, it's a more tax effective way than paying dividends because unlike in Australia where we have franking credits, they do not. So Apple has announced a $110 billion buyback that is the record for the largest buyback ever. 

Bryce: [00:03:13] Beating their previous record 

Alec: [00:03:13] I was about to ask you that, do you know. So Apple had the previous record. You know what it was 

Bryce: [00:03:18] Think it was about 95. 

Alec: [00:03:21] 100 bill. Yeah. Oh, there you go. Now, $110 billion is hard to conceptualise. Yes. Now, before we talk about the buyback itself, let's understand what led to the buyback. What led to it? Well, like a good show, a good set of results is what I'm saying. 

Bryce: [00:03:39] Okay. So they posted revenue of 90.75 billion for the quarter. And that is, primarily broken down across their main product stream. So the iPhone delivered about $46 billion in revenue, Mac sales, $7.5 billion and iPads $5.6 billion. So majority coming, they're from the iPhone. Their services business delivered 23. Just one, call it $24 billion in revenue, which was the biggest increase across all of their revenue streams, up 14% on last year. They delivered a $23 billion profit for the quarter. For the quarter, yes, absolutely. Swimming in cash, I think they have gross margins of almost 50%. So that's pretty incredible. 

Alec: [00:04:21] Yeah. Well, I mean what that net margin is like 20, 25, 26%. 

Bryce: [00:04:26] Yeah. So $23 billion profit for the quarter. So iPhone sales though were down 10% year on year. They put it to the fact that they haven't actually released a new iPhone in that period of time. 

Alec: [00:04:39] Isn't it? Isn't it also China? 

Bryce: [00:04:41] Well, China sales were down 8% I think. Yeah. 

Alec: [00:04:44] And Wawa is smoking them over that. 

Bryce: [00:04:48] Tim Cook said he's not concerned about the short term impact of China. He's very much on the long term. We're going to be all good. But overall sales were down 4% across the company. So nonetheless $23 billion in profit round. What do you do with it? That's what leads to the $110 billion buyback. 

Alec: [00:05:06] Yeah. Are they also paying a dividend?

Bryce: [00:05:08] I'm actually not sure. 

Alec: [00:05:09] They do the dividend. So, you pay a dividend and then you also do the world's largest buyback. Now 110 billion USD is 166 billion Aussie dollars at the current exchange rate. And so I was wondering how do I how do I wrap my head around the size of this. So I've got four groups of companies and as I go through it, just keep that $166 billion in mind. So my first group of companies, Australia's and Britain's supermarkets collectively. $124 billion. So that's a woollies. These are all numbers in Aussie dollars. Woollies 37 billion. Coles 22 billion. Tesco 40. Morrisons 13. Sainsbury's 12. That's their share market value. That's their market cap. 

Bryce: [00:06:00] So 42 billion square.

Alec: [00:06:01] Yeah. So. So Apple could buy Australia and Britain's supermarket sector. Wow. And still have 40 billion to spare. So that's one. How about this grouping. Australia's software companies Wisetech Global, REA Group which is realestate.com, Car Group which is car sales, Pro Medicus, zero, Altium, Megaport, Audinate and Webjet 116 billion. So that's still 50 billion Aussie dollars short of what Apple is spending on this buyback. I got two more. What about this? Basically all of listed legacy media, news Corp, channel nine, seven West. The New York Times, Warner Brothers discovery, Paramount, Fox Corp, ARN media and Southern Cross Austereo. All of that legacy media.

Bryce: [00:06:58] Less than a 100 bil.

Alec: [00:06:59] No. 102 billion aussie. And keep in mind Apple is spending 166 bil. 

Bryce: [00:07:07] So they can do that and half of Britain and Australian supermarkets. 

Alec: [00:07:11] Yeah, they could do all that legacy media bucket 

Bryce: [00:07:13] And scoop up woollies supermarket.

Alec: [00:07:15] Woollies and, they couldn't quite squeeze Coles. They could get woollies in a Sainsbury's, perhaps. Yeah. And then one final one just to, to complete this picture, all the smaller social media stocks with the dating apps thrown in. So we've got Reddit, Snapchat, Pinterest, Trump Media and technology group, match Group, which owns like Hinge and Tinder and Match.com and Bumble, all of those companies, 123 billion

Bryce: [00:07:44] more Than I thought.

Alec: [00:07:45] But still 166 billion.

Bryce: [00:07:48] Also, just think about all of those companies that you just went through, and then compare that to the trillion dollar plus market cap. It just the, that these tech companies are just. 

Alec: [00:08:01] Like, you've got to, you've got to just pause, like go back to the supermarkets. One. So those five supermarkets like Woolworths alone would employ 150,000 paying. Yeah, yeah. 200,000 people. Like collectively those four, five supermarkets, they might be getting close to like a million people employed. And collectively, the efforts of those million people and all the suppliers and all the contractors and everything that goes into that supply chain collectively, that is valued at $124 billion. And Apple is doing a buyback that is worth more than that. Like the scale of these tech companies is unfathomable. 

Bryce: [00:08:37] Yeah, yeah. I mean, you're turning $23 billion profit a quarter a quarter. 

Alec: [00:08:42] Yeah I know. I know. 

Bryce: [00:08:45] Anyway, anyway, huge, huge results coming from Apple. Although the stock hasn't performed as well as some of its, tech counterparts to kick off 2000

Alec: [00:08:55] Yeah. I mean, like, the stock market is in the future phasing and investors would look at the results and say there are some questions about Apple. But to be honest, like the iPhone sales iPhone sales are slowing story is literally a decade old.

Bryce: [00:09:11] I know every.

Alec: [00:09:12] Year. And then they just that new thing services has come through. 

Bryce: [00:09:16] I was at a party on the weekend and there was a product owner from Apple there, previously worked on the Apple Watch and had previously worked on a bunch of other things. And he was saying and of course he would say this, he works for the company, but version 5 or 6 of Apple Vision Pro Game Chat isn't a game changer. He's just like, lock and load. Anyway, I ran a couple more that we wanted to touch on, Coinbase and Block. The reason for this, though, is because the effect of the rise in Bitcoin has really shone through in these results. So Coinbase is the major exchange in the US for buying cryptocurrencies. So they posted $1.64 billion in revenue for the quarter. They've got a net income of 1.18 billion. 

Alec: [00:10:07] How are those margins? I'm not sure, but I think there's a wrinkle hiding in that number. 

Bryce: [00:10:12] There is a wrinkle. Firstly, we'll just compare that to a loss. Same time last year of $78 million. 

Alec: [00:10:18] I reckon there's also a wrinkle in that number. The same wrinkle is in both phones. 

Bryce: [00:10:22] Yes. So what, the impact of Bitcoin here is that the profit number includes a 650 million what they call market to market gain in essentially the Bitcoin value.

Alec: [00:10:34] Mark to market. Sorry.

Alec: [00:10:36] Market. Market to market. Dust to dust. Yeah. 

Bryce: [00:10:40] Mark to market. Crypto. so essentially what they're saying is the value of our crypto has gone up. And this is where you put this on that that is an accounting standard that they have to do. 

Alec: [00:10:50] Yeah. So this is Warren Buffett's big gripe. The gap accounting standards require companies to recognise movements in the fair value of their investment in their profit and loss number. And so in this case it's crypto for Buffett at Berkshire Hathaway. It's stock market investments. But the movements in these markets affect their profit and loss rather than their like operating earnings. 

Bryce: [00:11:15] So anyway the stock's up 42% year to date. But the story continues to block previously known as square. They made 5.96 billion in revenue for the quarter driven a lot by their Cash App, which is growing 1.2 billion in gross profit, 25% jump year on year. 57 million monthly active users. However, their Bitcoin again is driving a lot of this. $220 million was the value of their, was what they invested in Bitcoin. It's growing 160% now, worth just over half $1 billion at the end of the first quarter. 

Alec: [00:11:49] Wow. So remember when we had Bitcoin on our balance sheet. 

Bryce: [00:11:55] I tried to find some info on what, how Afterpay is going. As we know Block acquired Afterpay but I think I think they're trying to hide the I did read though and this is not surprising that it's sort of coming back a bit because now cost a cost of living crisis. People are turning to that form of credit to buy, which is unfortunate.

Alec: [00:12:15] Good bye. Now it's funny, I often think about the decisions made in 2021 and whether they regret it. So meta changing its name to meta they probably regret that. and block changing its name to block and buying Afterpay. like they probably like they're not. 

Bryce: [00:12:36] 26ft square. 

Alec: [00:12:37] Anyway. All right. Well, Bryce, let's take a quick break here. And then on the other side, let's talk about one more company that has reported its earnings and made a big song and dance about it, which is Berkshire Hathaway. So we'll talk about how they have gone in this year, and we'll share our highlights from the Woodstock for capitalists, which is the Berkshire Hathaway annual general meeting. Welcome back to Equity Mates. We are talking all things earnings season. We have covered Apple's unbelievable buyback. We've talked about how crypto is buoying the fortunes of Coinbase and Block. Now we're going to talk about a company that is not investing in crypto that, one of the leaders of the company last year called crypto rat poison. Yeah. And that's Berkshire Hathaway. I guess to start this conversation, let's talk about Berkshire Hathaway, the company, and talk about how they've gone this year. And then let's talk about Berkshire Hathaway, the event and what Buffett spoke about.

Bryce: [00:13:41] So they had a pretty strong quarter. They had $11.2 billion in operating earnings, which was up from $8 billion on the same time last year. 

Alec: [00:13:50] Now and operating earnings is that same thing that we were talking about before the break, where it's that's the actual profit that the companies are generating. And that doesn't include the movement in share prices from their investments. Yeah, yeah. 

Bryce: [00:14:05] Commentary on their cash position. They hold a record $188 billion in cash. So if you think about the 166 billion buyback, Warren's got serious cash to scoop up. 

Alec: [00:14:17] Well no that sorry that 166 is Aussie dollars. So that was 110 billion U.S. dollar buyback. And then this is 188 billion. So again it's like an order of magnitude higher. 

Bryce: [00:14:29] Huge. They trimmed their stake in Apple. They are the largest shareholder in Apple. But they trimmed it by 13%. 

Alec: [00:14:35] Yeah Apple was also like 40% of their investment portfolio. 

Bryce: [00:14:40] And he's made such incredible returns on that. 

Alec: [00:14:42] There was a question that was, you know, you let your winners run, you know, Coca-Cola, American Express, you've literally held for decades and you haven't trimmed. Why are you trimming Apple? 

Bryce: [00:14:52] I read that, he suggested it's because he doesn't want a fat tax bill or it's something tax related. 

Alec: [00:14:58] But that logic also applies to his Coke investment. I thought it was kind of weak. It must be that 

Bryce: [00:15:09] Anyway, strong, strong set of results from Berkshire. But it was really driven at the core of it by a huge increase in the insurance business, the insurance underwriting. There was a gain of 185%, in earnings from that business, up, to two point almost $3 billion from, from about a billion the same year. So there's that 8 to $11 billion jump. 

Alec: [00:15:32] Yeah. Now Buffett over the weekend sat and took questions from investors. Wasn't with Charlie. He was joined by Greg Abel. Who were you were thoroughly unimpressed with last year. 

Bryce: [00:15:45] Just so boring. 

Alec: [00:15:46] I don't think he's done. I don't think he did a lot to change your mind this year. Definitely not. So Greg Abel is going to take over the whole operating business. But Buffett also said this year he's also going to oversee the investments as well. So Greg Abel is going to be the man, man. But then on the insurance side and insurance is Berkshire's super power. Ajit Jain is going to continue to run that. And from what I saw of him, I thought it was pretty impressive. So we've cut up this package of some of the highlights from the question and answer session. We cover why Berkshire sold Apple. Buffett's thought on AI, and it does make me laugh that we turn to a 94 year old for his thoughts on AI, but we also answers questions on the amount of cash that they have, self-driving cars and what that would do to the insurance business. Paramount global, a stock that Buffett lost a lot of money on. And a few other questions. And obviously there's some thoughts on Charlie as well. 

Bryce: [00:16:49] All right. Well, here's about a ten minute clip straight from the Berkshire Hathaway AGM. We hope you enjoy it. 

Audio Clip: [00:16:56] Let's start. Just given what you mentioned. There was some news that came out in the 10-q this morning. It shows that Berkshire sold another 115 million shares of Apple in this last quarter. That's Berkshire's largest holding. Have you or your investment managers views of the economics of Apple's business, or its attractiveness as an investment change since Berkshire first invested in 2016? 

Warren Buffet: [00:17:18] No. I would say that we have sold shares. I would say that at the end of the year, I would think it extremely likely that thatApple is the largest common stock holding we have now. We can buy really wonderful companies in the market as businesses. We can't buy all of them. I mean, all of their shares, we can't buy 90% or 80% or anything like that. But when we look at Coca-Cola, American Express and Apple, we look at them as businesses. Now, there's differences in tax factors. There's efforts and managerial responsibility, a whole bunch of things. But in terms of deploying your money. We always look at every stock as a business and we don't. We have no way, no attempt made to predict markets. We have no attempt made to pick stocks. It's such a simple approach that it's almost deceptive in most things. If you keep working harder and harder at or, you know, get on a little more maths or you learn a little more physics, but investments, you don't really have to do that. You really have to grow your mindset properly. So we will end up with something dramatically happens that really changes capital allocation. We will have Apple as our largest investment. 

Audio Clip: [00:18:46] Now that the AI genie is out of the bottle, what business in Berkshire Hathaway may be most at risk with AI? 

Warren Buffet: [00:18:56] Well, that's a wonderful question. The problem is, I really don't know anything about AI, but. Obviously, you know, anything that's labour intensive and intensive and that, it can create an enormous amount of leisure time. It's profound. That's what makes it and makes it a day. You know what? What can happen, in terms of our businesses. They'll figure things out. I mean, we've got smart people. One, obviously, if it's used in a pro-social way, it's got terrific benefits to society. But I don't know how you make sure that that's what happens, any more than I know how to be sure that when you use two atomic bombs in World War II, that you know that you haven't created something, you're going to destroy the world later on. 

Greg Abel: [00:19:49] And when you think of all our businesses, I mean, we're, we're we do have a heavy labour workforce in a lot of them. But I think we're at the stage we're at as a, as a company and, and maybe where. It's right now, it really. How do we do things more effectively, more efficiently, more safely if it involves dangerous processes? So it's early innings. 

Warren Buffet: [00:20:14] When you think of the potential for scamming people, if you can reproduce images I can't even tell you say I need money. You know, honey, you know, as your daughter, I've just had a car crash. I need $50,000 wired. I mean, scamming has always been part of the American scene. But this would make me. If I was interested in investing and scamming, it's going to be the growth industry of all time, and it's enabled in a way I maybe, you know, obviously AI has potential for good things too, but I don't know how you based on the one I saw recently, I practically would send it to send money to myself over and over some crazy country. It is. So, I don't have any advice on how the world handles it, because I don't think we know how to handle what we did with the nuclear genie. But I do think, as someone who doesn't understand a damn thing about it, that it has enormous potential for good, an enormous potential for harm. And I just don't know how that plays out.

Audio Clip: [00:21:36] This question is from Johann Harlan, who writes, you're sitting on 168 billion of cash, which he told us today is now more than $182 billion. His questions are one: what is Buffett waiting for? And two, why not at least deploy some of it? 

Warren Buffet: [00:21:53] I don't think anybody sitting at this table has any idea of how to use it effectively, and therefore we don't we don't use it and we don't use it now at 5.4%, but we wouldn't use it if it would, if it was at 1%. Don't tell the Federal Reserve that, but I prefer it. But we only swing at pitches we like. And, if anybody tried to swing it every pitch or felt that because they hadn't swung at a pitch for two for the last two pitches, they ought to swing it the third one or something like that. It it's just it's, but I would say this, I would not like to be running 10 billion now. 10 million. I think we could I think Charlie or I would earn high returns on because I think there's just a few things that happen on a very, very small scale. But if we had 10 billion, I wouldn't basically see that many more opportunities than we found out. It's true. Something like Japan, we could have done. [00:23:04][71.0]

Audio Clip: [00:23:05] This questions for Warren Energy. As a Berkshire and Tesla shareholder, I would like to hear your thoughts on the potential financial effects to Geico, assuming Elon Musk's delivers on his fully autonomous driving goal. On Tesla's most recent earnings call, Elon said, if you've got at scale a statistically significant amount of data that shows conclusively that the autonomous car has, let's say, half the accident rate of a human driven car, I think that's difficult to ignore. Ignore, assuming Elon succeeds in reducing accidents by 50% versus human drivers, wouldn't auto insurance rates fall to reflect the reduced underwriting risk, thereby adversely impacting Geico's revenues and float and perhaps margins, too? [00:23:48][42.7]

Warren Buffet: [00:23:48] Well, let's just take the extreme example. Let's say they're only going to be three accidents in the United States next year for some crazy reason that, anything that reduces accidents is going to reduce cost, but that's been harder. Do and people have done before, but obviously. But if it really happens, the figures will show and our data will show it and the prices will come down. There have been a lot of people talk about doing that in the past. I mean, General Motors used to be very big in the insurance business. And when Uber first started, they used some firm, which now is I think a shield confirmed they're close to bankruptcy now aren't they, because of taking things out at the wrong prices. Is that true? Yeah. Yeah. Insurance always looks easier than it is. And it's so much fun because you get the money at the start, you know, and then you find out whether you've done something stupid later on. But, but and you know, it's, it's a very tempting business when somebody hands you your money and you hand them a little piece of paper. We always hope Berkshire will pay substantial federal income taxes. We think it's appropriate that a company, a country that's business, has been as generous to our owners, has been the place. I was lucky, Berkshire was lucky it was here. And if we send out a cheque like we did last year, we sent in over $5 billion to the US federal government and 800 other companies had done the same thing. No other person in the United States would have had to pay a dime of federal taxes or other income taxes. I should just throw this out. There's been speculation on. Hey, I was 100% responsible for the Paramount decision. I read speculation that. No, it was 100% my decision. And, we sold it all, and we lost quite a bit of money. And that happens in this business to actually only Paramount. I think I'm smarter now than I was a couple of years ago, but I also think I'm poor because I acquired the knowledge in the manner I did. I just want to be very clear that, hey, we lost money on grandmother. Me and I did it all by myself, folks. 

Audio Clip: [00:26:17] Today, by my maths, the S&P 500 has a market capitalisation of around 44 trillion with profits of around 1.45 trillion. And this is a very similar return on investment to the 1999 levels. Do you see similarities in the market today and the 1999 levels? 

Warren Buffet: [00:26:33] Well, one thing has changed dramatically from the amount of 1999. I was misunderstood in 1999, but there have been times in my life that I've been awash in so many opportunities that I could have invested everything by nightfall. And then there's other times when the year was, well, not in the early days, but now we haven't seen anything that makes sense that the numbers, the needle. Now, we've made small acquisitions during the year. Our companies have made acquisitions. And Greg and I may talk about something that involves a $300 million purchase or something like that. And if it fits well enough, we do it. 

Audio Clip: [00:27:16] My name is Andrew Nicus, and I'm wondering if you had one more day with Charlie. What would you do with him? 

Warren Buffet: [00:27:24] Well, it's kind of interesting because in effect, I did that one more day. I mean, it wasn't a full day or anything, but, we always lived, in a way where we were happy with what we were doing every day. I mean, Charlie liked learning. He liked a wide variety of things, so he was much broader than I was. But I didn't have any great desire to be as broad as he was. And he didn't have any great desire to be us. But we had a lot of fun doing anything. You know, we played golf together, we played tennis together. We we did everything together. We had as much fun, perhaps even more to some extent with things that failed because then we really had to work and work our way out of them. And in a sense, there's more. There's more fun having having somebody that's, your partner and digging your way out of a foxhole in there is just sitting there and watching an idea that you got ten years ago just continually produce more and more profit. So he really, really fooled me, though. But he went on to 99.9 years. I mean, if you pick two guys, he never publicly said he never did a day of exercise except for was required when he was in the Army. He never did a day of voluntary exercise. He never thought about what he ate. So we started every day. And Charlie said he was interested in more things than I was. But, we never had any doubt about the other person, period. So if I'd had another day with him, we'd probably have done the same thing we were doing the earlier days between. And we wouldn't want another. We only had one day that there's a great advantage. And, not knowing what you're going to want, one day you're going to die. But, Charlie always said, you know, that, just tell me where I'm going to die, so I'll never go there. Well. 

Bryce: [00:29:52] Well, there you have it. Words from the, Oracle of Omaha and his, compatriots at the Berkshire AGM. As we said, if you want to check out the full 7.5 hours, it is on YouTube.

Alec: [00:30:03] We'll include it in the show notes for people that want to watch the whole thing. But I think what we've just cut out there does a good job of summarising it. 

Bryce: [00:30:10] I would say. I would say that if there's one thing you watch, it's when Ren and I went last year, they released a movie at the start of right at the start of it, and everyone in the theatre just sits there and or the stadium, I should say, sits there and watches Buffett essentially acting random ads for his subsidiary companies. 

Alec: [00:30:31] And the thing with this is it never leaks from they do it every year. And, they tell you don't have your phone. And if you see someone with their phone, report them. Like it's super tight security. And the videos that they produce there and they have celebrities and stuff in them, they never leaked. 

Bryce: [00:30:50] Can never get them saying just say don't release it. 

Alec: [00:30:53] But this year for the first time the video was released. 

Bryce: [00:30:57] And the reason being it's a 20 minute I guess homage. Is that the right word? To Charlie and Buffett didn't actually speak at Charlie's funeral. So I think this was Buffett's way of giving Charlie his thanks. And the time says 20 minutes at the start. Give that a watch. But anyway, that brings us to the end of our episode today. If you find that we provide you with a lot of value and you get, you know, good information from Equity Mates, then we'd appreciate it if you could just leave a rating and review through your podcast app. It goes a long way to helping us get in front of new equity minds to help them on their investing journey, but then we'll leave it there. Pick it up next episode.

Alec: [00:31:35] Sounds good.