TIGER 21 Founder and Chairman Michael Sonnenfeldt joins Yahoo Finance Live to discuss key takeaways from Berkshire Hathaway’s annual shareholder’s meeting, Warren Buffett’s succession plans, investor sentiment, and Geico’s revival.
- And Berkshire's meeting was among the biggest events of the year for investors. Let's dive more into the top takeaways from the meeting with TIGER 21 founder and chairman Michael Sonnenfeldt. Michael, great to have you here with us this morning. If there's anything that, perhaps--
MICHAEL SONNENFELDT: Good morning.
- Good morning. --if there's anything that jumps out to you as just a glaring signal about how the Oracle of Omaha, Warren Buffett, and his partner Charlie Munger are seeing the economy right now, what would that be from your perspective?
MICHAEL SONNENFELDT: Well, I think he was pretty clear. He's been seeing the economy as opportunities. He said, when people do dumb things, that's when we have an opportunity.
But I think the big takeaway is more and more people are realizing that over the last 20 years, Berkshire Hathaway has roughly equaled the S&P. Depending on which period, it's a little more, a little less. That's quite different than most people think.
His record was created in his first 40 years. But he said something also. He said, "I've never made an emotional investment decision. And if somebody thinks I'm without emotion, it's not clear Berkshire Hathaway is much better or even a little worse than just investing in the S&P."
- That's really interesting, Michael. And as you say, it's against the conventional wisdom here that this is a gold mine, right? I mean, does that accounting of its performance versus the S&P account for dividends, et cetera? And--
MICHAEL SONNENFELDT: Yes.
- So-- so effectively, what your-- is what you're proposing that people should just be buying the S&P instead of buying Berkshire?
MICHAEL SONNENFELDT: No. What many of our members have-- we have 1,250 members. And many of them have held Berkshire Hathaway longer than 20 years. And if you've held it longer than 20 years, the outperformance is stunning. So the question is for people who are holders, it doesn't make sense to sell because it's a huge capital gain.
But whether you'd put fresh capital-- even Warren has said to his heirs when he passes on their best investment, is the S&P. It's interesting. If you invested $1 in Berkshire Hathaway 20 years ago, it would be worth about $7 today, same as the S&P. But their biggest holding, Apple, if you invested $1 20 years ago, that would be worth $694. You can see the stunning outperformance Apple has had.
And Berkshire has benefited, but so has the S&P, and particularly the QQQs at NASDAQ reflected those kind of mega performance of the Apples, Microsofts, Facebook's, et cetera. So you really have to figure out what time frame is the relevant one for a decision.
- Well, and also, the time frame considering, as we've talked about, that there is a succession plan in place for when Warren Buffett is no longer at the helm of Berkshire Hathaway. And I know this is something that you've talked amongst your members about as well, if you know, I can't remember how you put it in your notes to us, right, but sort of the idea of whether it is the man or the holdings that makes it more valuable.
MICHAEL SONNENFELDT: The jockey or-- do you got the jockey or the horse?
- That's right. That's right. So which is it?
MICHAEL SONNENFELDT: So this is the only company where it's tough to separate them because the house that Warren built is a product of his genius. But today if he passes on, it's even money whether Berkshire goes up or down. There's about half of our members think it'll be an opportunity because the rest of his team manages a little tighter.
Warren has a hands-off approach. Some of his acolytes, some of the members of his team, are having a little better luck with a more hands-on approach. And he also has huge cash holdings. And they might trim the cash. That would tell you that the performance might go up a little, but they might not have Warren's touch. And that'll go in the other way. And how the market will value out is really the question.
So I think most of our members are saying it's kind of a toss up. If you're a Warren lover, you want the personality that this team brings. And it's not just Warren. He's put together one of the world's greatest teams. You might want to bet the jockey. But on an emotional basis, it's a push with the S&P.
- And so if we-- and when we do see that succession plan get enacted at some point, what type of exits from certain industries that they have been invested in, companies that once had a massive moat that Warren Buffett liked to tout and that some of the new managers might not be as fond about staying involved in?
MICHAEL SONNENFELDT: Well, he did mention as an example, that Apple was the most unique holding in his portfolio and represents, I think about $150 billion of holdings. He said, "I know where Apple will be in five years. I'm not sure where the car companies will be in five years." That's kind of a complicated statement given how long the car companies have been here.
And it's further complicated by the fact that five years from now, Apple may be one of the car companies. There's lots of rumors to that effect.
- What more do you expect to hear from Warren Buffett and Berkshire broadly, on some of their international investments? I mean, one of them was BYD. We saw them of course trim that stake this morning. That news came out through a filing. But then additionally, you think about some of the positions they've taken on, specifically in Japan and some of the banks there.
MICHAEL SONNENFELDT: Yeah. He's actually taking an amazing approach. He's invested in the top five Japanese trading houses and conglomerates. And he said he might invest more because Japan has been undervalued relative to other metrics in the market. And that's a good place where he ferrets out value over time. Time and time again he's done that.
But the thing that people don't realize is with all of that, it still adds up to performance that roughly equals what you can buy just buying the Spider index. And that's the hardest thing to realize because, you know, in business school, we all learn that managers can't beat the index. There's only one manager that's come close when you look at the level of risk and the level of capital.
Most entrepreneurs, like Tiger members who have been working 20, 30 years, for a period of their career, they outperformed. But they couldn't keep it up for as long-- the performance up-- for as long as Buffett has. And that's what makes him distinguished. It's not the level of performance. It's the number of years and the amount of capital that he's deployed to be able to still maintain that kind of performance.
- I want to ask you, finally, about Geico, which has been-- you know, we know that Berkshire takes a very, very long view in terms of trying to get returns on its-- on its various holdings. Geico sort of more recently has been losing some market share. Is that a source of concern for your members?
MICHAEL SONNENFELDT: Well, first of all, Geico had a good rebound I think in the first quarter. We tend not to look quarter to quarter. Our members or entrepreneurs that want to look over the horizon and have an all-weather portfolio, so no matter what happens they get edge. And that's what they're meeting in our groups.
But Geico, which has struggled to Progressive, I think is what's been eating Geico's [INAUDIBLE], is part of a huge insurance holding that is a major piece of Berkshire. And they're gonna figure out how to get it right. They've done that time and time again.
- All right, we'll be tracking it, of course. Michael, thanks so much for your perspective on all of this. TIGER 21 founder and Chairman, Michael Sonnenfeldt, appreciate your time.
