Reporting From Omaha 2: The Annual Berkshire Meeting
The meeting started off with a humorous cartoon video of Charlie Munger running for US president. There was also a short video of Warren Buffett playing a role on tv-soap “Days of our lives” and Susan Lucci actually appeared live at the meeting.
Rather than a boring annual meeting discussing the various aspects of BRK’s business, Warren Buffett instead started fielding questions from the audience, which went on for several hours. Except for which stocks BRK was buying, no question was taboo.
Here’s some interesting points from meeting:
1. Most of what you learn about Business school is crap.
You only need 2 courses, how to value a business and how to think about stock market fluctuations. Unfortunately most professors end up teaching what they know, which consists of complex formulas and other useless stuff.
I kind of knew this, even though I am going to start B-school in the fall.
2. Develop good communication skills.
That’ll be useful in life regardless of what you do.
3. Non-professional investors should diversify their investments, both in terms of stocks and also in terms of time.
Buffett also recommended buying a low-cost index fund.
4. Be frugal, spend less than you earn, and invest a portion of your income.
5. The best investments are simple ones.
If an investment is overly complex it is usually never a good one. Buffett invested millions in PetroChina (PTR) after only reading the annual report. He realized the business was worth several times more than its current stock value and that there was sufficient margin of safety to invest.
6. Always be ethical and honest in your business deals.
All of the managers of the individual business owned by bRK are upright and ethical. As a result, Buffett doesn’t feel the need to micro-manage them and lets them do whatever they want. This fits in well with BRK’s philosophy. Whenever Buffett and Munger agree to buy a business, its set in stone. Whether there is “a nuclear explosion in New York, a flu epidemmic or Federal Chairmain Ben Bernanke runs off with Paris Hilton to South America“, the deal will go through. Yes, he actually said that.
7. Invest in yourself.
A person’s potential always greatly exceeds his realized performance. Invest in yourself and try to maximize your performance.
8. Read good books.
Two of the books Munger recommends are Yes
9. America is a rich country and may not need to save as much as other countries.
Maybe saving money isn’t necessary for the US, although it does look like we’re exporting ownership in US assets which is not good.
10. Financial innovation for risk diversification should be banned.
The current credit crisis and meltdown in the banking sector was caused by innovative financial products that were designed to make money for the financial institutions. Munger said that the online grocery delivery company, WebVan was a pretty asinine idea, but compared to the current bankers, those execs looked like geniuses!
11. The US Dollar is likely to weaken over the next decade.
A lot of BRK’s businesses have global sales, so a weakening dollar will result in improved profits. For example, BRK owns 200 million shares of Coke, of which 80% of its income comes from global sales.
12. We’re likely to see very high inflation over the next several years.
Inflation is bad, but BRK will profit more, than if there was no inflation.
13. Don’t buy BRK stock.
If you have time to go through the universe of stocks and pick winners, then do that instead of investing in BRK. BRK can only buy huge companies because buying a small company barely puts a dent in the annual revenue. You might be able to get better returns on your own.
Of course, there were several hours of Q & A so this is just a small tidbit. If you’d like to read the whole script you can do so at The Investment Advice of Warren Buffett.
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May 10th, 2008 at 9:36 pm
Nice article. I was eagerly waiting for your post on this. I have linked to your post at http://dividendpirate.com/2008/05/10/berkshire-hathaway-annual-meeting/
May 10th, 2008 at 10:42 pm
My first post here although I already had this idea of living off interest and div a while back (perhaps after the dot bomb and realizing that I can’t rely on stock returns to finance my semi-retirement before hitting 40).
Let me provide my few pennies on the interesting points mentioned above:
1. Most of what you learn in B school is crap but so are most of the stuffs I had learned in EE. I ended up doing software (mostly QA) and all that EE stuff are basically just baby crawling techniques for adults who need to learn to run fast. I had attended 1 year of FEMBA and learned quite a lot from that 1 year. Although I didn’t get the degree, I’m sure the degree would be useful for those that were raking in only 5 figures (I had 6 figures and so I figure it wouldn’t help my salary and thus I quit).
2. True. Math and analytical skills are only useful up to a certain point until English communication takes over and becomes a crucial part of your evaluation by your employers and others who are paying you to do the job that they want you to do.
3. Diversify doesn’t work if you don’t do your DD. Before the dot bomb era, I *thought* I had diversify…..NOT!
Believe me, buying QQQQ is NOT diversification. Trust me on that.
4. (Sorry for all cap) THIS IS THE MAIN POINT IN HOW ANYONE WITH AVERAGE SALARY CAN HIT HIS OR HER 7 FIGURE NET WORTH. Granted, I had 6 figure salary for over 10 years. However, this was the main reason I got to where I am today. With that net worth, living off dividend/interest becomes much easier to achieve. Not with stocks, not with stock mutual funds, not with buying the next Apple or MSFT, but #4!
5. True. I don’t wanna delve into my current investment pool but you can look at it this way: 1/3 medium high risk, 1/3 medium low risk, and 1/3 outside of US (not foreign stocks). No need to try and mimic last quarter’s best mutual fund performance and buy the top 10 of its holding.
6. Even with my current net worth, I don’t even wanna bother with this. Why trouble yourselves when you can live **below** your means when your only income comes from interest/div? Imagine if you can still save a portion of your interest/div after living expense….imagine…..
7. I would at some point in my semi-retirement life (semi because I might be bored retiring before 40 and wanna to get back just to work for fun) but I think everyone should follow this.
8. I would change this to “read good articles and utilize the articles written to speculate/anticipate the future macroeconomic conditions”. I predicted the housing bust back in summer ‘06 and promptly sold the remaining RE investment. I ended up selling my primary residence (now renting) with 4 figure loss last year even though I’m not ready to move to my retirement destination yet (not within the states). Glad I did that…I could’ve lost $100k if I held on to my primary residence.
9. This is true. How much do you think it would cost to buy Mt. Rushmore or the Grand Canyon? The 9 trillion dollar debt is puny for what USA has in her pockets.
10. This is the main vehicle for the f-ed up subprime, SIV and all those so-called derivatives. They’re nothing but moola making machines for the JPMs, Citibanks, BofAs, and the sad BSC.
11. This may be true IF the US productivity drops. Currently, US productivity is still quite high and higher than some of the other developing and developed countries. Japan was once high and mighty in productivity (and that was reflected in its currency) but they started to fade in the 90s. People can argue all they want regarding this but, from my perspective, I think the productivity dropped for Japan because younger Japanese are not as gung-ho as their parents and grandparents who were more kamikazes and would do anything for the nation of the rising sun. I still see a lot of strong national sentiments in the good ol’ US of A (why do you think Bush was re-elected again in ‘04?) and that would tend to lead to high productivity. I don’t see that fading unless liberal ideologies start to become part of our blood.
Nevertheless, my 1/3 foreign investment would shield me from this (but not my other 2/3).
12. Probably true. The demands are still growing from developing countries such as China and India (and they do make up close to 1/2 of the world’s population). Unless their demands wane, I don’t see prices falling.
13. Unfortunately, I arrived at my current net worth NOT because of stocks. My stock holding is probably about 1% of my net worth. Would I buy stocks in the future? Probably. Contrarian way is probably the best way to beat the market. However, you have to look at the market from macroecon perspective and not from company or sector’s perspective. When would I jump in? Well, if I knew, my net worth wouldn’t be 7 figures but would probably be higher
May 11th, 2008 at 10:45 am
Great read! It sounds like it was a very productive meeting. Would you do it again?
Best Wishes,
D4L
May 11th, 2008 at 3:38 pm
I like the way you summarized the meeting. Although the crowd gets bigger year after year, Buffett and Munger always provide us with good insights. Your readers may like my new book and the abridged summary PDF from http://www.frips.com
My new book called “The Four Filters Invention of Warren Buffett and Charlie Munger” examines the basic steps they perform in making an investment decision. My book is available at http://www.frips.com
Here is a 10 min. audio book summary that you may also post on your site: http://www.frips.com/4fsummary.mp3
May 11th, 2008 at 4:43 pm
Chris,
thanks for your counter opinion.
D4L,
I would, but I don’t know if I’ll get the time to go next year.
I definitely go for Charlie Munger’s meeting in Pasadena though.
May 11th, 2008 at 5:46 pm
Invest in yourself.
Simple but true. Excellent roundup of your thoughts from this experience.
May 11th, 2008 at 6:10 pm
[…] Off Dividends has been busy while away at the annual Berkshire convention but Reporting From Omaha 2 made me laugh because I have to agree with this point, “most of what you learn in business […]
May 12th, 2008 at 1:24 pm
Awesome stuff, glad to hear what’s going on over there in Omaha! I’d love to at least get 1 of the B shares so I can see Buffett in person while I have the chance.
I’m not understanding number 13 though. Buffett is one of the best investors in the world, and BH is one of the few diversified investments to trounce the market long-term. None of us has the insight or the talent that Warren has, and I’d take his picks to mine every time, even if they can’t pick out some small diamonds. I’m completely shocked by this one…Am I reading it right?
May 12th, 2008 at 2:03 pm
Blake,
they’re sitting on nearly $50B in cash. if they buy a $10 Billion company the chances of it doubling are remote.
if they buy a $50 million company that might double, but then they’d have to find 1,000 such companies in order to use up all their cash.
Right now, BRK only owns 76 companies so finding 1,000 companies worth buying is impossible.
May 12th, 2008 at 4:19 pm
#13 - I think Buffett was making the point of not buying Berkshire, if you are a sophisticated investor. There are better investments opportunities out there for a full-time expert investor to make money.
However, if you are a “know nothing” investor and would like to invest with someone who has consistently beat the S&P 500 for the last 40 years and has shareholders’ interest at heart, Berkshire is a good place to park your money.
Buffett also made an interesting comment that he would be more than happy if the stocks he picked for the investment portfolio returned 7% to 10% a year going forward. I thought that was interesting.