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.

Finweek English Edition - - MARKET PLACE - Edi­to­rial@fin­

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,

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