Tuesday, 5th May 2015

2015 Annual Berkshire Hathaway Shareholder’s Meeting

Written by George Traganidas Topics: Presentations, Stock Investing, Wealth Building

Berkshire Hathaway meeting

This time every year thousands of people from all over the world are gathering in Omaha to hear the words of Warren Buffett and his partner Charlie Munger. This year the crowd was about 44,000 people and they were not disappointed. The meeting started at 8:30 with the annual movie and at about 9:00, Warren and Charlie started the Q&A session. They answered question for about six hours on every topics. As always no questions were off limit.

Here follow my notes from the meeting. The notes will not cover all the topics and they are my attempt to summarise their most important points. Here are the notes:

I am Warren and this is Charlie. He can hear and I can see, we work together.

When Charlie and Warren buy stocks they do not like to talk them up. They love it when they are going down, because they can buy more in cheaper prices. Some of their investments are in companies that buy back their own shares. When the stocks go down the company itself can repurchase them at a cheaper price.

They emphasized again the importance of character in business dealings. They always conduct themselves in their dealings as if the positions of the parties were reversed.

When asked if the stock market is expensive now, they said that you need to look at stock prices in relationship to interest rates. If the interest rates were normal, then these prices would be expensive, but in today’s interest rate world these prices are reasonable. Charlie was surprised why someone would ask them to comment on the interest rates since they always get it wrong.

When you buy businesses for the long term interest rates and other macroeconomic indicators do not play a role. What plays a role is the characteristics of the business and its moat. Investment companies who employ an economist to help with the investment decisions, employ an employee too many.

They pointed out that what the 3G guys are doing with the firing of the people makes sense. A business should not have more employees than it needs. If it does, it is a disservice to society. Right-sizing is good.

When asked about how to network with high net worth individuals and people from the prestigious MBA schools, Charlie said to do the best that you can. You need to do the best that you can with the hand that you have been dealt. Not having an MBA is not a problem. Charlie does not have one and he has done ok. Why should the other guy have one? In addition, he mentioned that if you went to an expensive MBA school and you were taught efficient market theory you would have wasted your money. The guy is lucky not to have done an MBA.

They do not like leverage, because that is what make people sweat at night.

They do not do any macro predictions. People who deal with macros do not have much investment success either.

They are big believers in the power of incentives. When the ego of people gets involved, people do dumb things. This is either to please their own ego or to please the ego of the company CEO. You need to understand human behaviour to run a business.

They try to always conduct themselves so that the problems of others will not hurt Berkshire.

When asked if their investment principles would work in China, Warren replied that the investment principle do not stop at borders.

When you get older you get the reputation you deserve.

They are not fans of corporate philanthropy, because the CEO gives away the money of the shareholders. Philanthropy at the corporate level is generally not a good idea.

Cheap debt causes people to do mistakes on the asset side of the balance sheet.

Investing is an easy game if you can control your emotions. The best way is value investing. Who does not want to invest in value? People are always looking for an easier way to do things. Other ways might look easier but they are actually harder.

They are looking for the next Berkshire CEO to have more than just investment experience. Berkshire now owns a lot of operational businesses and just stocks. They have to follow the tide.

In an inflationary environment it is great to have a business that does not need capital reinvestment. You only do the investment once (in old dollars) and you reap the rewards many times later (in appreciated dollars). No need to keep reinvesting appreciated dollar in the business. A brand is a great asset to own during inflation. With too much inflation though you get Hitler. So, something that is good for See’s Candy, if taken to the extreme is bad for society.

They like that young people ask too many questions. They used to ask too many questions when they were young and people started not to like them. The solution to that was to become rich and generous. Then people liked them. If you bring a check, people will always find reasons to like you.

They both had models when they were young that they admired. They looked at the characteristics of these people and they tried to copy them. Try to be a person that you would admire. It is easier to change yourself than your spouse. The most important thing in marriage is low expectations.

Warren tries to convince people to give back when they are young. Will they make better charity decisions at 95 with a blonde on their lap?

On EU, they commented that you cannot have a business with your drunk brother in law. The EU will need to change a few things along the way. Even the US constitution had amendments along the way. Investment bankers helped the EU countries create false financial statements.

Praise by name and criticize by category.

They do not like the current level of activist investors. One reason they do not like them, is that activist investors try to get companies to buy back their shares, even if that destroys long term shareholder value. They would not like one of them to marry into the family.

Charlie liked the business environment when there was less competition. But that is life.

When asked about how to help people gain financial education who do not know even the basics, Charlie said he cannot help. If you do not know how to save he cannot help you. He has even failed some of his relatives. You need to start good habits early on.

They buy businesses at different multiples depending on the economy. They would like more when the economy is bad and they buy a business at 12x than when the economy is good and they buy it at 8x.

Charlie cannot understand multitasking. He needs to think long and hard about a single subject to make a decision. He cannot understand how people try to do that for multiple subjects. He does not believe you can multi-task your way to success.

Warren is very optimistic about the future. Think how much your life has changed in the last 20 years.

They said that they came from a family with admirable people and they are trying to find other admirable people. Charlie’s first wife once said that you cannot achieve much in one generation. Reputation takes a few generations to build up.

Try to avoid being an idiot and keep doing this day after day. It is amazing how well this works.

It is a moral duty to become as rational as you can. You need to see things the way they are. Remove easy ignorance. It is dishonourable to be stupider than you can be. They are happy if Berkshire is better at the end of the year than when it started the year.

They would hate to lose someone else’s money. That would keep them up at night.

To succeed in investing you need the right teachers, focus and the right emotional attitude. You need to love the game. Been shrewd and gathering pieces of paper and locking them in a sage if not a great calling. You need to be helping others. Just managing your own money is not good.

As always the trip was worthwhile and it was great to hear Warren and Charlie speak. What cannot be captured at the notes in the atmosphere of the event. The discussions between Charlie and Warren cannot be put into words. They are like a married couple, who have been together for many years and they have deep respect and understanding for each other. First time visitors were surely perplexed, because the whole atmosphere is more like a concert than a shareholder’s meeting. But then again this is no ordinary company, with no ordinary CEO and these are no ordinary shareholders. This is still a partnership. This is a cult.

Follow the practical way,

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