A couple of weeks ago, I visited my hometown of Omaha to visit my family, as well as attend the Berkshire Hathaway 50th Anniversary Shareholders Meeting. Here are some notes from the trip related to Berkshire and Buffett.
My cousin bought a house a few blocks away from Warren Buffett. Anyway, after dinner, we took my cousin’s dog for a walk and ended up here.
(all photos and videos are my own.)
The house isn’t exactly what you expect from one of the wealthiest people in the world, but that’s precisely why Buffett is awesome. Unlike many wealthy people (including may who have 1,000th or far less of his net worth), he’s not a pretentious douchebag. He’s kept it real for longer than most of my peers have been alive and still eating at dives like Gorat’s (below), where my dad was a bus boy when he was 15 years old. For whatever reason, Buffett still eats there….
By the way, Gorat’s food is nasty unless you like LOTS OF BUTTER.
Speaking of which, I went to lunch with my grandma, aunt, and sister at Lo Sole Mio. It’s an old school Italian eatery with great food and awful decor. For example, here’s the men’s restroom. Yes, that’s a pillar.
On our way out the door, I saw this photo hanging near the entrance.
My only thought – “Poor Bill…he must cringe when Warren says, “Let’s go out to eat at one of my favorite places!”” Food has improved in Omaha since I lived there as a kid, but Warren hasn’t gotten the memo. Goes to show that becoming a creature of habit can pay dividends.
Anyway, on to the meeting.
Saturday, 7am CST. My sister and I show up bright and early. We dork out with Watson on the original Jeopardy set. Watson is intimidating. He’s smarter than us put together (she’s a lawyer, I’m a math/computer nerd….whatever).
Onward through the press and booth gauntlet. Pro tip for the meeting – Nearly everyone clamors through the front door for the seats. The meeting doesn’t start until 9ish (minus the boring films shown beforehand). If you want the cool action, go to the convention center 20 ft from the entrance. There you can see…
Warren Buffett and Bill Gates are competing in their annual newspaper throwing contest. In the past, Gates lost terribly.
…but this year?
Ok, two of the richest men making a bet, and one can’t pay up because his bill denomination is too high. Ha ha…
So enough small talk. Let’s get down to business.
Here are some notes I took during the meeting, along with some color commentary. Notes were taken with a somewhat linear progression, and there are some gaps (I went to lunch at 11:30, and left at 3pm).
- The general tone of the meeting was quite a bit more aggressive and blunt than in the past. Maybe its just me, but Warren and Charlie did a good job at being extremely straightforward (and probably offending quite a few people in the process). Maybe they’re getting old and just don’t care as much? But that’s why I highly respect these two. They say what they think, do what they want (within the rules of course), and have achieved unbelievable success. And they completely shit on orthodoxy and investment bankers. Bonus points.
- When asked about questionable business integrity with regard to Clayton homes’ alleged ripping off low-credit home buyers and 3G Capital’s layoffs, Buffett was very unapologetic. Of the former, he said that Clayton provided a service that otherwise wouldn’t be available to low income homeowners. For the latter, he and Munger both agreed that business should scale to what’s needed. Efficiency is necessary in capitalism.
- On the process of buying a business.
- Not one size fits all. There is no formula for every transaction. That said, you should have a reasonable idea of the 5 to 10 year horizon for the business you’re considering buying.
- “If people weren’t so often wrong, we wouldn’t be so rich” – Charlie Munger.
- On improving culture at a firm
- Buffett: Culture comes from the top. Takes a long time to become solid. It’s much easier to inherit a culture you already like. It’s also much easier to create a culture with a smaller firm.
- Munger: Always be dissatisfied with what’s already known. Keep learning.
- On whether Buffett’s market cap to GDP indicator is too high?
- The very long low interest rate was considered impossible by Buffett and Munger. But it also shows that business is doing rather well. Profits are worth a whole lot more with lower bond yields. Length of the low interest rates may be a factor. If interest rates rise, stock prices may suddenly look too high. In this environment, interest rates are key to stock prices.
- “A company with an economist has one employee too many” – Buffett
- On networking and getting connections if you’re not from an Ivy League school
- “Do the best you can” – Munger. He suggested to just make do with what you have. If you’re consistent, you may succeed…or you may not. But that’s also true for Ivy League graduates.
- Munger went on to talk about a story he heard about succeeding at a law firm. He said, “It’s like a pie eating contest where if you win, you get more pie”.
- On the future of the dollar as the world’s reserve currency
- “The dollar will be the reserve currency 50 years from now” – Buffett
- Munger wasn’t so sure, and was skeptical of a good outcome from throwing money from helicopters.
- On Tesla Energy’s ability to disrupt Berkshire’s energy holdings
- Buffett and Munger both see renewables as a key area of growth for Berkshire. Buffett sees storage as the key to distributed energy. Berkshire’s defense is low cost energy.
- Munger said that Berkshire is well positioned for renewables. Again, storage is important. Renewables are a huge benefit to humanity and Berkshire. More of an opportunity than a threat.
- Carol Loomis noted that Buffett’s 2008 shareholders letter predicted inflation as a result of the government’s attempt to prevent economic collapse. Now interest rates look set to rise soon. What are the consequences of high inflation?
- Buffett – Up to no, we’ve been wrong. Close to zero rates for 5-6 years. Didn’t consider that. Still hard to see how if money from a helicopter doesn’t cause inflation. “We are operating in a world that Charlie and I don’t understand.” That said, Berkshire is “Prepared for anything.” As a side note, Berkshire keeps a minimum cash level of $20 billion on hand – and usually much more – in the event unexpected buying opportunities arise.
- Munger – “The trouble with these economic pronouncements is that people start thinking they know something.” Why ask predictions from people on a topic they’ve already wrongly predicted?
- On Henry Singleton and Teledyne
- Munger – “Warren’s hard work exceeded Henry’s high IQ.”
- Buffett – The conversation shifted to Teledyne’s decline and bad corporate behavior in general, and Buffett discussed the power of incentives. Seen really decent people misbehave due to bad incentives. One reason Berkshire don’t give guidance. For example, If CEO makes a forecast, ego gets involved with the firm. “Understanding human behavior is key to running a business.”
- On the best businesses in an inflationary environment
- Business bought once, requiring no continuous capital investment. Good example is real estate. A brand is a great thing during inflation. Oppositely, heavy capital intensive businesses are terrible in high inflation.
- On building a long lasting enterprise
- Munger- Get the best reputation over time. Behave well and better as you prosper.
- Buffett – Former CEO of Fiat once told him, “When you get old, you get the reputation you deserve.” Stick with this principle.
- On why Berkshire doesn’t include climate change as a risk factor in its insurance policies
- Buffett – sees nothing on a yearly basis that would cause insurance repricing. Does not materially change the outlook over a year. Now, it it’s 50 years, then climate change is a big factor.
- On books to read for wisdom
- Buffett: Keynes, Ricardo, Where Are The Customers Yachts, Adam Smith
- On philanthropy – inheritance to family vs money to charity
- Buffett – “There’s no Forbes 400 in the graveyard.” Basically says that he has what he needs, and “My money has no extra utility to me, and it can be used for greater good.”
- On why household formation rate in US is lower. Is this a secular trend?
- Buffett – “No idea what will happen”
- On silver
- Buffett – Berkshire owned over 100m ounces at one point. He doesn’t follow the silver market. Silver doesn’t react to its own supply demand characteristics, as much as it does as a industrial byproduct.
- On shareholder activism. How will Berkshire defend itself against activists?
- Buffett – if run right, there is no premium in a Berkshire breakup. Performance is the best defense against activists. But Money rushing into activist funds, and it is becoming more reaching. Berkshire should be a place where companies can dump their activists.
- Munger – Why repurchase stock at higher price than intrinsic value? Doesn’t help the company. Helps the activist. Summarized it very well when he said, “Hard to think of any activists I’d like to marry into the family.”
- On teaching financial literacy
- Buffett – Get good habits early. See the secret millionaires club. Teach kids good habits if you’re the parent. You can’t start young enough.
- Audience question: Are you using the Internet?
- Munger – “Warren is a bigger internet user than me. He plays bridge on it.” Munger thinks the Internet encourages multitasking, and he mostly hates the Internet, mainly due to multitasking. “I’m stupid. The idea of multitasking my way to glory has never occurred to me.”
- Buffett says he pays $100 a year for internet (I want that deal if it’s not AOL!). “Given the choice between Internet and my plane, I’d choose the Internet.”
- On income inequality. Are you concerned? Do you support increase min wage?
- Buffett – Extraordinary to see how far we’ve come over time. 1930s vs now is 6 x GDP per capita. You’d think people would live a good life. But some aren’t. Not sure of the answer. Raising minimum wage too much will cost a lot of jobs. It’s a form of price fixing. Will change opportunities for people. Reform and enlarge earned income tax credit is a start. He is writing something on this soon.
- Munger – In typically terse and cryptic fashion, agrees with Buffett.
- On rising college costs. Should I pay $60K+ per year for tuition at a top tier school?
- Munger – A person who went to college may have done just as well if they didn’t go. The statistic that college results in higher paying jobs is fraudulent. A lot of useless stuff is taught in college. The sticker shock of college is a huge problem. Figure out your options and live with it. Prices will likely keep rising.
- Buffett – Agrees. Thinks college is overrated. Go to a good, less expensive school if you cannot afford to attend more expensive schools.
- On China
- Buffett – China will do fine over a period of time. Never imagined it could grow that fast over 50 years. China and U.S. will be the superpowers
- Munger – China needs to do what Singapore did. Lee Kuan Yew is Munger’s current hero in this regard. He ended kleptocracy and established a real civilization from nothing. China is one of the most remarkable achievements in history.
- On Operational metrics for new industries when starting out in business
- Buffett – Find companies where the future is knowable. Know the limitations of your knowledge. No planning sessions. He gave the quote of the day (for me): “Go for the decent result, not the brilliant result.”
- Munger – Berkshire has been a little lucky. In general, be curious and seek wisdom. “Nothing improves wisdom more than getting your nose wacked for making a mistake.”
My sister and I had to leave at this time (3pm), so we didn’t catch the last few questions.
In general, it’s typical Warren and Charlie fare. Stick to the basics. Don’t worry about what’s cool or trendy. Avoid things outside of your sphere of competence. Focus on the long term. In 90%+ of cases, I felt like I could answer their questions verbatim. That’s how simple their thought process works.
One caveat – With technology eating the world at a very fast rate, I’m a bit concerned with Berkshire’s ability to cope. Warren and Charlie are a bit long in the tooth when it comes to technology, and I hope their new lieutenants are more current on how quickly technology is disrupting their industries. Berkshire needs to maintain the things that make it great, while also becoming extremely agile. If it can do this, Berkshire has great durability. If not, it is doomed within the decade. At least that’s my opinion. But I don’t think I’m wrong.
Until next year, keep learning, reading, and evolving.