The Woodstock for capitalists as it is sometimes referred to is the Berkshire Hathaway Annual shareholder meeting that takes place the first weekend of May every year. It is time when investors from around the globe flock to Omaha, Nebraska in order to listen to the wisdom of two of the most successful investors in the past 100 years talk about all manners of topics. Warren Buffett is a US billionaire investor who is well known for his long-term investment performance. His partner Charlie Munger has been his right-hand man and is another famous investor and quasi-philosopher. The pair spends a majority of their time reading and thinking which coupled with their investment successes has led them to be one of the most famous duos.
I’ve always been attracted to their investment philosophy which is focused on the long-term vs the short-term and quite frankly way less time intensive than day trading or fancy options trading. In essence, their philosophy is to buy high quality undervalued companies. Simple right? What does that actually mean exactly though? In essence, the concept is called value investing and simply you buy something for less than what the true value of it is. For example, let’s say I had $100 worth of champagne for sale and I was actually selling it for $50 even though the value is $100. That would be a value buy. Now if I had $100 worth of champagne and I was selling it for $150 and you thought that it may actually be worth $200 in the future, that is a speculation bet. Simply buying assets for less than what they are worth now. This principle applied to companies and stocks is an oversimplified version of the Berkshire Hathaway philosophy.
Back to Omaha- I bought stock in December of the previous year in preparation for the shareholders meeting. I’d heard it was an incredible event to attend and that you learn a ton from two legends in the investment world plus all of the really interesting people who attend. The event runs from Friday – Monday, but the core event is on Saturday when 40,000 people swarm Centurylink Center and listen to Warren and Charlie talk about Berkshire’s performance and then answer questions for hours upon hours. It is a truly simple yet profound event. I’ve never been in a stadium filled with so many people where there was complete silence as everyone hangs on the words of two people seated at a table drinking Coca-cola and eating See’s Candy.
Warren and Charlie answered questions with regards to the potential trade war, the rise of China, and bitcoin to name a few topics. The questions ranged from general philosophy to current markets, and down to specific Berkshire owned companies. Before the annual meeting kicked off there were a series of videos and commercials from subsidiaries and what I noticed is that each of them focused on creating a feeling and emotion inside of the viewer. They were less focused on the product or service – really driving down into the pain that was solved. It is a key facet of the most successful marketing campaigns.
Rather than go into specific details about the event there were a few things that stood out to me about how Warren and Charlie answered questions. First off they didn’t answer questions they were not informed or were unclear. Someone asked a question about how the principles of capital allocation (fancy phrase for investing dollars) that led to the success of Berkshire could be adopted by the Federal Government. This question both Charlie and Warren decided not to answer because it is one that neither felt informed nor foolish enough to create a half-baked answer. Buffett did note that the reason was that the incentives in the public sector are completely different than the private sector making it impossible to do a direct comparison.
One of the most profound moments was before diving into the Q&A segment Buffett made a point to highlight mistakes he made on his first stock pick to show how he was lousy at timing the market. He then went on to show that if you’d invested $10,000 in 1942 and tracked the US stock market (index funds do this today) you would now have $51 Million dollars today. His point being you don’t know what individual companies will do over the long-term necessarily, but if you put your faith in the American economy you will have success as an investor. Buffett is a big advocate for passive investors and everyday folks to purchase low-cost index funds (a pool of stocks that track the S&P 500 or another index) because of the low fees and ability to invest across the US economy. If you take this same principle Charlie Munger is bullish on China and finding an index fund that tracks China’s growth may also be another viable opportunity if you extrapolate out Buffett’s thesis beyond the US economy.
The last most striking piece was the humility of Buffett and Munger. They did not pretend to have all the answers and were also willing to admit mistakes they made. Buffett referenced Amazon and Jeff Bezos as an example of an opportunity he missed. In his words, Bezos is a miracle what he has accomplished at Amazon over the years. The meeting starts off with a series of videos and one is of Buffett testifying before Congress as CEO of Salomon Brothers in 1991 after he came in to rescue the firm. His admittance of wrongdoing at the firm and his sincere commitment to cooperate to solve the problem is moving. Buffett and Munger took this same line when it came to a question about Wells Fargo who had come under fire the past couple of years for opening dummy accounts and incentivizing employees to open these accounts costing consumers fees. They admitted that most likely with an employee base of over 360,000 people that someone somewhere was doing something they shouldn’t and it was up to the leaders of the companies to ensure that bad behavior was not incentivized and addressed immediately when it came to light. Munger went on to extrapolate that he wagered Wells Fargo would likely be the best behaving bank due to the impact and response to the scandal.
There is a lot to be gleaned from two titans of industry and legendary investors. Their philosophy of work, life, and investing is simple yet profound. If you happen to find yourself in Omaha the first weekend of May ensure you get a pass to see them speak. I promise you won’t regret it.