I still hold a lot of individual stocks from my days as a stock picker:
- I have $72,000 invested in Berkshire Hathaway which will do well when the world stays the same: Berkshire Hathaway’s holdings are mostly large, stable companies (Heinz Ketchup, a railroad, Geico). Warren and Charlie are betting that the world (at least how it relates to their holdings) stays the same.
- I also hold companies like Amazon ($102,000), Google ($79,000) and Tesla ($48,000) which thrive on disruption: Amazon is changing retail. Tesla is changing transportation, energy production and storage. Google is changing everything.
At this year’s Berkshire Hathaway meeting, my investing worlds collided. Before I get into that, let’s review the weekend.
Berkshire Hathaway 2018
The Berkshire Hathaway annual meeting is commonly referred to as the Woodstock of Capitalism. Investors come from all over the world to hear Warren Buffett and Charlie Munger speak. I think that this was the 5th meeting that I’ve attended in person. After a while, they start to blend together.
Mrs. 1500 and I road tripped from Colorado with a couple of friends. Plane flights are expensive and with 4 people going, 3 tanks of fuel are much cheaper than 4 plane tickets.
Friday
One of my favorite things to do in strange environments is wander around aimlessly and see what I see. I did just that in Omaha. Here, I spotted metal cattle at Pioneer Courage Park:
Omaha has a neat park on the Mississippi Missouri River (Come on now; I can’t be good at everything!):
This is a pedestrian bridge that connects Nebraska to Iowa:
At noon, the Berkshire exhibition hall opened. When no one was looking, I temporarily modified the train exhibit:
After the exhibition hall, I met Morgan Housel. Morgan was the first financial journalist whose words really resonated with me. I’ve been following him for years and it was fun to talk to him in person, even if it was brief. Here’s a pic of Morgan and Mr. Money Mustache getting their staches on:
Met @mrmoneymustache. This is the fullest stache I will ever have. pic.twitter.com/kMSsJwPzeW
— Morgan Housel (@morganhousel) May 10, 2018
That evening, Mrs. 1500 and I met the Penny Planters for dinner and drinks. Since the Copper Gardeners are anonymous, you get this picture of the Omaha sky from the brewery patio:
Saturday
Saturday is the big meeting day. I lined up a little before 6am:
Before the meeting started, I went down to the exhibition hall again. Hey look, Warren Buffett:
I sat with the Frugal Professor and had a lot of fun talking to him. He’s anonymous, but allowed me to take this gratuitous picture of his knee:
Finally, the big show started:
More on that in a moment.
Sunday
This may have been my favorite day. I had signed up for the Berkshire 5K, but wasn’t thrilled about it (running is the opposite of fun). I had run a half-marathon a month ago and was still feeling pain in my foot from it. Additionally, the HVAC in our hotel room had gone bonkers (too hot) which led to a night of zero sleep. Anyway, at the 2016 Berkshire meeting, I ran (trudged through) the 5k in:
34:29
This time around, I knew I had done better. I was still surprised when I learned my time:
29:59
I was absolutely thrilled to improve by 4:30.
Disruption Destruction (A Strong Case For Indexing)
Buffett and Munger like companies with big moats. Investopedia describes a moat as:
The term economic moat, popularized by Warren Buffett, refers to a business’ ability to maintain competitive advantages over its competitors in order to protect its long-term profits and market share from competing firms. Just like a medieval castle, the moat serves to protect those inside the fortress and their riches from outsiders.
One of the companies with the biggest moats, or so I thought, was Berkshire Hathaway’s Burlington North Santa Fe (BNSF) railroad:
- A mile of railroad track costs between 1 and 2 million. One mile! And that doesn’t include securing the property rights.
- Trains are not cheap either. A new locomotive is about $2,000,000.
If you had asked me 2 years ago about moats, I would have told you that BNSF had one of the widest ones in the world. You have to be incredibly rich to start a railroad. No one is going to do it.
And then, Buffett said this at this year’s meeting:
I would say that driverless trucks are a lot more of a threat than an opportunity to Burlington Northern.
Consider the potential of an electric, autonomous semi truck:
- Electric propulsion: The cost of operating a diesel semi is $180,000/year. $70,000 of this is fuel costs. $15,000 is for maintenance. An electric truck is simple, so the maintenance is greatly reduced. An autonomous truck can drive all night when traffic is low and charge during the day when the sun is high. If you charge from solar, your fuel costs are greatly reduced.
- Autonomy: After fuel, the second biggest expense is the driver. A robot is much cheaper, never gets sick and doesn’t need to rest.
It amazes me that a company that I thought was bulletproof just 2 years ago now faces a major challenge (and possible extinction). And this is just one example. Here are some others:
- SpaceX’s self-landing rockets will soon be far cheaper than expendable versions. Elon Musk is famous for overpromising and underdelivering, but SpaceX has had a pretty great launch record as of late. United Launch Alliance has been put on notice.
- Autonomous cars will be much safer and cheaper than human-operated ones. Will car ownership be displaced by autonomous driving pools?
The world is changing and changing fast. Today’s empire is tomorrow’s exhibit in the Smithsonian.
How does one invest in such an environment? Here it is in big letters for emphasis:
Index funds
With an index fund, you’ll be holding mostly losers. It doesn’t matter because the winners more than make up for it.
The longer I live, the more I read, the more I observe, the more I study, the more I think, the more I realize that the only certainty is that there is no certainty. Change happens and it’s very hard to predict. And this is why almost all of my future money in the markets goes to index funds.
In the meantime, I’ve already secured a place to stay for the Berkshire 2019 meeting. See you in Omaha?
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I would love to a Berkshire Hathaway meeting. They look amazing and the coverage always makes it seem fun. Plus listening to Charlie and Warren share their wisdom would be so much fun with the energy of the crowd.
Additionally, I love reading Morgan’s pieces as well, especially his old stuff on Motley Fool 🙂
MUSTARD SEED MONEY recently posted…How to Make Money While You Sleep
Do it! Buffett and Munger aren’t getting any younger!
Morgan is a spectacular writer.
Love your round up of the event! Looks like so much fun. Interesting take on the BNSF. I would’ve thought the same as you (that the BNSF has a huge moat), but always great to learn a new perspective.
Thanks Ms. SFT!
Sorry I missed it this year-thanks for making me feel like I was there! It was on my retirement bucket list so I went in 2017. I struggled to pay way too much for a crappy room–where do you guys stay?
We stayed at a hotel that we reserved a year in advance.
It’s pretty awesome how more of the FIRE community shows up at BRK every year. And you guys were the first!
We’ve been sold on indexing since we started investing…the numbers make sense, and it frees up significant mental resources as well.
@Liz we use Air BnB. In past years we split a house with the 1500s. You could smell the lentils and IPA from blocks away….
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Sounds fantastic!
“…and it frees up significant mental resources as well.”
Yep. As we discussed in Omaha, this is one of the main reasons I’ve moved away from stocks.
Excellent pace on that 5k! You would’ve beat me this year for sure 🙂
Seems like a great time. Sorry we missed it. Maybe next year!! Hopefully next year!
I’ll have to admit that’s exactly what I love about indexing. I don’t have know what’s next. Cause lord knows I can’t predict anything.
Glad you had fun. Sorry about the foot, but hey that time is great!!
It was fun! Not as fun as the beach in SoCal, but still fun.
i still get the occasion housel article from a motley fool subscription and i like the writing very much. buying that service has served me very well in owning some big winners. i like the honesty that indexing has plenty of losers in the pool but the big wins make up for it. we own brk-b shares but less than 10k. we’re about 50/50 index/individual and i really enjoy picking winners.
freddy smidlap recently posted…Painting Sales and Portfolio Details
Morgan is awesome.
Seems like you had a great time. I wish I could be there once. I need to get my hands in a few BRK shares, but wait, better index 😛
The Poor Swiss recently posted…My 7 biggest budgeting mistakes – How I fixed them
It’s great! Much more fun than it sounds!
Lots of good nuggets in this article but my favorite might have been that you road tripped because flying was too expensive. Gotta appreciate you still maintaining your frugal roots.
We went to the meeting 5 years ago and had a great time. We only live about 3 hours away so I’m thinking we’ll have to go again next year!
Change does happen much faster now than it used to and there are many disruptors out there trying to displace the giant companies of old. My GE stock got slammed. Also with some other individual stocks, Im sure you can make money on them over time, but will they even match the index with less risk? I can just buy a fund and not worry about it too much and 5 or 10 years out I should do ok. Thats why i’m shifting away from individual stocks buying ETF’s and funds. I do hold some low cost growth active funds that have done very well for me but I’m also keeping a good amount in index funds also.
JL Collins uses the phrase “self cleansing” to describe index funds and how they go about replacing and renewing their portfolios. And anything that I personally don’t have to clean myself…
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I’ve always found it amazing that the man who is the best-known example of crushing the index recommends investing in index funds.
The meeting sounds like a great time. I’d love to go one day.
Jason@WinningPersonalFinance recently posted…Why Should I Care About Personal Finance Anyway?
Funny how Warren didn’t make his billions in index investing. Alas most of us have not put the time in that he did to learn how to read company and control it. Disruption is coming!
Where do you leave the kids when you go on a road trip?
Back seat of the car. They go with. The scene isn’t pretty. It looks a bit like this, only more violent: https://www.youtube.com/watch?v=OyjjYYpTK7Y
Well said. There is no way of telling whether today’s Titans will be obliterated by technology of the future which we can’t even imagine. That’s my problem with individual stocks, you have to be constantly vigilant, and even then you might not pickup on important trends. With indexes you’ll always be picking up the new winners and dropping the laggards.
Omaha is not on the Mississippi. Lol.
Whoops! And that’s why I can’t have nice things!!!!
i almost went to the map when i first read that but i trust too much. ha ha.
freddy smidlap recently posted…Painting Sales and Portfolio Details
So where does the trailer park fit into this strategy? If your now an index fund only kinda guy, are you going to sell the trailer park and various real estate loans to buy index funds?
Just curious!
Mr. Tako recently posted…Dressing For Success: The Easy Way To Millions
Index funds only apply to the investing side of my portfolio (~$850,000). The other half is real estate including the trailer park, syndication deals and private loans. My goal is to keep my balance about 50/50 between the two. Moving forward, I’m selling off the individual stocks in favor of index funds.
I bought Berkshire Hathaway B shares last year through a brokerage and thought I would start getting the newsletter and an invitation to a shareholders meeting….nothing. And I looked on their website and don’t see how to apply through it, either. I live in Germany and no one I ask here has a clue; they can’t conceive of flying to the US just to attend something like this. What do I need to do to get tickets, can anyone clue me in how it works?
Hi
Do you have any additional info regarding invitations to the shareholders meeting? I have owned BRK.B for a couple of years, and never got any invite either. I live in Belgium.
Sorry for the late reply! Berkshire sends out a form, but maybe it only goes to United States residents?
If you want to go next year, shoot me an email. I usually have extra tickets and know others who do as well.
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I would love to meet Warren Buffet and soak in some of the investing knowledge. Looks like you had a great time. Also great take on the autonomus trucking, it will be interesting to see how that plays out.