May 11, 2020
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The famous words of financial beacon Warren Buffett…and who can disagree? The man has been a legend and a guidepost in our firm Poseidon before we even officially formed. We often cite the following classic Buffett quote as mantra:
We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.
My brother Morgan has idolized Buffett since he started investing in his E-Trade account with his landscaping money in his early teens. He was spending a lot at the fuel pump that summer, so first thing he bought? Chevron. When we went to Omaha on a diligence trip in 2015, Morgan was certain to get a drive by his house and wanted to know more about his life.
My brother has often been known as a ‘penny pincher’ in our family, he is incredibly generous, but he is also very focused on frugal budgeting and spending. He used his penny pinching ways to buy his J70 sailboat, which he aptly named “Penny Pincher”, I thought it was interesting that Buffett had a personal license plate: THRIFTY.
On the day of the most recent Berkshire Hathaway Annual Meeting, Morgan was excited for the time with Warren Buffett. Among their similarities, they both seem to play the role of armchair historians on financial crises. So during this very uncertain, pandemic-driven time, tuning into the BH Annual Meeting was like cozying up to a warm fire. What would The Oracle of Omaha say and how might we find rational comfort in his well seasoned perspective? Morgan shared his experience and wrote something I thought I would share…
Like many, I’ve been a pretty avid follower of Warren Buffett and Charlie Munger for years. Berkshire Hathaway (BH) has been the center of finance for decades with their strong historical returns, and with a great duo at the helm. They’re not a typical Wall Street firm, as they detest bankers, question the validity of Wall Street research, and have done amazing things from Omaha, Nebraska. Through history, BH is called upon at times of stress, as their fortress balance sheet provides them with the ability to capitalize when few can. Their steadfast approach has served them well but not to perfection, they are human after all.
I’ve been a virtual “attendee” to the Annual Meeting since Yahoo Finance offered the streaming coverage. This year, I was joined by thousands of other virtual attendees for the 2020 event, as many of us are still respecting the Shelter-In-Place orders across the US and world. What a great way to spend one Saturday per year. I watched the full coverage with awe and inspiration of an 89 year old man speak for hours without a break. He truly loves this country and what he does.
Poseidon has a history of looking outward when considering the emerging cannabis industry. Emily, co-founder and sister, and I would go to 500 Startups demo days, Code Conference and we attended Startup Grind as Silicon Valley was reaching another frenzy of VC activity. We arrived early and waited in lines to see Marc Andreesen & Clayton Christensen from the front row (worth it). We read about other successful managers such as Sequoia, Social Capital (Chamath has been great in this pandemic), to Jim Simons and beyond. Great teachers do not need to be nearby, there is a lot to be gained from their writing and now from their videos or streaming.
I was especially keen to “attend” this year’s BH Annual Meeting given the state of humanity’s health, geopolitical and economic situation. 2020 has been kind to Mother Earth, but to few others. While watching the meeting, I also followed Chamath Palihapitiya’s tweets, which were both humorous and thought provoking. We both quickly noted that Warren Buffett mentioned smoking pot twice. Maybe the great American economy of legal cannabis is starting to catch the Oracle’s eye?
There were a few specific themes that came out of the meeting:
His opening remarks were lengthy, as Warren walked us through America’s history. The road to becoming the world’s super power has not been straightforward. He reminded us that we’re a very young nation, with a history of mostly higher highs and higher lows, echoing as FDR suggested in a similarly troubling time, “and with the American faith that history is a rising road.” Part of what makes America so special is our unending desire to innovate, to build, and to persevere any challenges that come our way. As such, his conviction in America hasn’t changed. Many times throughout the day, and in closing, Warren said, “never bet against America.”
Becky Quick asked numerous questions about Berkshire holdings and Warren was forthcoming by mentioning activities post the first quarter, a historic moment to comment about such recent events. Warren said they made a mistake by investing in the airlines and exited entirely, taking a sizable loss. Discounting this exit, Berkshire was still a net seller of stock in March and April. Buffett noted that the Fed reacted so quickly and aggressively, that they could not even buy back their own stock when it briefly got to a level of interest.
Many are left asking why would BH be a net seller of equities while talking about never betting against America. My view is the difference in time horizons for Berkshire and the vast majority of capital today (just look up how long people hold stocks today). Warren’s discipline is key here, as they buy when, how, and why they want to buy. They see many probable outcomes with this pandemic, most of which are skewed negatively over the short term. In the meantime, they will stay patient and focus on future opportunities. Buffett mentioned several times that he would not risk the firm’s balance sheet by moving too quickly in the current market. They see many deals but cite valuations as still unappealing. Yet, they would do a $30 billion deal tomorrow if the opportunity is right. ‘Right’ for BH is defined by staying aligned to their core theses on timing, price, duration, fundamentals, etc., NOT because the market or media is selling a story that it is a good time to buy.
The Oracle of Omaha’s point of view feels very reflective of the strong focus at Poseidon. We consider ourselves as GARP-like investors, meaning we are growth focused but with a discipline regarding price & structure. Berkshire tends to be more value oriented but we have seen them moving to more GARP-like investments such as Apple & Amazon. (GARP = Growth at a Reasonable Price)
We were early and active with our portfolio companies this year, helping many to adjust 2020 plans, and focus on their balance sheets through this year and into next year. We remain bullish on cannabis and see this period as further confirmation of its long term value from many aspects, such as investment returns, job creation, taxation, and social justice. We’re betting on American small businesses through our focus on cannabis & industrial hemp over the long term. The pervasive headwinds from the last few years are shifting as we see opportunity with most of the “hot hands” getting washed out. The real investors are coming in and we believe that the spirit of legalization we have seen here will continue to spread globally. We remain patient and disciplined in our approach while staying open to near term great opportunities to capitalize this new American frontier!