Dear all,
I thought of summarising to myself and my family & colleagues interesting excerpts from Berkshire Hathaway’s Annual Shareholder Meeting Transcript yesterday (at Omaha, Nebraska, USA). The sources are from the various LIVE blogs that I trust (WSJ, NYT Dealbook, Morningstar, Fools). 40,000 or so shareholders (and their friends/family) plus the media were in attendance. I have also attached the latest Jamie Dimon’s (from JP Morgan Chase) annual letter to shareholders, which Buffett highly recommends as a ‘must-read’.
Regards
Tri
8:30 am – 9:20 am (Omaha time) – all shareholders are seated and Berkshire company movie starts. An animation clip starts: A cyborg trading machine from the future threatens the earth (The villain of the intro cartoon was the evil "MBA."), and the only person who can save the earth is Warren Buffett, with the help of a cartoon likeness the Governator himself, Arnold Schwarzenegger. It included a lot of commercials for Berkshire units like Geico and Helzberg Diamonds. Also included was Buffett’s 1991 testimony before Congress about problems at Salomon Brothers. Buffett’s testimony included some of his most famous pronouncements about business ethics: ”...Lose money for the firm, and I will be understanding; lose a shred of reputation for the firm, and I will be ruthless.”
Also was shown is the trailer of the new HBO movie coming up, “Too Big to Fail” (see here:http://www.youtube.com/watch?v=HtUQmRZMCYU), which is based on the book with the same title by Andrew Ross Sorkin (NY times journalist).
9:22 am Warren Buffett and Charlie Munger walked in "Good morning. I'm Warren, he's Charlie.... we are going to talk briefly about the David Sokol / Lubrizol situation." Buffett then introduced the Board of Berkshire Hathaway, which includes Bill Gates, Donald Keogh (ex-CEO of Coca-Cola), Charlie Munger & Tom Murphy (ex-CEO of Capital Cities/ABC).
9:28 am Buffett, as expected, discloses an early snapshot of Berkshire 1Q earnings. Due to recent mega-catastrophies in Japan, Australia and New Zealand, insurance earnings dropped to about $131 million, down from $1.2 billion a year ago. Total net earnings were $1.51 billion, down from $3.63 billion. Will likely have an insurance underwriting loss this year, the first time in nine years, Buffett says.
“Probably those catastrophes cost the insurance industry on the order of $50 billion. Usually we participate in about 3-5 percent.”
Still, it’s unlikely that we would have an underwriting profit for 2011. If there’s no catastrophe for the rest of the year, Berkshire could break even or make a small profit. But that’s impossible, he says.
What about the other non-insurance businesses?
“Basically, all of our businesses, with the exception of those related to residential housing, are getting better. And you can see it with most of them quarter by quarter.”
“We are a cross-section of the economy.”
“What was very different in the first quarter was that we had probably the second-worst quarter for the insurance industry in terms of catastrophes around the globe.” The third quarter’s usually the worst because of hurricanes, Buffett explains.
9:49 am The room is rapt as Buffett begins to talk at length about David Sokol, the Berkshire executive who resigned last month and kicked off controversy about stock trades in a company Sokol urged Buffett to buy. Buffett makes the direct link between the Salomon Brothers scandal that enveloped him nearly 20 years ago and the Sokol case.
In his Salomon testimony to Congress, Buffett said "the phrase that came out of my mouth then was that what happened was 'inexplicable and inexcusable.'" Buffett said looking back at David Sokol's “failure to notify me at all” about the involvement of Citigroup bankers in deal talks to acquire Lubrizol, a chemicals company, "I don’t think there’s any question about the inexcusable part," Buffett says
Buffett calls the Sokol matter "A situation that’s sad for Berkshire, sad for Dave and inexplicable."
Buffett said he is baffled why David Sokol would buy Lubrizol stock before he encouraged Buffett to buy the company, a move that boosted Sokol's stock investment by $3 million. He relays a story from 10 years ago, when Buffett was negotiating to buy Sokol-led MidAmerican. He said Sokol gave up the right to $12.5 million worth of compensation, and instead said the money should go to a more junior MidAmerican executive, Greg Abel.
“So I witnessed, and Walter witnessed Dave voluntarily — Greg had nothing to do with it, he wasn’t there – transferred $12.5 million with no credit to his junior partner. I thought that was rather extraordinary. And yet who would have known that $3 million, ten or so years later, would have led to the kind of troubles that it has led to. That really is the fact that I find inexplicable.”
"I think 20 years from now, I will not understand what causes a man to voluntarily turn away $12.5 million to an associate... and then 10 or so years later, buy a significant amount of stock a week before he talked to me” about Lubrizol, Buffett says.
9:59 am The Q & A Session starts
First question: On David Sokol
Earlier Buffett admitted for the first time to making a mistake: Not pushing Sokol harder in a January meeting about when he bought shares of Lubrizol. "I obviously made a big mistake not saying, 'Well when did you buy it'?" Buffett said. Buffett said Berkshire turned over “very damning evidence, in my view” to the public and the SEC about Sokol's stock trades. He said people seemed to be bothered by a lack of outrage in Buffett's letter a month ago disclosing Sokol's resignation and disclosing that he had bought Lubrizol shares. Buffett said he felt if he laid out facts that were sure to “create problems for [Sokol] in years to come,” he didn’t want to ignore all the good works Sokol did for Berkshire during his career.
Charlie Munger then said that the press release “wasn’t the most clever press release in the history of the world.” But he said you don't want to write such things “in anger.”
Buffett: “So from my standpoint, Dave was gone, there was minimal severance costs … and we had turned over some pretty damning evidence in my view to the public and to the S.E.C. What I think bothers some people is that there wasn’t some big sense of outrage in the release. I plead guilty to that. This fellow had done a lot of good.”
Second question: “How can you ensure there are no more Sokols in the lineup” of possible successors to Buffett as CEO of Berkshire Hathaway?
He says as a safety measure, he plans to install his son, Howard Buffett, as non-executive unpaid chairman, and someone Warren says will make sure the best interests of the company are looked after.
Buffett also said: “The guy who’s the leading candidate now, I would lay a lot of money on the fact that he’s straight as an arrow.”
Munger adds that keeping some of the leadership in the family has some precedent, citing the Rockefellers and Standard Oil.
Third question: “If you were going to live another 50 years…” a shareholder questioner asks, what industries do Buffett and Munger wish they could become experts in?
The 80-year-old Buffett says he likes the question, “particularly the preamble.” And the forever young octogenarians, Munger and Buffett, do give an answer: technology or energy.
Fourth question: Why Buffett, who initially was very skeptical about buying Lubrizol, did a 180 degrees and decided the company was attractive enough to buy for $9 billion?
Buffett said initially, “It struck me as a business I didn’t know anything about." But Buffett said he became comfortable with the economics of the business, and with Lubrizol's leading market share as a provider of industrial chemicals and lubricants for big mechanical engines.
“They’re helping engines run longer, run smoother….Lubricants are always going to be around," Buffett said.
He got a better sense of the competitive dynamics, as well as the advantages that LZ had (via patents and service commitments), getting him more comfortable with the business.
Answers regarding LZ's moat: Numerous patents, minimum efficient scale, close relationships with customers to create new products.
Fifth question: On the intrinsic valuation of Berkshire Hathaway stock currently.
Buffett: “We do not think that Berkshire is overpriced.”
Buffett: “I would say that we had very, very recently a large international company that might well have been interested in doing something with Berkshire. It’s a very nice company, but it’s bigger than we can handle unless we use a lot of stock. But we won’t use the stock. We just think our shareholders would come out behind.”
Buffett also got in a dig at the standard way that most companies buy back their shares. Says Buffett: “Corporate America buys its stock more aggressively when it’s high instead of when it’s low. They may have an equation in mind that escapes my reasoning power.”
Sixth question: On USA’s current problems.
Buffett: Standard of living of average American has improved 6-to-1 in his lifetime. There were many centuries before 1776 where standard of living did not change.
Buffett said he was born in August 1930, and “if somebody had come to me in the womb,” and explained what the world was like right then – Great Depression, Dust Bowl -- “it would be like that Woody Allen movie, where he says, ‘Go Back, Go Back!’”
But, Buffett says, “There’s always been negatives…the country always faces problems….We have a few lousy years from time to time....But the power of capitalism is incredible. That’s what is bringing us out of this recession.”
Seventh question: Do you still believe high return business like Coke or P&G are better than hard assets in an inflationary environment?
Buffett: The former. Companies that have pricing power are preferred. Firms with a lot of inventory and receivables not as attractive in inflationary environment.
Normally not enthused with businesses that require a lot of capital--such as utilities and railroads--but sees some use for them in the portfolio. Still prefers businesses with lower asset requirements, like See's Candies.
Buffett says See's Candies (one of his businesses) has done well over $300 million worth of business, with very little capital needed.
When they bought it, it was doing about $30 million of business a year, and now it’s close to $300 million, Buffett says. To grow it, they put in about $30 million in investment to grow it to that size.
Since Berkshire bought it, See’s earned Berkshire $1.5 billion before taxes. And it has no receivables, few fixed assets, and does well even in an inflationary environment.
Buffett says they can’t find many businesses like this.
Munger: “What’s funny is, we didn’t always know this. Continuous learning is incredibly important.”
Buffett: Best businesses are royalty business. Take a percentage of future sales but do not need to invest any additional capital.
Eighth question: When will Berkshire pay dividend? (it currently retains all its profits to be reinvested).
Buffett says, at least for now, Berkshire won't pay a dividend on its stock, but he admits in the future if Berkshire growth flags, the company may consider it.
Buffett says if Berkshire starts a dividend, it means the company has lost the ability to invest a dollar in a way that generates more than a dollar in return for Berkshire shareholders. "There will come a time – who knows how soon," Buffett said, "when we do not think we can lay out $15 billion to $20 billion a year and get something that’s immediately worth more than that for our shareholders.”
When that time comes, Buffett said, they will return the cash to shareholders. But Buffett warns that if Berkshire declares a dividend, the stock will fall because it's an admission that the company's growth has stalled.
Ninth question: On the banking industry.
Buffett: US banking will be considerably less profitable than early part of this century because leverage will be less.
Buffett says that America is still a good place for banks to lend money, and singles out Wells Fargo and US Bancorp as two particularly well-run firms.
Buffett commended the shareholder letter from J.P. Morgan Chase CEO Jamie Dimon (http://files.shareholder.com/downloads/ONE/1241601162x0x458384/6832cb35-0cdb-47fe-8ae4-1183aeceb7fa/2010_JPMC_AR_letter_.pdf). Buffett calls it a "tour de force" about banking and a must-read.
Tenth question: Why doesn’t Buffett own commodities like gold that have soared in value recently?
Buffett: Gold and Berkshire A stock were once very close in price several decades ago. Gold has a way to go before catching up.
Buffett talks about three main types of ‘things’ one can try to invest /speculate in:
1. Currency
- To explain, Buffett actually breaks out his wallet -- “you’re watching a historic event,” Buffett quips – “I might point out that this is a one” dollar bill.
- Buffett point out the bill says, “In God We Trust” on the back but that’s really “false advertising.” If Elizabeth Warren, the head of the federal consumer protection bureau, were here, Buffett said, “She’d say, ‘in government we trust.’ God isn’t going to do anything about that dollar bill if the government does the wrong thing.”
- On US$: “There’s no question the purchasing power of the U.S. dollar will decline over time. The only question is at what rate, Buffett said. But other currencies will decline too, and he said he doesn’t have strong feelings about which ones will decline faster or slower. Buffett ends by saying he'd rather be in the U.S. right now than any other place or any other time in history.
- His conclusion: Any currency investment is a bet on future government actions. Almost all currencies have declined in value over time.
2. Non-productive commodities like gold
- Buffett said that gold as no utility, and about how silly people are who are getting in now -- when gold prices are near nominal highs. "There’s no question that rising prices...can start affecting behaviour (it’s infectious)," Buffett said. "People like to get in on things that are rising in prices. Over time, it has not been the way to get rich."
- Buffett says that if you collect all the gold in the world and melt it together, you could form a cube with 67 feet on each side.
- Here’s what you could do with it: “You could get a ladder and climb on top of it and say I’m sitting on top of the world. You could fondle it, you could polish it, you could stare at it.”
- “You can’t do anything with it. It has no inherent value. Buying into gold is betting that someone else will come along and pay more for it — who then is hoping that someone else will pay even more for it down the line.”
- “The commodity play is largely a highly speculative bet, as opposed to investing in companies that are producing things.”
- Berkshire knows this from experience when it bought up a lot of silver years ago. “We were only 13 years too early,” Buffett cracks.
- Munger said that gold investors are preying on fears. “There’s something peculiar about an asset that will really only go up if the world really goes to hell. Doesn’t make a lot of sense.”
- Buffett: All gold in world has market value of about $8 trillion. All farm land in USA has market value of about $2 trillion. You can either buy 67 foot square cube of gold OR all of farm land in USA and 10 ExxonMobils and still pocket $1 trillion. Which one would you choose?
3. Productive assets
- Buffett and Munger recommend this category.
Eleventh question: How did you go about raising your first investment funds?
Not being enamored with selling of securities, came back to Omaha and collected capital from 7 "family" members. He would run the money but not tell them anything that he was doing. It was a partnership, in many ways it was a "family" business.
Buffett: Unfortunately, with current fee structure in place it can be as lucrative to raise money as it is to run it.
Twelfth question: On conglomerates.
This idea is falling out of favor of late, as traditional conglomerates like ITT and Fortune Brands are breaking apart into smaller, more focused businesses. Buffett admits conglomerates are “unpopular” but says it can be a smart structure. (Note that two of the most valuable countries in the company by market value, General Electric and Berkshire, are indeed conglomates.)
Buffett said one benefit of conglomerates is allowing the tax efficient transfer of money from businesses that don’t have good ways of using it, into sister businesses that have better uses for it.
The go-go conglomerates in the 1960s operated a kind of “perpetual motion machine” to keep issuing their overpriced stock to buy lower-valued businesses, Buffett said. “Most of those companies, though, I think had very little relationship to Berkshire.”
(Tri: I am skipping a few questions...)
Question: On inflation.
Buffett: $1 at Buffett and Munger's birth worth $0.06 now. 16-1 depreciation during their lives.
“I hate inflation,” Buffett says. “But we’ve adapted to it pretty well over the years.”
“I think we’ll see a lot of inflation, but I think i’d rather live in the United States than in any other place at any time in history.”
Question: On what they have learnt from the Sokol scandal.
Buffett says no matter how many rules Berkshire has in place to guard against improper stock trading or other improper employee actions, you can’t completely safeguard against rogue activity.
He also cites the expansiveness of Berkshire — some 260,000 employees — and how subsidiaries handle most of the issues with their workers.
One question that has swirled around Berkshire since the Sokol stock trading came to light is whether Berkshire needs to have more robust corporate governance procedures, or a bigger corporate staff to oversee the Berkshire companies. Now, Berkshire has just 21 people in corporate HQ – people who do everything from preparing the annual report to delivering Buffett his favorite hamburgers.
From the Sokol scandal, Buffett says, “We hope to get some value of this experience that will help us reinforce…that we do mean business on this.” He says Berkshire has “some pretty clear rules” and they’ll be looked at again in light of the Sokol matter.
Munger adds that having a big compliance department doesn’t necessarily preclude problems. Wall Street banks have armies of compliance officers and still suffer huge numbers of scandals. (His exact words were “the most scandals.”)
“This general culture of trust is important,” Munger says. “And you know, Berkshire hasn’t had that many scandals of consequence.”
Question: On BYD’s product delays and other problems (Chinese electrical car company Berkshire is invested in).
Munger: BYD is double where it was when we bought it, so it's not as cheap as it was then. We are pleased with the progress BYD continues to make.
Munger said that he still believes in the company.
Question: On whether we have learnt enough from the Global Financial Crisis & on the various bailouts.
Munger: “I don't think we learned enough from the wretched excesses that led to the financial crisis.”
Charlie Munger takes a hard line on the financial industry, saying that the country is "making a huge mistake not learning enough from the big mess that came from wretched excess” in the financial system. Munger says he advocates taking an “axe to our financial sector” and “whittling it down” to a smaller size.
He says the tax system should discourage trading of assets, and that securities trading shouldn't be left to the rapid-fire pace of computerized trading – what he said "amounts to legalized front running."
Munger says that a discussion of bubbles and crashes “isn’t one of evil, but of stupidity.” That said, he blames unyielding devotion to theories of economics and other fields as a contributing factor. He also takes a shot at finance as being an especially big culprit.
Munger: Sad when talented engineers go into finance.
Munger: “There has not been enough contrition from Wall Street for the disaster they wrought on the US economy. When we make heroes out of the people that make money for the sake of making money, we end up with situations like we did with David Sokol.”
Buffett said it's inevitable that the government may need to bail out some companies even if "people won't like it." But the price, he said, should be very high. The "problem will always be with us. For that reason you have to do things to reduce the propensity to fail," Buffett says. CEOs of companies that need bailouts, and their spouses, should be left "dead broke," Buffett said. And the board should suffer too, he says.
Question: On residential construction market.
Buffett: Residential construction has flatlined, but we are producing in the US far fewer houses than new household formations. Will eventually burn off huge excess inventory created in bubble. When residential construction rebounds, huge reservoir of jobs to be tapped.
Buffett: Immediate situation is terrible. Affects Shaw, Johns Manville, Acme Brick. No bounce at all; all I see is pain. But those are good businesses. Over time, we as country will build houses at same rate as household growth. But we aren't at this normalized rate of construction at moment.
Munger: “What do we care if earnings are lumpy as long as it is good over time.”
Question: On oil prices.
A woman from the floor asks about investments in oil, which have been creeping up to record high prices. Buffett, as he said earlier today, said he's reluctant to invest in oil prices because it's impossible to guess the direction of oil prices.
Buffett: “We don't know. Dealing with finite resource, and we are taking a lot out of ground every day. Oil will sell for a lot more some day.”
"I really think that an intelligent person can make more money over time” in “productive assets rather than speculating in commodities” or in fixed dollar assets, Buffett says.
Question: A few of the most important things you've learned in the last year?
Munger: “Recently read "In the Plex" book about Google. Fascinated by companies that create engineering cultures.”
Buffett: “Charlie will write the next press release.”
Question: On his resignation from the Washington Post Board.
Buffett says he won't be selling any shares of the Washington Post Company, the newspaper company in which Buffett has long owned a stake. Buffett stepped down from the company's board in recent months, but he emphatically said the departure had nothing to do with regulatory scrutiny of the Post Company's Kaplan for-profit education business. Buffett said, "I'm a phone call away from Don Graham," the CEO of the Washington Post Co., and the son of Buffett's longtime friend, the late Kay Graham.
It’s because he’s 80 and isn’t as interested in more involved participation. “I can save a lot of directors’ fees and a lot of travel,” he quips before saying that he will not sell Post shares.
Question: Stock portfolio versus operating companies?
There are really two halves to Berkshire Hathaway: Its broad swath of operating businesses, and its massive investment portfolio of stocks, bonds and other securities. Which one is more important? “We are equally interested in both aspects of Berkshire’s operations,” Buffett said. But he says the place he really hopes to get “really get lucky is adding significant acquisitions” and having Berkshire portfolio companies do bolt-on deals.
“It is difficult to buy large stakes in smaller firms, which can be done more readily on the subsidiary side of the business.”
“It’s fun to do both actually,” Buffett said.
Question: On Ajit Jain (one of Buffett’s senior lieutenants).
Buffett offers his first praise of the day of Ajit Jain, who runs Berkshire’s core reinsurance business. Buffett: Never saw anything he did I thought I could do better.
A shareholder wants to know whether Jain might be Buffett’s successor, but he doesn’t really answer this question.
“Ajit’s mind works like a machine day after day,” Buffett says. “He thinks of Berkshire first and foremost.” Buffett says he could have left at any point for more money.
Question: On good and bad company examples.
Buffett: The best are those that require little capital investment, and have strong position to increase prices with inflation, such as Sees. The worst will be ones with fixed returns, like utilities.
Buffett: Proposal for high-speed rail in California called for 800 miles of track that would have cost $43 billion. Berkshire bought BNSF in its entirety--22,000 miles, 13,000 bridges--for roughly this amount. The replacement value of BNSF is enormous.
Munger praised Costco as a ‘good company’ example.
Munger: “Costco became the best business in its category by using meritocracy. Passed along cost advantages to customers very quickly. One store in Korea doing $400 million in sales. Right management, ethics, diligence. Costco's success is quite rare.”
Munger cited GM as a ‘bad company’ example.
Buffett took a potshot at AOL Time Warner, perhaps the worst acquisition in corporate America.
Question: On how many children from rich family ended up ‘unambitious. How do we compete with the youth in ‘hungry’ China and India?
Buffett says that growing up rich could rob children of crucial drive and enterprise.
And if a child of privilege grows up unproductive, it’s a matter of parenting.
“If your kids grow up rich and without incentive, I don’t think you should point the finger at them,” he says. “You should point it at yourself.”
Question: The next Berkshire CEO’s salary.
Warren Buffett makes a salary of $100,000 a year. Whoever takes over for him as Berkshire’s CEO is going to make a whole lot more, he says. “I think the next CEO will make a lot of money."
Question: Buffett’s “no-negotiation” acquisition tactic.
A fundamental tenet of Doing a Deal With Berkshire is “no negotiating.”
Berkshire Hathaway doesn't muck about fighting over nickels and dimes with companies Buffett wants to buy. If an acquisition target wants to open itself up to multiple possible buyers, Buffett says no thanks. That's why Berkshire was the only suitor for Lubrizol before Berkshire reached a $9 billion acquisition agreement.
“They get a very certain deal, and they got a very significant price in my view,” Buffett chimes in. “If they said, ‘we want to conduct an auction,’ we’d say good luck and would moved onto something else.”
Question: You made some lucrative deals--Goldman, General Electric, Wrigley, et al--during the financial crisis. Can you explain some of the terms of these deals? The thinking behind them, given that the terms are not necessarily the same.
Buffett: Interest rates we charge dependent on opportunity costs at time, not similar deals at different points in time.
Question: What advice would you give people who want to read faster? Or read as fast as you, given the 5 newspapers per day you read, along with 10-ks, et al?
Buffett does admit now that he doesn’t read as quickly as he once did. “Charlie can read faster. I would love to read faster.”
“It’s a huge advantage to be able to read fast," Buffett says, but says he doesn't really believe in speed reading courses or techniques.
Question: Whether he worries about the US debt.
"The United States is not going to have a debt crisis” as long as the country issues notes in its own currency, Buffett says. He also proclaimed to have little patience for the bare-knuckle debates in Washington over whether to raise the ceiling on U.S. debt levels.
“It seems such a waste of time," Buffett said. In the end, he says, “there’s no chance that they don’t increase the debt ceiling.” And Buffett said he’d like to see Washington eliminate the ceiling altogether because it leads to periodic political showdowns that can cripple the federal government.
Munger: “The US of 2011 has a different debt capacity than the US in 1911. While more debt is not a good thing necessarily, putting a ceiling on it is not the right answer, especially when it leads to situations like this.”
Munger boils the fight down to this: “Both political parties in a race to see who’s the most stupid. And they keep trumping one another.”
Question: On nuclear power.
There have been question marks about the future of nuclear power since the crisis in Japan. "I think nuclear power is safe," Buffett said. "Nuclear power is an important part of the world’s equation in dealing” with problems of harmful emissions from traditional energy sources, he said. (Buffett does admit there is and will be public resistance to nuclear power after the Japan crisis.)
Munger adds that we can’t be so risk-averse about possibilities that are relatively remote that we forego useful solutions.
Question: For your businesses, like Burlington Northern or Coca-Cola, do you forecast long-term cash flows? growth?
Buffett: “Growth is part of investment equation, and we love profitable growth. When we look at business and future, love businesses where return on incremental capital will be high.”
Munger: “Projections about distant future done with computer do more harm than good. Enormous false precision. We make rough projections all the time.”
Question: On Business school graduates.
Munger said he can’t recall Buffett having ever hired a graduate of a school or a former banker.
Question: On investment bankers.
Warren Buffett doesn't like Wall Street bankers. Buffett says he's never seen an investment banker’s financial predictions for a company that didn't show earnings going higher. “I don’t pay attention,” he says, and compares it to “asking the barber if you need a haircut.”
He notes that Berkshire doesn’t do exact financial projections or modeling, and that the company leaves a lot of wiggle room. When Sokol had spoken with Lubrizol officials, he reported back that the company had done projections out for several years. Those numbers went unexamined.
Question: What does Berkshire do with its cash, given the low yields for cash right now?
"He’s certainly right that all the choices are lousy for short term money right now," Buffett replies.
He says most of Berkshire's cash is parked in Treasurys. It’s not a great return, Buffett concedes, but at least “we know we’ll get our car back.”
In Berkshire's latest annual report, Buffett said he was glad Berkshire didn’t invest in commercial paper when that typically safe market imploded during the financial crisis.
He also relayed a story about his grandfather, who owned an Omaha grocery store and urged his children to keep at least $1,000 in cash in a safe deposit box just in case.
Berkshire has $38 billion in cash and cash equivalents the company currently has on its books.
Munger: “We bought one pipeline on Saturday that had to close on Monday. If we were fooling around with money, could not be opportunistic like this.”
Buffett: “Our ability to come up with cash very quickly has enabled several attractive deals.”
Question: Advice for young people.
Buffett said kids should work on improving their communications skills. He says when he started selling securities, he realized he needed to learn how to communicate with people. One diploma hanging in office from Dale Carnegie, paid $100 for course in early 50's, and got incalcuable value from it.
What about economics courses? Buffett said of his time at the University of Pennsylvania's Wharton school, that the economics courses "didn’t push me forward” in any significant way.
Question: On Todd Combs (Berkshire’s new investment manager). How did he get introduced to Berkshire? How do shareholders assess his performance?
"He sent me a letter,” Munger said. “That’s how it happened.”
Munger says it's helped that Combs has been investing for years in financial companies.
Buffett said Combs's investing track record will be disclosed only over a five year period. "You can’t judge an investor from what they’ve done over 6 months or a year," Buffett says.
Buffett also said it's "more likely than not that we'll have more than one investment manager at Berkshire...If we end up with two or three, that’s a plus.” Buffett has said this before. The CIO job, one Buffett holds solely along with the CEO post, will no longer be a one-man post.
Question: What is your acquisition appetite? What is too big? Has your phone been ringing lately?
Buffett says that he might take a breather.
Buffett: Appetite is always there. But not going to issue shares, or sell a business to buy another business. Cash will build month to month until we decide to do something.
“We can’t do a really big elephant now,” he says, citing the size of the Lubrizol deal.
“We won’t stretch,” Buffett elaborates. “We’ve never really taken a risk because we don’t have to.”
And the meeting is adjourned! Until next year...
Regards
Tri
