I just got back from my annual pilgrimage to Omaha to listen to Warren Buffet & Charlie Munger share their wisdom for 5 hours at the Berkshire Hathaway annual shareholders meeting. This is the third year that I’ve done this trip with my 76 year old father, which is such a wonderful opportunity for us to have fun, reminisce and connect with each other. I enjoy our shared love for learning and taking naps.
While a lot of what Warren & Charlie talk about each year is the same, I still get inspired in new ways each year. Remember BH is the 7th largest company in the world with only 21 people at HQ.
Here’s eight nuggets that came up for me this year:
1. The power that lives within you is new in nature.
2. Integrity is the safest way to make $. Professing isn’t the same as having it. Situational ethics problem is huge (“everyone else is doing it”)
3. What’s important isn’t size of circle of competence, but knowing where the perimeter is.
4. Bearish on ALL World currencies holding their value over time because of huge deficit spendings. If we continue the policies we have now, inflation will become more severe. Safest antidote is to add as much value as possible and you will always command your inflation adjusted price.
5. BH has been structured so they can act when everyone else is paralyzed
6. Never hire a compensation consultant – each biz has different economics – some easier to run than others. Simplest way to compensate given the dynamics of biz requires ability to differentiate and interaction with managers to agree on what ACTUALLY adds value to company. BH system the opposite of GE or US Army (with centralized comp structures)
Treat people fairly – rationale should be understood. No Managers have left BH over compensation. HQ doesn’t impose, keeps simple
7. 100% failure rate at trying to change a company’s culture
8. Energy solution is the largest benefit to society to come
And 69 more:
1. Don’t believe in EPS (because of managed earnings)
2. Goldman Sacks – doesn’t feel like they did anything wrong
3. Options – complexity is counter productive
4. New options legislation – if retroactive, then unconstitutional
5. Bearish on ALL World currencies holding their value over time because of huge deficit spendings
6. The US system has enabled ordinary people to do extraordinary things
7. Confident in succession & culture of BH continuing success of BH companies
8. Reinvestment of cash most important for BH
9. I like businesses where customers tattoo your name on their bodies (Harley Davidson)
10. Debt investment decision simpler because the only question is “will they go broke or not?”
11. BH has been structured so they can act when everyone else is paralyzed
12. Took decades to build BH culture
13. BH has become the premiere insurer of the world
14. $60 billion of float and keeps going
15. BH doesn’t invest as much in India & China because limited to under 25% ownership
16. Would bet on higher inflation going forward because of high deficits relative to GDP
17. 90% depreciation of dollar since 1930
18. Good financial habits early in life important – Ben Franklin’s ideas
19. McDonalds hires marginal kids and teaches them responsibility and hard work
20. Taxes are 15% of GDP which is a good level
21. NetJets mistakes – buying planes at prices not able to sell for later and operating costs out of line. Sokol turned $750 million in loses into profitable company now.
22. Performance of BH managers far beyond dream when started BH
23. BYD – learning new things – Sokol driven
24. “I want to hear about problems fast” to protect reputation of BH
25. Always look for risk and get compensated for it
26. With our insurance we allow other companies to smooth their earnings while ours look lumpier
27. Why friend likes to be sole owner – “I like to look in the mirror and say ALL my shareholders love me”
28. Usefulness of derivatives overrated – commodities and currency beneficial – others are not. Does not condemn anyone form using derivatives to hedge risk.
29. 95% of derivatives activity is gambling
30. China has record dramatic growth per capita
31. “too many words in an annual report can obfuscate rather than illuminate”
32. Charlie is converting his IRA to a Roth IRA this year
33. In 1975, there was nothing that looked more bullet proof than daily papers
34. There will always be investing opportunities. Be patient and wait for the right opportunities
35. “Take the high road, it’s far less crowded”
36. Municipal bond default rate risk is contagious
37. Owning equities over the next ten years better than owning bonds
38. Ratings agency – requires no capital and have great pricing power
39. We don’t believe in outsourcing our investment decisions
40. 150 years ago, oil changed the world in a major way. The world will not be dependent on oil in another 100 years. If I picked a time to be born, it would be today.
41. Krafts Pizza & Cadbury deals this year were dumb. We’re stupid in many ways, but have avoided a small subset
42. Integrity is the safest way to make $. Professing isn’t the same as having it. Situational ethics problem is huge (“everyone else is doing it”)
43. BH managers don’t submit budgets.
44. Create structures that minimize human failings
45. There were NO apologies for the recent financial fallouts. No one felt responsible.
46. If you get scared when others are scared, won’t make much $. Love it when stocks get cheap.
47. Develop courage with experiencing more failure
48. If you want to put in solar panels, wait because it’s going to get cheaper
49. BH isn’t dramatically undervalued
50. There’s no better way to be happy than to reduce expectations
51. Gets misquoted in interviews which is why writes on stuff and does video interviews instead.
52. We want shareholders who think the way we do so they wont be disappointed
53. We view our shareholders as family. Blessed by the fact that doesn’t have an investor relations dept
54. It won’t work forever to have huge budget deficits. Stocks are up because interest rates are low
55. What’s important isn’t size of circle of competence, but knowing where the perimeter is
56. What business will be around 30 years from now?
57. Observed what was working and what was failing in terms of fundamental economics
58. The great consumer businesses need little capital
59. People approach us to buy when they wouldn’t sell to anyone else (PE groups, competitors, etc)
60. BYD outside of what they usually invest in. Shows ability to learn new things. BYD will help solve significant problems of the world
61. BNSF better for their shareholders than ours – but still good for ours
62. Can you keep using your capital effectively enough? In 10-15 years size would make it hard
63. Wealth is he who spends less than he earns. Follow your passion. Love what you do. There’s not much competition
64. If you do something well you won’t have much competition
65. Pragmatism – when something is working well, we keep doing it.
66. High speed rail service in US not economically feasible when compared with auto and air travel
67. BH could handle $250 billion of catastrophe exosure and still be profitable
68. BH could withstand more than any major corp could
69. Our gov understands the necessity of taking major action in a meltdown “I’m not worried about it”