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.
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:
— 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 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.
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:
This time around, I knew I had done better. I was still surprised when I learned my time:
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:
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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