These are the highlights of the May 5, 2018 Berkshire Hathaway annual meeting. Warren Buffett, 87, and Charlie Munger, 94, responded to shareholder questions during the five hour meeting. A record number of 42,000 shareholders attended.

In opening comments, Warren Buffett mentioned that $10,000 invested in the S&P 500 in March 1942 would be worth $51,000,000 today (compounded annual rate of return = 12%). By contrast, $10,000 invested in gold in 1942 would be worth only $400,000 today (compounded annual rate of return = 5%), since gold is a non-productive asset. By following a buy and hold strategy (stocks), “brokers would starve to death”. With a long time horizon, it does not matter whether the Federal Reserve will raise interest rates three or four times this year.

Buffett also mentioned that in the first quarter of 2018, Berkshire’s operating earnings of $5.3 billion were its highest ever. However, as a result of a change in Generally Accepted Accounting Principles requiring the inclusion of unrealized gains/losses in its equity security investments, Berkshire reported a loss of $1.1 billion. Buffett had previously stated that the amount of investment gains/losses in any given quarter is usually meaningless and investors should focus on Berkshire’s operating earnings. (Berkshire reported that the fair value of its investment in Kraft Heinz Co. dropped by more than $5 billion to $20.3 billion in the quarter, as its shares declined by almost 20 percent.)

In response to shareholder questions:

(1) Warren Buffett defended Wells Fargo, one of Berkshire’s largest equity holdings, despite several scandals at the bank. Wells Fargo had a flawed incentive system, an issue that was compounded by ignoring it. He compared Wells Fargo with some of Berkshire’s best investments that experienced scandals in the past, including American Express Co. (1960’s) and automobile insurer Geico (1970’s).“All the big banks have had troubles of one sort or another,” he said. “And I see no reason why Wells Fargo as a company, from both an investor standpoint and a moral standpoint going forward, is in any way inferior to the other big banks with which it competes. I like it as an investment. I like CEO Tim Sloan as a manager. He is correcting mistakes made by other people.” The point is that finding problems and fixing them makes a company stronger. Buffett believes that’s the case with Wells Fargo.