Thursday, 5th May 2016

2016 Annual Berkshire Hathaway Shareholder’s Meeting

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

Berkshire Hathaway meeting

Berkshire Hathaway held its 51st shareholder’s meeting in Omaha on Saturday 30th of April. This was the first year that the meeting was also broadcast live through Live Feed Video and it will be available for 30 days after the meeting. This caused a drop in the number of people who attended the meeting this year in Omaha, because they could watch the event from home.

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.

The goal of Berkshire is to increase the normalised operating earnings every year.

Charlie’s regret in life was that he did not wisen up as quickly as he should have. He still has a lot of work to do at 92 and he is excited about that.

The reinsurance business will not be as good in the next 10 years as it was in the last 10 years and interest rates have a lot to do with that. Berkshire has a lot of uncorrelated earnings power so it is at a better state than Munich RE and Swiss RE. These two companies do not have as many places to deploy capital as Berkshire. The reinsurance competition has gone up and there is more supply but the demand has not increased.

One of the big problems with derivatives is discontinuity. If the market is offline for a few days it will cause huge problems.

Float is worth more to Berkshire because it can do so many things with it. It shows as a liability but in reality it is an asset.

You need to think of the company as a business and what makes sense for it.

Do not get in a stupid game just because it is available.

Over time businesses will do fine. Stock brokers will do fine, because they convince people to trade and they get commissions from them.

Do not get envious if people buy an IPO and it goes up.

Capital requirements can change the nature of the banks more than low interest rates.

Berkshire has a low manager turnover because they do not have an age limit and the managers love what they do.

They want board members to be business savvy, shareholder oriented and have a strong personal interest in Berkshire.

They love to look at the details of businesses even if they do not buy them. They like to study the business species.

They do not want even the appearance of a conflict of interest in Berkshire.

The Berkshire cash position is the net income plus the float.

They try to remove standard stupidity and not to be smart.

What really counts is to have a fix on the basic economies or how the industry works. A detailed due diligence list does not make sense for them. What they care is whether the manager who gives over his business is going to change his behaviour after the sale. This is very important but it is not on any list. Deals sometimes fall apart because people focus on unimportant things and disagree. Warren and Charlie judge the business and the management. They show a certain amount of trust to the other person. Spotting the bad apples does not come from looking at documents. They want to know how the other person will behave in the future after they get the cash. They are willing to lose some small points if the deal is decent. Did anyone check their spouse’s birth certificate before they got married?

They never hire a person they do not need, so they do not have to lay off staff later. Sloppy thinking in one area leads in sloppy thing in another area.

People pay more for businesses when interest rates are at zero. Tight money causes people to pay less. No one understands zero interest rates, but Warren and Charlie know that they don’t.

They don’t change the portfolio every time a business is not as advantaged as it used to be.

People get what the reward for. The incentives system is very important.

In the railroads they have to spend more than depreciation to stay at the same place.

As always the most important things in the meeting cannot be captured in notes or through a live feed. The atmosphere and the chance to meet likeminded people are priceless. This is one of the reasons that people still go there and they will keep going for the years to come.

Follow the practical way,

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