Key lessons from Berkshire Hathaway’s gurus
Investors are bound to walk away a little smarter from this company’s annual shareholder meeting, hosted by legendary chairman Warren Buffett and vice-chairman Charlie Munger.
the pilgrimage to Omaha in May to listen to Warren Buffett and Charlie Munger was always on my list of things to do. Yet twice I was offered the opportunity and both times I declined, giving what were in retrospect weak excuses. This was before it occurred to me that I wasn’t convinced of the value of attending.
I’ve spoken with a number of people who have attended the conference, and they all raved about the experience. The problem is, they offered very few, if any, real pieces of evidence that the experience improved their way of investing or thinking. Then last year, the Berkshire Hathaway meeting where Buffett and Munger spent up to six hours answering questions was webcast, but I was on holiday and missed it.
This year it was again webcast so I sat down at 4PM to listen and ended up staying glued to my computer for the next six hours (with an hour break for dinner). Did I come away smarter? Maybe a little. Was I absolutely captivated by these two old men talking about investing, life and sugar? Most definitely. There is some sort of magic about them that extends well beyond their wealth and investment accomplishments. They’re both super smart, yet at the same time grandfatherly, and they do make lots of astute comments.
So, my big takeaways from the marathon listening session.
First, they were asked about the scandal at Wells Fargo, of which they own a large slice. Buffett talked about the risks of staff misconduct, explaining that it was impossible to prevent such behaviour. But what mattered was how management dealt with this issue when it became aware of the misconduct. This is a great point – scandals can happen to any large corporate, what matters is how they deal with them. Do they try to sweep it under the carpet? Deny what happened? Or accept that it did happen and take swift action?
Buffett and Munger also spoke about the execution of strategies. Ideas are plentiful but it’s what we do with them that matters. Having a great investment idea or start-up concept is useless unless we action it. A lot of time was spent on their railroad investment. The key point regarding this came from Munger when he said railroads were terrible investments for a long time but that the opposite was true today. We need to remember things change and recognise those changes when they occur. This is true both for stocks we own but also for those we’ve decided against owning. Things change and when they do we need to potentially change our views. For me the main point of the address was perhaps the comment from Buffett about not playing where the other person is better. I wrote last week about how we can use our small portfolio sizes to outperform the professionals. But we need to know our strengths and play to them, making sure we work around our weaknesses.
Two issues I do think this duo is mistaken about are sugar and environmental issues. Sugar is the new tobacco and while it won’t ever be as socially and legally stigmatised, it is under attack and ultimately the way we view and consume sugar will be very different in the next decade or two. They also seem overly unconcerned by environmental issues and – like their lack of concern around the war on sugar – this is something that I think will put them on the wrong side of history.
So, will I be making the trip to Omaha next year? No, but I will most definitely be watching the webcast. At the end of the event I found it hard to put my finger on what was so profound about it, but like others who have attended, I knew I was smarter for listening. chairman and CEO of Berkshire Hathaway, and the company’s vice-chairman, are seen on a video screen in an overflow room as they speak during Berkshire Hathaway’s annual meeting in Omaha, Nebraska, USA, on 6 May.
We need to remember things change and recognise those changes when they occur. This is true both for stocks we own but also for those we’ve decided against owning.
Warren Buffett, Charlie Munger,