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Berkshire Hathaway’s Annual Meeting and First-Quarter Earnings

Motley Fool Staff, The Motley Fool

Over the first weekend of May, Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) held its massive annual shareholders meeting and released its first-quarter earnings results. In this Industry Focus: Financials clip, host Jason Moser and Fool.com contributor Matt Frankel, CFP break down the important highlights for investors to know.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. A full transcript follows the video.

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This video was recorded on May 13, 2019.

Jason Moser: Wanted to jump into Berkshire Hathaway this week, talk about the company. Earnings, the meeting, anything you want to get into. What did you think about the company's quarter? What did you think about what you took away from the meeting?

Matt Frankel: The meeting's always fun. I'm actually making plans to go next year. I've been putting it off and putting it off. I won't have a baby at the house next year, and Warren Buffett will be about 90 at that point, so seems like as good a time as any.

Moser: Will that be your first meeting?

Frankel: It will. I've never been.

Moser: I went once. I can tell you, you'll love it! Make sure, because you're coming from The Fool, get that Fool press badge. You will not regret it. I promise!

Frankel: It's good advice! But, the meeting, it's always fun. The Q&A session lasts about six hours, so there's no possible way to cover everything they said right here. One of the most interesting developments that I noticed was that the succession plan at Berkshire has been a hot topic over the past few years. And this is the first time that it wasn't just Buffett and Munger talking. They were still the two that were on the stage, but Buffett called on his new vice chairmen, Ajit Jain and Greg Abel, more than once to answer investor questions and stand up at the meeting and run the show for a minute. That's the first time that's happened. Again, like you said, everyone always reads in way too much into what happens at the Berkshire meeting, so I'm not going to read too much into it. But every year, it seems like they're taking one more step toward having a concrete succession plan. And this is the latest step in that. That was one of the key developments I've seen. The rest of it, you can read about. I wrote an article about some of the big takeaways that I'll put out on Twitter shortly after this.

As far as the earnings, because the meeting is such a big event -- it fills up in arena, that's what all the shareholders are fixated on -- everyone forgets that Berkshire actually releases in earnings report that morning.

Moser: [laughs] Yep.

Frankel: It just becomes a side issue of the day. I wrote an article on both the earnings and the meeting. The one about the meeting got like 8X as much traffic as the earnings article.

Moser: Oh, I believe it!

Frankel: It's definitely like an afterthought. But that's a lot of significant information. Really quick, Berkshire's earnings are kind of meaningless because they reflect the stock portfolio, which aren't really earnings until they sell anything. So don't pay too much attention to that. But, some of the key numbers. Operating earnings, which excludes the stock portfolio, rose about 5% year over year. That's solid. You don't invest in Buffett because you think he's going to grow 30% or 40% year over year. You want steady, consistent growth, and that's exactly what we're getting. The cash stockpile grew, not surprisingly. Berkshire's got over $114 billion in cash right now, not including the $10 billion investment that was announced after the quarter ended. Even after that, there's still well over $100 billion in cash sitting there. Don't discount the possibility of a big acquisition coming in 2019. If you remember, that was one of my bold predictions at the beginning of the year.

Moser: Still plenty of time to go!

Frankel: I stand by it, I think it'll happen. So far, I'm pretty accurate with those. Apple retook its trillion-dollar market cap. That was my first victory. And we're just into May. We have plenty of time.

Berkshire also, in terms of buybacks, while the company bought back less than 0.5% of its stock during the quarter, it's still more than it bought back all of last year after it changed their buyback program to let Buffett buy back more. That tells us that Berkshire considers its stock cheap, especially at the low $200s, where it was most of the first quarter.

The last thing from the earnings that I want to emphasize is what we don't know yet. In Berkshire's earnings report, they don't disclose what they've been doing in their stock portfolio, which is pretty much what all their investors want to know every quarter. What's Berkshire buying and selling? That's the big, hot topic. We don't find that out until the company releases its newest 13-F, which should happen on the 15th. In about six days, we'll get some color into what Berkshire bought and sold. It looks like they spent a few billion dollars on stock purchases this quarter. So I'm curious to see what they bought.

Moser: We know they got Amazon in there. It took a lot of people by surprise. I mean, I guess I understand that. Buffett was very clear, it was one of the other fellows, either Todd or Ted that actually spearheaded that purchase. I mean, I guess better late than never, right? But gee whiz, Amazon's almost a $1 trillion company. Man, it's just a shame they didn't decide to take that plunge earlier. But by the same token, it really speaks to the opportunity that they must see still exists.

Frankel: Right. Buffett has a track record of pre-announcing things that the company bought only when it wasn't him doing it, just because he doesn't want the 13-F to come out and everybody in the world says, "Oh, my God, Warren Buffett just bought Amazon!" He wants to make it very clear that this wasn't him, it was one of his stock pickers. And lately, honestly, those two have had a better track record picking stocks than Buffett has. But, the headlines that would grab... "Warren Buffett Likes Amazon," could you imagine what that stock would do the next day if everyone thought that?

Moser: I really can't, as a matter of fact. As well as it's done to this point, I could imagine there would be a nice little pop, the Buffett pop there.

Jason Moser has no position in any of the stocks mentioned. Matthew Frankel, CFP owns shares of Berkshire Hathaway (B shares). The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.