This is part 2 of a 3 part series about my weekend at the Berkshire Hathaway annual meeting. Part 1 was an overview of the meeting while part 3 will be about what I feel was the big lesson. Today’s post is about the Question and Answer session that is the real meat of the meeting.
The upcoming duck giveaway has generated excitement and I’m going to change things up just a little bit. The ducks will get their own post on Wednesday, 5/22. At that time, I’ll give away 2 sets of ducks. One set will go to a random commenter while the other set will be given away in a contest. Johnny Moneyseed will serve as the guest judge and will pick the winner.
Questions and Answers
The Question and Answer session is the most famous part of the Berkshire Hathaway meeting. Journalists, analysts and the public are allowed to ask anything they like. Buffett and Munger do not know the questions ahead of time. Most questions are submitted prior to meeting day, however attendees can also drop their name in a box. If your name is picked, you get to ask a question at one of 10 microphones set up around the facility. It was really neat to hear Buffett and Munger talk. Their answers were little windows into their minds. Despite their advanced ages, both were sharp and funny.
One unusual thing about this year’s meeting was that Buffett chose to invite a prominent Berkshire critic to ask questions. Doug Kass, a hedge fund manager and long time Berkshire naysayer, was chosen as the challenger.
The questions were all over the place. One guy asked for book recommendations. Another used his question to beg Buffett and Munger to ‘stop eating so many hamburgers so they can live a bit longer.’ However, most of the questions revolved around certain topics and that is what I’d like to talk about today. Those topics were:
- US government bond buying program
- Berkshire Hathaway after Warren Buffett and Charlie Munger
- Berkshire Hathaway’s ability to grow
- How Buffett and Munger choose investments
- Future of the US economy
US government bond buying program
The feds have been buying treasury bonds to keep interest rates low and spur investment. This program can’t go on forever though. The feds have hinted that they’ll start pulling on the reins when unemployment dips below 6.5%. Many folks expressed concern that the US economy and stock market is artificially propped up by this program and are worried what will happen when it ends. Buffett had a lot to say about the program:
- We are in uncharted territory. It is a huge experiment and unwinding the program is going to be very difficult, but I have faith in Bernanke.
- When the feds announces the end of the program, it will be the shot heard around the world.
- The markets may take a hit, but it will be a blip and is best ignored.
Berkshire after Buffett and Munger
Buffett and Munger are no spring chickens (ducks?). Buffett is 82 and Munger is 89. Their time time is limited and this is a great concern to shareholders.
- Buffett stated over and over again that the ‘culture is in place to ensure future success.’ Anyone who contradicted the culture would not last at Berkshire Hathaway.
- Doug Kass asked why Buffett would make his son, a farmer with no investing experience, an executive chairman. Buffett stated that his son would have no decision making ability regarding investments. The actual purpose of his son is to ensure that Buffett’s successor (successors?) continue to run Berkshire how Buffett expects it to be run. His son has the power to pull the cord on a successor that runs afoul of Berkshire’s ideals. Munger chipped in with, “The meek will inherit the earth, but will they stay meek after it happens?”
Berkshire’s ability to grow
Berkshire is a massive company and many expressed concern about Berkshire’s ability to continue to be successful. Berkshire is worth hundreds of billions and growth is harder when you’re bigger.
- Buffett acknowledged that if the economy continues on its torrid pace, the 5 year period ending in 2013 will be the first that Berkshire fails to beat the S&P 500. Buffett acknowledged that if ‘they can’t beat index funds, they are not earning their pay.’
- He went on to say the Berkshire does better in times of economic distress. He gave examples of how Berkshire was one of the few organizations loaning money in 2008 and they were able to put together some deals that were mutually beneficial. He specifically mentioned Harley Davidson and GE. One of my favorite quotes was, “In times of economic distress, we have the money and the willingness to act immediately.”
- Munger added, “We don’t care about 3 or 5 years, we are building momentum for the long term.”
- Munger also acknowledged that the ‘competition is much stronger than it was in the past’ and that ‘it’s harder to move the needle now.’ He said though that he believes that ‘Berkshire’s system is better.’ Finally, he said that their ‘acquisitions in just the past 5 years have been great.’
How Buffett and Munger pick investments
Someone asked what the ‘top 5 quantitative measures are’ that Buffett and Munger consider when making an investment. Buffett had some interesting thoughts:
- We don’t know how to buy stocks just by looking at financial figures. Instead, we ask ourselves, ‘What is this company going to look like in 5 to 10 years and how sure are we of it.’
- I wouldn’t know how to pick companies if I had to do it just by the numbers. Competitive advantage isn’t disclosed by the math.
I thought that this was pretty neat and goes a long way in explaining many of Berkshire’s holdings. For example, Berkshire owns the BNSF railroad. Starting up a new railroad would require billions of dollars. Property rights have to be acquired. Track has to be laid (millions per mile) and equipment must be purchased. No one is going to give BNSF a run for its money any time soon.
Future of the US economy (cliffhanger alert)
The most common questions revolved around the future of the US economy. Over and over, people asked Buffett and Munger to ‘read the tea leaves’ and tell them the future. I loved Buffett/Mungers’ responses to this one, but that is the topic of next Tuesday’s post where I discuss the big lesson.
Random quotes that I thought were cool
- The day of the meeting was cold and rainy, so they opened the doors early (people line up very early to get a good seat) and someone thanked Buffett for it. Buffett’s reply was, “If we sold coats, we would have left you out there.”
- Munger on Twitter: I’m avoiding it like the plague!
- Buffett on Bitcoin: I have no confidence in it whatsoever.
- Buffett on stock market gyrations: We stay sane when others are going crazy.
- Munger on derivatives: All of these derivative investments devised by MIT math and physics majors are very dangerous. I find them revolting.
Please tune in next Tuesday for part 3 and also don’t forget to check out the duck giveaway on Wednesday. Until next week, quack quack!
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