« Previous | Main | Next »

A long time and trusted friend of Quist, Mike Sargent, attends the Berkshire Hathaway Annual Meeting each year with great anticipation. I have made the trip with Mike myself and his annual synopsis is always a refreshing break from the media version. Please take a moment to enjoy Mike's notes. Thanks Mike!

Berkshire Hathaway Annual Meeting
May 3, 2008 Notes
By Mike Sargent

1. There were 31,000 in attendance and we listened to Warren Buffett (WB) and Charlie Munger (CM) answer questions for 5 ½ hours.

2. Before the Q & A they play a 45 minute movie. As usual they have a Disney produced cartoon skit. This year it was CM running for President under the Financial Independence Party. CM announced he was naming WB Secretary of Treasury, head of SEC and Federal Reserve Chairman because he thought those jobs could all be combined.

3. ETHICS. The movie always includes a clip of WB testifying in 1991 before Congressional committee investigating Solomon Brothers where he said, "I want employees to ask themselves whether they are willing to have any contemplated act appear on the front page of their local paper the next day, to be read by their spouses, children and friends . . . If they follow this test, they need not fear my other message to them: Lose money for the firm, and I will be understanding; lose a shred of reputation for the firm, and I will be ruthless."

4. INVESTING. Diversification is protection against ignorance, however for those without time or expertise buy a low cost index mutual fund.

5. BEAR STERNS. WB said the Fed did the right thing in arranging a bailout in March of Bear Stearns. He said another investment bank or two would have failed only days later had the Fed not acted. "It would have been a spectacle of unprecedented proportions. The unwinding of 14.5 trillion of counter party risk in a few hours would have been terrible."

6. HOUSING. WB does not remember another bubble spreading to other areas of the economy the way this has.

7. PRESIDENTIAL ELECTION. WB thinks all three candidates are good. Don't worry the U.S. is strong enough that you can have an idiot for President and we'll still be in good shape. Our grandkids are going to be better off than us.

8. INTERNATIONAL INVESTING. WB said he was happy to invest in overseas companies, because currencies in those countries are not likely to decrease to the same extent as the U.S. dollar. The federal government appears likely to follow policies that will make the dollar even weaker. Also he doesn't feel a need to hedge on other currencies.

9. EXECUTIVE COMPENSATION. Big institutional shareholders (because small investors can't) need to speak up. CEO's don't like to be embarrassed for their excesses. CM says executives have a moral duty to not accept excessive pay. CM and WB are each paid $100,000 and in stock options. CM said there is a lot to be said for not paying yourself very well. Generals and Bishops don't get paid that well.

10. EDUCATION. WB told a young man the best investment he could make is in himself. Also study and real all kinds of things. On the topic of studying a variety of areas CM says psychology is immensely more important than what other academic departments give it credit for. At same time, psychology departments are immensely less important than psychologists think.

11. HEALTH. Asked how he stays healthy, WB took a piece of See's candy and said, "You start with a balanced diet." He said he works out for 45 minutes with a personal trainer three times a week, but otherwise he does what he wants. He likes Mars and See's candies and Coca-Cola. One very important factor, he said, is that he works at a job he loves with people he loves to work with.

12. ADVICE TO STUDENTS. WB said to ask students to imagine they could have the car of their choice, but that the car would have to last the rest of their lives. He said they would read the car's manual, keep it washed and keep it garaged. Similarly, you get only one body and one mind, so you better treat them right.

13. OLYMPICS. Don't boycott. China is moving in the right direction.

14. BERKSHIRE HATHAWAY STOCK. Since 1965 the book value has increased an average of 21%/year vs. S & P 500 with dividends at 10%/year. Stock will not do as well in future because company has gotten so big that it is hard to find investments that will move the needle. If you do your homework you can probably find better investments. WB will be happy with a Berkshire return of 10% in the future.

15. DALE CARNEGIE. One of the keys to WB success was taking a Dale Carnegie course when he was young. He got over shyness and learned how to communicate. And you are with a group of people who have the same fear of speaking in public.

16. SUBPRIME LOSSES, ETC. Bank losses aren't over by a long shot but a lot of it has been recognized. Idea of a financial panic has been pretty much taken care of.

17. BOND INSURANCE. WB new company has generated 400 million of insurance premiums in the first quarter which is more than its rivals MBIA & AMBAC. Some municipalities are using Berkshire to insure over bonds they already have insured with.

18. FOREIGN INVESTMENT. WB is traveling to Europe to encourage European business to consider Berkshire when they are ready to sell.

19. ENERGY FUTURE. CM said he thinks oil production 25 years from now will be less than today. "That's not an insignificant prediction, believe me," WB said, since demand for oil is growing steadily as the population grows and standards of living rise. "If oil production is down 25 years from now, it's going to be a different world." "I think we can confidently predict there will be some pain in the process," CM said. After using oil, coal, natural gas and uranium fuel supplies, "we will have no other alternative to the sun." CM says ethanol is darn best thing we'd done and he's not afraid to say that in Nebraska.

20. CHARITABLE GIVING. WB said his pledge to give 85 percent of his wealth to the Gates Foundation is not on a par with a person who donates to his church instead of taking the family out to dinner. "I've never given up anything that's made a difference in my life," he said. "I'm giving away excess." Also many generous people give their time away. CM says if you have extreme political view points (either left or right) you'll make a lot of dumb contributions.

21. FINANCIAL EDUCATION. WB said much of the complex financial matters taught in business schools are unnecessary, but professors feel they must impart that knowledge to their students. "It really has nothing to do with investment success." WB said an investor needs to know only two things: how to value a business, and how to think about stock market fluctuations. It's like teaching theology, he said. The book has many examples, but it all comes down to the Ten Commandments.

22. INVESTMENT READING. The Intelligent Investor by Ben Graham, especially Chapters 8 and 20.

23. BERKSHIRE'S HEADCOUNT. 19 in home office - 250,000 total

24. BUSINESS MANAGERS. WB looks for those who love their business more than they love the money, those who always do more than their share and who are good communicators.

25. BEST DECISION. Best decision a person can make is who they marry.

26. BEST BUSINESS are ones who produce cash rather than profits that are tied up in assets like inventories, plant and equipment, etc.

27. BUFFET'S DEATH. Stock will be sold over 12 years. WB wants people to say at his funeral, "That's the oldest corpse I have ever seen."

28. NUCLEAR TERRORISM is the primary problem of mankind. CM said it will not wipe out humanity, so he hopes that cheers you up.

29. BANKS. There are more banks than bankers if you get my point.

30. INVESTMENT MANAGERS. He's looking for those who think about risks that no one else has thought of.

31. GLOBAL WARMING. CM agrees with Al Gore we should get away from burning hydro carbons; but for a different reason.

32. BERKSHIRE PAYING DIVIDENDS. As along as WB thinks he'll be able to invest their cash better than most shareholders he will not pay dividends. To him cash is like what St. Augustine said "give me chastity, but not yet."

33. MOST IMPORTANT JOB is being a teacher to your kids and grandkids. They learn from what you do, not what you say.

Category(s): Random Thoughts
Posted by Tom Miller at 08:41 AM | Permalink | Comments (0) | TrackBacks (0)