Thousands of investors make the pilgrimage to Omaha the first weekend in May for the annual Berkshire Hathaway shareholder meeting to listen to the wit and wisdom of CEO and investor mogul Warren Buffett and his business partner Charlie Munger.

This year Warren and Charlie weighed in on the economy, the state of the U.S. banking system, commercial real estate, artificial intelligence, and various other topics. Members of our investment team have attended the event in person in the past and religiously watch the yearly broadcast. We came away with three key takeaways:

1. The reinvestment opportunity in bonds is the best in decades.

Warren talked about how investment income at Berkshire Hathaway would be significantly higher in 2023 than in 2022 as they reinvest their bond portfolio at higher yields. Warren noted it wasn’t long ago they were buying money-market bills yielding 0.04%. 

Rapid interest rate hikes were painful last year for bondholders (when interest rates go up, bond prices go down). However, reinvesting capital into bonds can now earn yields of ~5% in high-quality, investment-grade Canadian corporate bonds. The First Avenue equities portfolios benefit from the reinvestment opportunity in bonds via our investment in Fairfax Financial, which manages a $40B cash, bond and preferred share portfolio.

2. Never make emotional investment decisions.

An audience member asked Warren and Charlie, “If they ever make investment decisions based on their emotions?” Charlie was quick to quip with a “NO!” with Warren adding commentary of how he couldn’t recall a time when they made an emotional investment decision.

We recommend investors take heed of Warren Buffett and Charlie Munger’s advice regarding emotions and investing. Markets in the short term can be driven by headlines, gyrating from extreme fear to extreme greed. As famously noted by Buffett’s professor and mentor, Benjamin Graham: “In the short run, the market is a voting machine, but in the long run, it is a weighing machine.” Imitation is the sincerest form of flattery, and First Avenue’s investment approach is unemotionally rooted in rigorous quantitative and fundamental analysis, i.e. what Graham refers to as “weighing.” As objective, fact-based investors, we believe that letting emotions drive investment decision-making leads to poor outcomes. 

3. Doing the extraordinary isn’t necessary for success.

Charlie Munger commented on Elon Musk: “Elon Musk would not have achieved what he has in life if he hadn’t tried for unreasonably extreme objectives. He likes taking on the impossible job and doing it. We’re different - Warren and I are looking for an easy job. We don’t want that much failure.” Warren and Charlie have compounded capital at an excellent rate over decades by looking for the “easy job.”

Like Warren Buffett and Charlie Munger, we try to look for the “easy” and “understandable” investments at First Avenue. One can make investing very complicated, but complexity typically isn’t necessary. We will save the overly complex for Elon and instead stick to proven, understandable strategies for compounding our clients’ wealth over the long term by focusing on well-established companies in our equity portfolios and hard assets such as real estate in our alternatives portfolio.