Berkshire Hathway AGM: Buffett likes certainty, but is unable to find it right now: Raamdeo Agrawal

What is your view from the Berkshire AGM where Warren Buffett has said that one should not buy bonds for long term you should buy equities but he is not finding any value in the market?

It is a pleasure to be here after a Berkshire AGM. I really miss the trip to the US where 40,000-45,000 people come along. There are so many new people to meet and even Mr Buffett used to be very buoyant and jubilant when he used to see the people coming from all over the world and there used to be a lot of laughing and cracking jokes between him and Mr Munger; so all of that was missing. I think it was a very serious business and the backdrop was also the Covid pandemic.

But I think it was one of the most wonderful teaching lessons by Buffet in this uncertain time. I think by hearing, you get only 5-10% of what he said but if you read the script, you realise the seriousness of the situation and all the teachings of Buffett have been repeated line by line. So I think it is one of the most wonderful AGM scripts and I would recommend everybody to go through that and take one’s own learnings from it .

The puzzling revelation was that even when the US markets fell because of the Covid crisis in the month of March, Berkshire Hathaway was maintaining that we think that equity will create more value than bonds. They have not bought anything and Berkshire Hathaway was on the sidelines even though they are sitting on over $100 billion of cash?

That was the main question everybody wanted to hear the explanation for Buffett not buying. In fact, on the contrary, he said I am collecting more cash. In fact he is borrowing in the market. I believe he issued zero coupon bonds in Europe, in Japan, and collected a few billion dollars. So he is saying that I do not know what we are in and he went to the extent of even explaining 231 years of the US history and what all big problems came but what struck me the most in his presentation is the experience of 1929 when depression happened.

So in 1929, Dow fell from 300 to 200 and from 200, it promptly corrected back to 240. It was a 20% rally from the bottom and a lot of people thought the way we are thinking right now that the worst is over and may be probably things are going to be okay and then from there it fell to 41.22 in next one year; it was more than 80% decline. So he was saying that the current problem reminds him of all those kinds of trajectory. I mean he is one man who has seen all of it. I mean he was born in 1930 and he bought his first stock in 1941. So he was around the market and he has seen it all. So I would think that he is not fearful of being in the equities but he is fearful that one problem leads to another problem; like the problem of COVID has led to say decline in the oil consumption because everybody is locked down. That has led to the collapse in the oil price. That has led to the future going to -$37. So you do not know where you will be hit.

So he is saying that he is not capable of figuring out what the risk is right now and he has multiple businesses which are also impacted and the nature of business is insurance business where he has underwritten trillions of dollars of risks. So he would be right now very contained in terms of passing through this bad time without much change because he does not know what is the kind of damage which is coming to him. So he should be more than prepared to meet any obligations, which come in. He goes to the extent of saying that he would not like to be at the mercy of friends or strangers for any kind of exigencies, which might come. So he is just saying that this is not the time to be greedy. What you said is right. He is not seeing deep values; so a lot of these things are there in his speeches but clearly he is not as jubilant and he is more fearful how this thing is going to pass through.

Is this largely because of Berkshire Hathaway’s insurance business that Buffett is sounding that bearish? Is it the insurance piece which is making Buffett so worried, which may not be a true reflection for everyone?

That definitely is one of the reasons. So he is basically saying that he is not able to see the end game; like what is the size of the risk which we are in right now. So I think he is a person who looks for certainty and he is not able to seize the problem and since he is the world’s biggest risk underwriter, he would definitely be worried in terms of where all claims can come and how big could be the claim and last thing he would want to be is in a situation where the claim comes and his own balance sheet is having lack of cash.

So right now since it is the biggest unknown he has ever faced in life, he would like to just not gamble on that unknown but of course get on to the business of investing.