Warning: This is going to be a sloppy post. I’m at the airport typing on a tiny keyboard.
Berkshire Hathaway AGM
On the topic of traveling, I will be at the Berkshire Hathaway Annual Shareholder Meeting. If you have told me two years ago that I wouldn’t fly for over two years I wouldn’t have believed you. Yet here I am.
Last week I attended the Fairfax AGM in Toronto. It was great. If I have the time I will try to write a post on it.
I missed traveling. It’s good to meet up and exchange with like minded people. It’s important to be exposed to different things, to new ideas, to a different perspective. It’s a good thing to be worldly. Zoom, you won’t be missed.
If you are in Omaha, come say hi.
I’ve a bunch of topics I want to get to. I might break down the post in two parts.
First, the polar opposite of what Berkshire stands for: Cryptocurrency.
Second: Twitter.
Crypto
I haven’t written about crypto currencies in a while. I follow the space on and off. Call me a curious observer. In a sense, what they are trying to accomplish is amazing. At the same time I roll my eyes at the level of stupidity in the space.
The crypto space talks a big game. They are dreaming big; “We are going to revolutionize the payment systems”, “Defi is going to take down the banks”, “The users are going to be the master of their data and destroy Mark Zuckerberg!” And I’m like “wow, this is massive, it sounds amazing, show me what you got”, and they show you Crypto Kitties. Of course they get the last laugh because they are getting rich off that digital stuff.
People are spending millions on digital cats and it’s supposed to makes sense.
Maybe I don’t get it. Some do. Good for them. It has that early Internet day feel to it, when it was the wild wild west. Many didn’t think this Internet stuff was serious. We are in the early innings of this blockchain stuff. This post might not age well. But that’s kind of what you want, right?
In a nutshell blockchain can be thought of as a base layer on which other things can be built on top of, including bridges/connections to smaller and more experimental cryptocurrency projects, such as Ethereum and others.
Decentralized exchanges are a type of app that runs on top of one or multiple blockchains, in some cases connecting blockchains together, allowing users to swap their cryptocurrencies without the need for a middleman. Well you would think so.
So far, crypto hasn’t live up to the hype. The big dreams are still dreams. But it has also fail on some of its basic stuff that crypto promotes. Like anonymity (Freedom Convoy people and criminals are finding out the hard way), decentralization (it’s more centralized than ever), and away from government reach. If crypto can’t be used to evade Russian sanctions, what is the point? Plus everyday there’s some scam where people are losing everything.
If cryptocurrencies can’t have their moment in the sun when the entire Western monetary system is called into question, it may be time to call it quits.
The Middleman or Woman
Look I don’t like banks as much as the next guy. But they are doing a decent job. When you deposit $20, it’s there. Sometimes you just need that “trusted” intermediary. At the moment, from what I read on the crypto space, trust doesn’t come to mind.
Maybe the space will eventually mature. But right now users need Coinbase, which is a pain for developers. Coinbase makes access to crypto convenient, but it also undoes essentially all of the benefits of crypto. At a very basic level, it takes decentralization and re-centralizes it.
Which brings the question: Is Coinbase the AOL of crypto? You kind need it as a friendly way to introduce people to crypto and eventually they will move on to something better?
Last week Elon Musk was teasing us. Now it’s a signed agreement.
I didn’t think it was going to happen. I though he was bluffing/trolling. I also didn’t expect the board to agree. This was a stock in the high $70s last year and they just accepted $54.20.
I still have my doubts that this transaction will close. Twitter is trading at $48.75, below the agreed price of $54.20. It’s a nice little arbitrage play. A 11% return if the transaction closes. At gap this big suggests that the market has some doubts the the transaction will go through.
Twitter co-founder Jack Dorsey said Twitter wouldn’t have to answer to Wall Street under Musk. I’m not sure about that. Part of the money for the deal is from Wall Street. Probably a loan with his shares as collateral. So if things goes south, he’s exposing himself to a margin call. But let me be clear, I don’t know the terms. That’s just me speculating. (Correction: I was reading that Musk pledge his Tesla shares)
Maybe Musk will get cold feet? Or maybe the board turned the table on Elon. “You want this mess? Please take it away from us.” Like a poison gift.
Musk runs Tesla, SpaceX, the Boring company, and other stuff. Companies trying to solve big problems. Why would he want Twitter?
Musk has promised to turn Twitter into an unfettered free-speech zone, a move that he has said is “essential to a functioning democracy.” He wants to make Twitter some kind of freedom beacon. Sounds great. Very nobel.
But what does that mean? Let Twitter become the mecca for Covid psychos, crypto loonies, quack science, Russian agents, racists and will destroy the platform. Good luck getting users and advertisers.
Musk’s pursuit sounds more like a crusade than a business decision. He’s on record as saying he’s not in it for the money. “I don’t care about the economics at all,” Musk said at a TED conference when the deal was announced.
Musk keeps refering Twitter as a digital townsquare. It’s not and shouldn’t be. Twitter is a private platform. It’s more a living room than a town square. Would you yell stupid crap in the living room? No you want decent conversation.
Twitter is 16 years old. It has underperformed all the other major social network. It’s growing at a slow pace. It has been eclipse by new comers, like Tik Tok. It’s easy to think somebody can do a better job. Twitter still has 229m daily active users. That’s something to work with.
When you are worth $300b, $44b is portfolio diversification. Or play money I guess. Rich people do stupids things with money all the time. Maybe this is his equivalent of buying the Dallas Cowboys or some Premier League soccer team. I mean football for my European readers.
Allright that’s it. I’m tired of writing on a tiny keyboard. I apologized for the unpolished post.
The is a repost from The Globe Mail. The author, George Athanassakos, is a professor of finance and holds the Ben Graham Chair in Value Investing at the Richard Ivey School of Business, University of Western Ontario. The center is behind the annual Value Investing Conference in Toronto during the week of Fairfax’s annual meeting.
The title of the article ask a question that has been asked frequently in the value investing circle. Berkshire or Fairfax? In the 80s and 90s the question would have been more interesting. For the last 10 years Fairfax had its up and down. The last five years have clearly been a disappointement. But lately Fairfax’s Prem Watsa seemed to have refocus and has changed direction since Trump got elected. Fairfax’s has repeatedly been labeled the Warren Buffett of the North. As for the future, Fairfax is much smaller than Berkshire. BRK is dealing with a too big issue. It’s sitting on a growing $100 billion. There are not many targets.
Like I said the article is asking a fun question. However I find the article a little short and lacking substance. But it’s still interesting.
Repost from The Globe and Mail
By George Athanassakos
Here’s an intriguing question for value investors: If you had to choose between the two, which stock would you pick – Fairfax Financial Holdings Ltd. or Berkshire Hathaway Inc.?
Both companies are in the insurance industry, led by legendary value investors Prem Watsa and Warren Buffett, respectively. They are both capable insurance underwriters who have wisely invested their float (that is, the difference between premiums collected and claims paid) over the years of operation, thus profiting from both sides of their balance sheet and earning unparalleled returns for their shareholders. But this is the past; the question is, going forward, which one makes a better long-term investment?
Both companies subscribe to the value-investing philosophy of making investment decisions following a three-step process. First, they search for stocks with desirable characteristics; second, they value such stocks to determine their intrinsic value; and third, they make an investment decision to buy only if a stock meets the desired margin-of-safety requirement. However, while both companies follow similar steps in stock selection, they differ in what they view as desirable stocks – the first step of the process – deserving to be considered for the second step.
This is my notes and observation from my recent trip to Omaha for the 2016 Berkshire Hathaway Meeting. You can also read a copy on my blog at brianlangis.com
As you know every mother in this country tells her daughter at an early age: if you’re choosing between two very old and rich guys pick the one that’s older — 85 year-old Warren Buffett poking fun at partner Charlie Munger, who is 92, as to why he can get the girl more often.
For the second year in a row I had the privilege of attending the Berkshire Hathaway (BRK) Annual General Meeting (AGM). BRK has been one of the most lucrative investments in the last forty years. Listening to Warren Buffett and Charlie Munger taking questions from journalists, analysts, and shareholders for nearly six hours is a very enriching experience. You also get to see them eat See’s Candies peanut brittle and drink Cherry Coke out of a wine glass the whole time. That’s what I call product placement. In his opening statement Buffett didn’t hesitate reminding everyone that he was the young one. You learn a lot from listening to successful old wise men.
This year was BRK 51st AGM under Warren and Charlie and the first time it was broadcasted via live streaming online for the world to watch. That was a wise decision considering that the event has become huge success. When 45,000 descend on Omaha, it’s definitely noticed. The more money Buffett made, the bigger it got. Success attracts success as they say. People who asked me why do you bother going if the meeting is streamed online? Well part of the answer is that I booked my plane ticket and hotel before BRK announced the change, but there’s also a real reason. The most interesting aspects of making the trip are the extraordinary people you meet and the associated events. There are investments panels, breakfasts, cocktails, dinners, conferences, presentations and various networking events that you can attend. Since this is my second year, you gain a sense on how to better allocate your time.
You don’t go to the AGM because you expect Buffett or Munger to say something new or some kind of magic investment formula. They won’t. They will say the same thing you read in the shareholder letters or past interviews. That seems to disappoint some people. But it’s crazy to think they were going to say something totally new or shocking. That’s not what made them successful in the first place. They are consistent and disciplined in their approach. As they themselves mentioned at the meeting, you don’t go to church to hear something new; you go to church to hear the old things harped on again and again. Munger and Buffett are teachers are heart. They also made their playbook available.
You can still watch the AGM with the recording available until May 29th available @https://finance.yahoo.com/brklivestream. The meeting Q&A was being simultaneously translated into Mandarin. China’s interest in Buffett and Berkshire is border line fanatics. I don’t exactly know why since China has its own multi-billionaires and successful business people. I don’t see any Americans being fascinated with Chinese billionaires.
By the way you don’t need to be a shareholder to attend the AGM. You do need credentials that you can buy for $5 on Ebay. Every shareholder is entitled to 4 credentials so there are plenty of extras available. Some folks decided to sell the extras for $40 or more on Ebay. BRK didn’t like that and decided to by-pass sellers by flooding Ebay with $5 credentials. This reminds me of the tactic BRK employed against funds pooling money in the 90s to buy the expensive Class A share for a fee. That led BRK to create the popular Class B share to anyone who wanted it. Since its creation the Class B has spitted to make it possible for the mom and pop investor to invest along Buffett. The Class B share is now worth 1/1500 the price of a Class A shares. One Class A share cost $210,000 and one Class B cost $140.
Outside before the opening Friday of the exhibition hall.
The CenturyLink Center is getting packed before the AGM.
I arrived in Omaha around midnight Thursday night. You know you are on the right plane when everyone on it is reading a Buffett book or a shareholder letter. My connection for Omaha left from NYC and I wonder if NYC has direct flights to Omaha any other time of the year.
Friday was filled with the Farnham Street breakfast, a visit to the exhibition hall, eating Dairy Queen, Creighton’s University Value Investing panel, and Whitney’s Tilson cocktail. It was funny how a lot of people at Whitney’s cocktail didn’t know who he was but if you mentioned he was the guy from 60 Minutes that famously shorted Lumber Liquidator they were all like “oh yeah I know that guy”.
This year I had the pleasure of chatting with one of Berkshire Hathaway’s investment managers, Todd Cobbs and Board of Director member Meryl Witmer. They are both really interesting gave me insights on Buffett and the BRK culture. Warren Buffett also dropped by the exhibition hall Friday to visit the booths and to take pictures. At the speed his walking and moving around there’s no way he’s 85 years
Buffett taking pictures with attendees Friday at the exhibition hall.
Saturday was the BRK meeting and this year I decided to show up a little later around 5am in the morning instead of 4am last year. As a second year veteran, you know which doors are faster than the others. Getting there super early in the morning looks like a freakish thing to do but it goes by really fast since you mingle with the crowd the whole time.
Security was boosted a couple levels this year. There were a lot of security guards in the crowd and for the first time you had to go through a metal detector and get your bag checked. It did slow down entering the building but security was much faster than the TSA. I wonder if this has to do with the multiple death threats on Bill Gates and Warren’s head by ISIS and Al Qaeda. Not sure what they have against Bill Gates, he was there Saturday morning at the newspaper throwing contest and I was impress at how humble and nice he was. Mr. Gates also had to pay for Warren’s dilly bar since Warren didn’t have any money on him (Warren owes a $1 to Bill).
Bill Gates Saturday morning before the AGM.
The meeting always start with an opening film that wasn’t streamed to the world and I highly doubt you will find a copy on the Internet. They have a very strict no filming policy. The movie is one of the best parts of the meeting. The short movie (~45min) contains a lot of celebrities who have volunteered their time and Warren Buffett promised them he wouldn’t make money off it. The film is a collection of short clips and skits featuring humor. Last year final’s scene starred Warren Buffett getting ready to fight Floyd Mayweather and this year it featured Arnold Schwarzenegger as the new host of the Celebrity Apprentice. Arnold had to deal with Warren and Charlie (labeled the other terminator). In real life Warren Buffett will not be a contestant but will act as an advisor to Arnold once the show is aired.
BRK outperformed the market by maintaining a disciplined approach. Sure the marketing irrational exuberance will occasionally outpaced BRK in the short-run, like during the tech bubble of the late 1990s; he knows he has the winning strategy for the long run. Even the best investments will endure extended periods where their strategies simply don’t perform. When you try to outthink and over trade the market, you often do more harm than good. Whatever strategy you chose, the key is to find something that works and follow it through the inevitable ups and down. This will most likely improve your odds of investment success.
From 1965 through the end of last year, Berkshire shares have risen 1,598,284%, compared to the 11,355% return on the S&P 500. $1,000 with Buffett 51 years ago would be $15.3 million today. But it’s going to be hard to move the needle that fast from here. Because of size, it’s getting harder and harder to make to grow at a fast pace. But the amount of money they make is just monstrous. BRK is sitting of $58.3 billion at the end of March and is looking to make another big acquisition. of the question during the meeting was about the companies Mr. Buffett likes to buy, noting that they have changed from companies that throw off plenty of capital to ones that are far more capital intensive (e.g. Berkshire Hathaway Energy, BNSF, PCC etc…) Buffett said it’s a problem of prosperity and the ideal business is one that takes no capital” but still grows. But most of those are not of a size that they would move the needle at Berkshire. When Berkshire was smaller, See’s Candies was one that fit the bill.
Below are some notes, thoughts, lessons, and highlights of the BRK weekend:
Exhibition Hall
The Friday visit to exhibition hall is one of my favorite things during the weekend. The exhibition hall is where BRK has multiple companies on display that you can visit and shop. There are shareholder discounts on many items and it’s hard to turn down a $2 Dairy Queen vanilla Oreo blizzard and $1 Dilly bar. I like the place because it allows me to visit different companies from different industries and to talk to many executives. These people clearly love what they do and they love talking about their company.
The latest new baby to the Berkshire family is Precision Castparts Corp. (PCC). This baby is big since it was BRK’s largest acquisition ever at over $32 billion. PCC is a manufacturer of complex metal components and products. You couldn’t miss this baby once you entered the exhibition hall. Their booth and their nice products was the first thing you saw when you entered the exhibition hall. PCC had a lot of staff on hand to answer questions and their product is state of the art stuff. With few exceptions, every aircraft in the sky flies with parts made by PCC. I was surprised of their presence since the deal recently closed at the end of January.
Some of the pictures I was allowed to take.
Clayton Homes, the largest manufacturer of modular and mobile homes, made an impressive display with a 3 bed, 2 bath, and 1,475 sq. ft. for only $78,900. Most major appliances are included too. You just need to provide a piece of land. For $80k, this is a really nice home. So why is it so cheap? Well Clayton is able to get a volume discount on material since they build 35,000 homes a year. The other trick is that they don’t have any waste. The pic below of the two bins is the only waste left once Clayton finished a home. They don’t waste anything!
Below are pictures of the $78,900 home “The Patriot” that was on display:
One of the most notable absences is IBM and Watson. Not that I cared. Last year IBM had one of the high quality corner spot when you walked in. I guess Warren didn’t want to remind anybody of his puzzling tech bet on IBM that’s not going too well (at the time of this writing, BRK just disclosed a position in Apple made by his portfolio managers and they are bankrolling a bid to buy Yahoo, is Warren finally embracing technology?). As for IBM, BRK now owns over 8% of the company. I also didn’t see Wells-Fargo and its lifestage carousel.
More than a year since the Burger King and Tim Hortons highly mediatized merger I would have expected a BRK/Tim Hortons booth but they weren’t there. I wonder if this is because of the ill feelings that might remain from the take over and tax aversion tactics employed by 3G Capital in the acquisition. Even though Warren and Charlie has been praising 3G Capital’s management style, the Burger King-Tim Hortons merger as hit a nerve with shareholders last year. A lot of shareholders are uncomfortable with the BRK/3G partnership. 3G has been associated with job slashing and efficiency which seems to contrast with Buffett’s nice folky reputation. But I’m only speculating as to the reasons why BK-Tim Hortons wasn’t there. The Kraft Heinz Company, another deal backed by 3G, was present with an Oscar Mayer wienermobile and the place was packed. Berkshire’s stake in Restaurant Brands International, the owner of BK and Tim Hortons, is only ~4.2%, so it might not be significant enough to have a booth (although they financed part of the deal with $3 billion in preferred shares that pays 9%!).
thewienermobile was present. This pic is from Instagram since I could never get a clear shot.
On Berkshire Hathaway’s Credit Rating
When asked why Berkshire’s credit rating is not AAA, Munger pounded on that question right away. He bluntly said that credit agencies were wrong. Standard & Poor’s gives BRK a AA+. It has been downgraded since 2009, when it used to be AAA.
Charlie Munger sitting all by himself after the Q&A.
Markel Corp.
For the second year in a row, I preferred the Markel Corp. (MKL) Sunday morning brunch and not just because the breakfast is far better than the BRK one. Markel is dubbed the “mini-Berkshire” and is a successful BRK clone. It’s a conglomerate that uses its insurance float to invest that’s compounding the gains. Steve Markel and Tom Gayner are the Warren Buffett and Charlie Munger of the company. In the last couple years Markel has been on fire and I regrettably don’t own a single share. MKL trades at $950 per share. It was less than half of that when I started following the company.
Is it a fair to compare the MKL to BRK? While BRK fills the CenturyLink center, MKL host their meeting at the hotel across the street with a few hundred people. It’s like comparing a sold-out Bon Jovi concert at the Madison Square Garden vs the up and coming band at your local theater. You can’t touch Bon Jovi but you can have a beer with the up and coming band. I prefer the MKL meeting because 1) its smaller, 2) the executives are approachable while Charlie and Warren, and 3) I learn a lot more.
I find the questions and answer with Tom and Steve more pertinent and practical. Tom and Steve don’t mind getting technical while Charlie and Warren avoid getting into details. Warren’s answers can be long and vague that I sometime forget what the question was. The true is that BRK is a victim of their own success. I’m not saying that Warren’s answers are not pertinent because they are. It’s one of the reasons why people make the trip. But the crowd and make-up of the questions is different. I think the MKL meeting attracts more of a crowd of sophisticated investors which allows Tom and Steve to get into specifics while the BRK meeting is more entertaining with a movie and jokes. This was the first question from a shareholder at the BRK meeting: “What would you have done differently in life in your search for happiness?” while one of the questions at the MKL meeting at to do with return on equity. These sorts of inquiries are the reason that the Berkshire moved a few years ago to have journalists and analysts ask some of the questions. The MKL meeting is probably what the BRK meeting looked like in the early years. BRK use to have its meeting in a cafeteria, imagine that. Just like its stock price, MKL’s meeting is growing every year. They will have to upgrade soon to a much bigger room.
Coca-Cola
Every year there is a question regarding BRK’s investment in Coca-Cola meanwhile more than one in three American is obese, with consumption of sugar-sweetened beverages such as Coke a contributing factor. Every year the question seems to get tougher. Last year Buffett answered with a non-answer, stating his own personal consumption of Coca-Cola (he’s 1/3 made out of Coke he said) in validating his investment. This year, journalist Andrew Ross Sorkin’s question was more pointed. He asked Buffett not to bring up his personal consumption habit of Coca-Cola when asked “why Berkshire shareholders should be proud to own Coke?” Well Buffett ignored the directive and started talking about his own personal consumption habit. He said he has not seen evidence that convinces him that he will make it to 100 if he suddenly switches to water and broccoli. He also continued that because there are so many more women who live to 100 than men, if you really wanted to improve your longevity prospects, for a guy in his position, you have a sex change. Munger didn’t like the question because it ignores the benefits of soft drink, which are made mostly of water that people need to survive. In general, Munger said citing the disadvantages of something without taking the advantages into account are “immature and stupid”.
Hedge Fund Rant
In 2008 Buffett made a very public bet with a hedge fund called Protégé Partners. The bet was that a group of five hedge funds picked by Protégé wouldn’t be able to beat a simple S&P 500 index fund over 10 years. 8 years into the bet, the S&P 500 is crushing the crushing the hedge fund and Buffett is not shy to show the results. The S&P is up 65.7% and the hedge fund group is up only 21.9%. Then Buffett went on an epic rant against Wall Street. It might be a tough time to invest in a hedge fund, but it’s not a tough time to be in the hedge fund business because of high fees. Fees were at the center of Buffett’s rant. Basically he told everyone that travelled to Omaha to buy the S&P Index fund and sit on it instead of putting your money with hedge funds. Buffett was building on an argument he’s been making for years about why backing U.S. businesses in aggregate, through low-cost funds, is the more certain way to prosper over the long haul. He also said not to hire consultants.
Valeant – Sequoia Fund
I was impressed on how diplomatic Buffett was on a question regarding the Sequoia Fund and Valeant. The Sequoia Fund is the fund that Warren Buffett referred people to after he closed his partnership. He still has close ties to the fund and to my knowledge, is one of the two funds that Buffett has endorsed. Valeant’s story is well documented so I won’t rehash everything that’s been said in the media. While Munger has repeatedly publicly trashed Valeant, Buffett has been mute on the topic. However the unofficial behind the scene chatter said that Buffett hates Valeant more than Munger. That’s why I was impressed at the delicate and diplomatic response Buffett used when responding the question. While answering the question Buffett also said that he approached to make a significant investment in Valeant which he obviously declined.
Over 45 years through the end of 2015, Sequoia Fund has returned 14.0% per annum versus 10.8% for the S&P 500 index, with $10,000 invested at Sequoia’s inception worth $3.9 million, versus $1.0 million for the same amount invested in the index. While Sequoia has beaten the market over the past decade, through the end of 2015, their investment in Valeant has diminished a record that we have built over two generations. At one point Valeant represented over 40% of their portfolio! The position became a controversy at Sequoia after Valeant started running into trouble. Sharon Osberg, Buffett’s bridge partner, resigned from the Sequoia’s Board after expressing her objections over the large size in Valeant and the decision to buy more. Sharon Osberg is obviously Warren’s eyes and hears at Sequoia since they talk a couple times a week. The Sequoia Fund is currently Valeant’s largest shareholder with 9% of the company, slightly more than Bill Ackman’s Pershing Square.
That’s all folks. The trip was definitely fun. It’s too early to say if I will go next year but if you have never been I highly recommend you go at least once. They are not getting younger!
The chart below from Forbes Magazine is sort of implying that at $8,625 a share, there could be trouble for Berkshire Hathaway . We know the rest of the story, BRK is now trading at $215,000 a share. Source: Forbes 1990
Below is a continuation of the chart from June 1990 to August 7 2015. (Class A I should specify)
“Teaching people formulas that don’t really work in real life is a disaster for the world.”
“Why shouldn’t we do more of what works well for us and what’s less complicated?”
“There are huge advantages for an individual to get into a position where you make a few great investments and just sit back, you’re paying less to brokers, you’re listening to less nonsense.” – All three quotes by Charlie Munger
Damn Right! Behind the Scenes with Berkshire Hathaway Billionaire Charlie Munger is an excellent biography by Janet Lowe. As the title of the book state, the book is obviously about Charlie Munger and there’s also a lot on Warren Buffett since it’s hard to separate the two. Even though Charlie Munger is associated with investing, this book is not a how-to investing guide. This is a book on Munger’s life, background, up-bringing, his misfortunes, his failures and success, his philosophy and specific episodes in his life. When we think of Munger we see success and money but there’s some pretty dark moment in his life (death of his son, lost of an eye, divorce etc…) Known for his investing success, Charlie is actually many other things. He’s a businessman, lawyer, architect, and developer among many things.
There’s no need to introduce Charlie Munger, the 92 year old Vice-Chairman of Berkshire Hathaway (BRK). When you think of Berkshire Hathaway, the first thing that comes to mind is Warren Buffett. Charlie is generally portrayed as the guy who “fine tuned” Warren Buffett’s investing strategy from cigar butt investing (deep value) to buying high-quality businesses even if they were more expensive. The early version of Buffett the investors would try to find undervalued beat-up companies that had one more puff out of them. His approach was heavily model on Ben Graham‘s value investing approach, the father of modern security analysis. After a while, especially after Warren Buffett’s portfolio grew in size, it became harder to exploit this cigar butt strategy (e.g. tripling your money on a $100 milion market cap company won’t really affect your returns if you manage $100 billion). So Charlie was one of few individuals that had an influence on Warren and made him a better investor. Without taking anything away from Buffett, I don’t think BRK would have been this investment machine it is today without Charlie. I doubt the purchase of companies like GEICO, American Express or Coca-Cola would have happened without Munger’s influence. (However Ben Graham did own GEICO and made more with it that all his other trade combined, some a even suggesting that Graham was starting to change towards the end of his career, that’s ok to pay a premium for a high-quality earning stream, but don’t quote me on it).
There’s more to Charlie Munger than a guy that tweaked Buffett’s investment approach. I think the media and the investment community in general is under-covering him. He’s the 2nd half of BRK but he gets a fraction of the attention Buffett gets. I think that’s the way he wants it. Buffett is the showman, the entertainer, the teacher and it’s my belief that Munger is perfectly fine with that. Munger isn’t the showman Buffett is, though he can be enormously entertaining. For what many considers the “brain” behind Buffett, I would study Munger just as much as Buffett if you want to become a better investor.
When I think of Charlie Munger, the following words comes to mind: genius, rational thinker, logic, no-nonsense, mental models, multi-disciplinary, life lessons, philosophy, funny, avid reader, brilliant thinker, ethics, morals, discipline, and patience.
On investing, Charlie doesn’t rely on gut feel; he uses a range of what he calls mental models to help assess the risks and opportunities. He knows a lot about a lot. When it comes making a great investment, there’s more than just having great numbers or a robust financial model, you also need to look at the proposition from many angles.
“When I urge a multidisciplinary approach- that you’ve got to have the main models from from a broad array of disciplines and you’ve got to use them all – I’m really asking you to ignore jurisdictional boundaries. If you want to be a good thinker, you must develop a mind that can jump these boundaries.
You don’t have to know it all. Just take in the best big ideas from all these disciplines. And it’s not that hard to do.”
The book was published in 2003 and Janet Lowe approached him in 1997. I estimate that Munger was in mid to late 70s when it was written. Since a lot of time has passed since the content of the book was written, don’t let that steer you away. This book is well-researched and rich in content. It’s one those books that you highlight all over the place and that you go back to once in a while. Munger also contributed directly. He didn’t want to get involved at first and he didn’t think it would sell many copies. The Munger family didn’t a biography of him and they didn’t want their privacy slipping away. Janet told Charlie that the book was going to happen with or without his cooperation because she had a contract to deliver the book, so he decided to contributes since the book would have been much better.
I finally did it, just like forty five thousands others, I made the pilgrimage to Omaha Nebraska to attend the Berkshire Hathaway’s (BRK) Annual General Meeting (AGM) headlined by the world’s richest person, Warren Buffett and his sidekick Charlie Munger (Bill Gates was there too in case of dispute). A rock fan goes to Woodstock, Muslims go to Mecca, and I guess investors have to go to Omaha at least once in their lifetime. By coincidence it happened to be the 50th anniversary of Buffett running BRK, so the meeting looks promising. Plus, the schedule is jam-packed with meetings, investment panels and conferences, events and even a 5k run. To sum it up, it’s a weekend mixed with business, education, networking, and entertainment.
Attending the BRK AGM has been on my mind in the last couple years and circumstances such as Buffett and Munger’s age, 84 and 91 years old, made 2015 the year. How many more years can you squeeze out of them? For those readers who are not too familiar with the meeting, the main event of the AGM is Buffett and Munger taking questions from shareholders for about six hours. The two of them together is really entertaining. It’s an enigma to me on how you can pepper two guys over 80 years old with questions for hours without having anyone verifying if they are still breathing. Is it the diet? Buffett is known for drinking five Coca-Colas a day, about the same amount of I consumed in the last ten years.
Aside to listening to 175 years of combined wisdom and experience, there’s a lot more to the trip in Omaha than meetings. It was also an occasion for me to reconnect with some friends from the industry, make new friends, get investing ideas, and more importantly acquire knowledge to become a better investor. It’s a hobby of mine to pick the brain of smarter people than me (I’ve met two and they’re pretty old).
Bombardier Challenger private jet model at the NetJet booth
The AGM has been growing exponentially in the last couple years. An estimated record 45,000 people attended the AGM, that’s five thousand more than in 2014. The 50th anniversary festivities might have played a role in the spike. Off the top of my head, I don’t think it’s the largest AGM in the world, I believe that award goes to Wal-Mart with its 75,000 attendees. The BRK AGM attracts a diversified crowd. You didn’t have to be a serious investor to attend the meeting. There are people attending from every walk of life and corners of the world. A lot of folks attending the meeting weren’t serious investors. There were a lot of students, foreigners, non-investors, and just folks that wanted to learn more about business. I met a guy/scientist who was researching a cure for cancer and was simply in Omaha to see what the whole thing was about.
When you have that many people descending on a mid-size town like Omaha, airlines and hotels don’t mind jacking up the fares, as explained in the classic supply and demand theory from economics 101. A room downtown near the convention center can set you back $400 a night and $50 rooms become $150 for a couple of nights. The Hilton Hotel by the convention center is already fully booked for the 2016 AGM. I got around the jacked up airfare by flying out from Montreal. I’ve written in detail about it in an earlier post about my discovery when shopping for airfares. The price of my plane ticket was reasonable because apparently Montreal-Omaha is not a popular flying destination. On any other weekend of the year, it would have been cheaper to fly out of Plattsburgh or Burlington but for those few days it cost a lot more to fly out off. I wish I had taken a picture of the second leg of my flight, Minneapolis to Omaha, since most people on the flight were either reading the 2014 BRK annual letter or a Buffett book. It felt like people were learning the lyrics before attending a concert.
Inside the Challenger
To get around the over-charged hotel rooms, Buffett suggested Airbnb for a cheaper solution and he’s right, there are hundreds of listings with rooms under $100. If you are not located downtown Omaha, I suggest you rent a car to get around since cabbing everywhere can add up on your stay. Plus, depending on the time of the day taxis can be scarce. On the day of the AGM, if you don’t have your cab booked in advanced you are in for some trouble. The estimated wait time at 4am was between 10 min and 45 min. I wouldn’t want to know what it would have been like trying to book a cab at 6am. The Omaha airport has arrangements with the cab companies for a fixed-price to the hotel so tourists don’t get scammed getting off the plane. The fixed-price system actually comes out the same as the meter fare, I tested it. I guess it just prevents cab drivers from taking the new comer on the “long way”.
I was quickly reminded of how nice and courteous Americans are (after you get through TSA). Getting into my first cab ride at the Omaha airport, a cop opened the back door of the cab for me, I had to double check that I wasn’t getting into a police cruiser. The whole time, Americans were going the extra mile to help you.
Berkshire Hathaway (BRK-A, BRK-B) is more than 50 years old, but Warren Buffett’s partnership, an earlier form of hedge funds, formally took control of Berkshire Hathaway Inc. At the time the company was a textile manufacturer in steep decline. Warren Buffett actually said that buying Berkshire Hathaway was the biggest investment mistake he had ever made. Buffett says if he had bought Berkshire’s insurance business through his hedge fund, he and his investors would have captured all of the gains. He claims it cost him and his investors $100 billion. Buffett only bought BRK to make a quick buck and get out but it didn’t play out that way. The story on how he ended with the whole company is an interesting one and you should look it up. BRK might not be in the textile business anymore but it is now one of the largest businesses in the world. Its Class A shares, which have never split, trade for about ~$215,000 each, compared to $19 in 1965. The company’s market value is about $356 billion.
Berkshire doesn’t broadcast their meeting over the Internet like Microsoft or Coca-Cola. Recording the BRK AGM is “strictly prohibited” according to the visitor’s guide. “Offenders are subject to equipment confiscation, meeting credential revocation, and dismissal from the meeting.” The ban also applies to journalist who would typically use hand-held digital recorders to verify quotes at such a large and important event. There is no legal obligation to make a transcript available or an audio recording of the event. But public companies are required by their corporate charters and state laws to hold meetings with shareholders once a year. If you have ever been to a traditional AGM, you would know that they are incredibly boring. Most meetings usually consist of electing directors and an overview of the financial results but it’s an opportunity for executives to communicate directly with shareholders. Usually the analyst conference call will give you more substance about the company than most AGMs.
For that weekend, Omaha become the capital of value investing. There are the official activities associated with Berkshire Hathaway and there’s a bunch of non-BRK related organized events that target value investors. There’s plenty going on Friday, Saturday and Sunday. Here’s a list of some of the events: There’s the value investing panel at Creighton University, the Yellow BRKers gathering, the value investor conference at the University of Nebraska, the CFA Society of Nebraska Value Investing event, the Columbia School of Business had a dinner, the Omaha Asian Investor Dinner, the Young Presidents Organization panel on Saturday after the BRK AGM, the Omaha Quick Draw (stock pitch presentations starting at 9pm with a pause to broadcast the Mayweather-Pacquiao fight live), and Sunday morning there’s was the Markel breakfast right after the BRK 5k race. There are probably a couple events that I forgot to mention.
$2 on site, $15 on Ebay for Ketchup and Mustard.
The Exhibitions
Another point of interest is the massive exhibition featuring some of the companies under the BRK umbrella. This year the exhibition was opened for two days for the first time ever, Friday and Saturday, which is an excellent idea because you don’t have to split your time in two. BRK has over200 wholly owned subsidiaries(Dairy Queen, Geico, Heinz, Brooks, Fruit of the Loom, See’s Candies) plus a portfolio of publicly traded companies (Coca-Cola, American Express, Wells-Fargo, IBM, BK-Tim Hortons etc…). Shareholders could test their wits against IBM’s supercomputer Watson, shop, eat or talk to CEOs. Burger King-Tim Hortons nor Kraft had a booth at the exhibition. It’s probably too early since the BK-Tim Horton deal closed in December and the Kraft deal was just recently announced. The only 3G deal company on display was Heinz which was selling a special edition of ketchup and mustard featuring Buffett and Munger for $2.s I just saw the same package sold out on Ebay for $15. Dairy Queen made their presence felt with $1 Dilly Bars and $2 Blizzards and a giant ice cream cake celebrating BRK 50th anniversary. All the money collected was for charity and just about everyone was walking around with one. Fruit of the Loom and Brooks probably had the busiest booth with super special shareholder discount on their products. I was surprised to learn that Garanimals is part of the BRK family, since my daughter has a bunch of their products.
That’s called an Encyclopedia. That’s the precursor to Wikepedia. Yes they apparently still sell them. They aren’t responsible for the great Q1 numbers.
The bookstore was another popular attraction with a new updated recommended reading list by BRK. You also got the chance to talk to some of the authors. You also get the opportunity to talk to some of the CEOs and managers running any type of company imaginable. So you get to learn a lot about a lot different industry all in one place. If business is not your thing, the shopping is pretty good with discounted shareholder prices.
BRK AGM
I got in line at 4:30 am and there were hundreds of people in front of me but the odds that I get a decent seat looked well in 18,000 seats CenturyLink center. By 6am the chances that you get a seat were slim. But to accommodate everyone there were TV screens all over the building and the Hilton Hotel next door has a giant Ballroom where you can view the meeting. I could have sold my spot in line for hundreds of dollar. I know that for a fact because there were people in front me getting paid $200 to wait in line. If you wait a bit you will eventually get a seat on the floor because there’s a lot of movement during the Q&A (people leave to go shopping or something).
The doors opened at 7am and no matter how civilized you would think BRK shareholders are, when the gates open at 7am the law of the jungle takes over. For a couple minutes its pandemonium and people are sprinting for the best seat. You really need to hustle your way to get a seat. You know it’s a unique AGM when people are sprinting for seats. There’s plenty of videos to entertain yourself on Youtube of the herd running. People seem that have forgotten that the actual race was the next day. BRK has warned that they wouldn’t tolerate excessive seat saving the morning of the meeting after receiving a lot of complaints in the past but I didn’t see security enforcing it.
At 830 am the AGM kicked off with a very hilarious company movie that included a news clip on Berkshire’s meeting from 25 years ago. In the clip, the newscaster said anyone can be an investor in Buffett’s company Berkshire, but it would cost you as much as $7,000, which got a laugh. The stock now trades at $215,000. The one hour movie is a mix of ads for Berkshire businesses and comedic sketches featuring some A-list Hollywood stars such as Dustin Hoffman, Arnold Schwarzenegger, and Jamie Lee Curtis. The movie closer was Warren Buffett getting ready to fight Floyd Mayweather. I would watch it again but there doesn’t seem to be a copy on Internet. Yep, I can’t that something like that isn’t on Youtube or somewhere, and more impressively there doesn’t seem to be any leaked or cam version of it (or any prior years as of matter of fact).
The Q&A with Buffett and Munger was the primary reason why investors make the trek to Omaha. The questions are not scripted. Buffett and Munger don’t know what the questions will be but there’s a general idea of what to expect. Journalists and shareholders were allowed to ask questions. If a shareholder wanted to ask a question at the podium, they had to sign up before 8am and their name would be picked out of a hat. Or you could submit by email your questions to the journalists.
The opening question, from Carol Loomis, was a tough one about the lending controversy surround Clayton Homes and 3G Capital. You can read about the Clayton controversy on the Seattle Times here. Even though the question wasn’t staged it was obviously expected and Buffett and Munger were prepared with tables and numbers to defend themselves. I’m not going to repeat everything that was said at the meeting, there’s plenty of copy of the notes available online. I have more own notes if you are interested to discuss it. Some of the best highlights are the chemistry and the back and forth between Munger and Buffett. In general, a lot of questions were on the principles, values, and the unique culture at Berkshire Hathaway. A lot of the answers Buffett and Munger responded too are what you would hear on a TV interview. Except the major difference is that you get a long thoughtful detailed answer instead of the 1 minute clip seeking a buzz quote. There’s nothing you can ask that wasn’t asked. A lot of the answers are what Munger and Buffett have been preaching for a very long time. You shouldn’t expect any surprises. Their line of thinking and philosophy didn’t change overnight. They are consistent and disciplined in their approach which resonates throughout the company and in its results.
I didn’t take that pic.
On Sunday, following the 5k race, I attended the Markel Corp (MKL) breakfast. Even though they held their official AGM the week after, they still distributed annual reports and had the feel of a real AGM. It’s a good way for MKL to talk to their shareholder base since they have a similar profile than BRK. Markel is often dubbed as mini Berkshire because of its similar structure, financial holdings, and management’s long-term approach. The meeting was much smaller in size it was probably what the BRK meeting looked like a long time ago. The MKL lunch was a more traditional meeting than the BRK one. At the BRK one, even though Buffett and Munger took questions for 6 hours, they are not accessible for obviously reasons (security, giant crowd etc…). At the Markel meeting, there was a nice back and forth between management and the crowd and they stayed after the meeting to discuss with the shareholders.
Post-Meeting
I’m glad that I finally made the trip. It was definitely worth it. I accomplished what I wanted to do and I ended up with good memories. I don’t rule out going back in the future. The BRK AGM has a fervor approaching the evangelical. I believe that there’s a Buffett cult inside the shareholder base. Some folks are just fanatical about everything Buffett. I admire Warren and I see him as a teacher. But I don’t agree with everything he says or does. He happens to be very contradictory on many things he said. There’s an incredible wide gap between Warren as perceived and the Warren who exists. Warren Buffet is painted as this warm and fuzzy grandfather who pinches babies’ cheeks. If you follow his actions and investments; he’s not exactly that holy figure.
By the way, Warren Buffett has two neighbors selling their houses if anyone is interested. One seller is asking 10 Class A shares ($2.15 million) and the 2nd seller is fine with cash. The market value of the house is $900,000, but you are paying a premium to be Warren’s neighbor.
Enjoy,
Brian Langis
Buffett’s house, I apparently missed him by 5 minute. He just drove out in his Cadillac to go to work.
That guy will take cash.
Asking price: 10 BRK Class A shares. ~$2.15 million. Market Value: ~$900k
I made an interesting discovery while shopping for planes tickets to go to Omaha, Nebraska for the 2015 Berkshire Hathaway annual shareholder meeting. Because of the popularity of the event, US airlines take advantage of the situation to boost ticket prices. By shopping around I found to save money and it could work if you live near a Canadian airport.
Since I’m on the US-Canada border, I can either fly from Canada or the U.S. Normally, if I have a flight in the U.S., I usually take off from a US airport since US domestic flights are much cheaper compare to leaving from Canada, except for going to Omaha Nebraska on the first weekend of May. It appear that Canadian airlines don’t jack up prices for that special weekend. This is pure discrimination because I’m redirected to an US airline for the trip. I also have one stop in the US to pick up people that paid more than me to get to the same destination. Maybe it’s because Canadians doesn’t have that many BRK shareholders. So here’s how you save money:
1) Buy your cheaper ticket in Canada
2) Use your strong US dollar. At the moment one USD = ~1.25 CAD.
That’s like a form of double dipping. You save on the ticket plus you save on the exchange. On the downside, you have to leave the US to come back in the US. It’s weird how it works.
I don’t know if it will work all the time and if it will work from anywhere in Canada, but it worth’s to a ticket search.
I finally did it, just like forty five thousands others, I made the pilgrimage to Omaha Nebraska to attend the Berkshire Hathaway’s (BRK) Annual General Meeting (AGM) headlined by the 
years and circumstances such as Buffett and Munger’s age, 84 and 91 years old, made 2015 the year. How many more years can you squeeze out of them? For those readers who are not too familiar with the meeting, the main event of the AGM is Buffett and Munger taking questions from shareholders for about six hours. The two of them together is really entertaining. It’s an enigma to me on how you can pepper two guys over 80 years old with questions for hours without having anyone verifying if they are still breathing. Is it the diet? Buffett is known for drinking five Coca-Colas a day, about the same amount of I consumed in the last ten years.
formally took control of Berkshire Hathaway Inc. At the time the company was a textile manufacturer in steep decline. Warren Buffett actually said that buying Berkshire Hathaway was the biggest investment mistake he had ever made. Buffett says if he had bought Berkshire’s insurance business through his hedge fund, he and his investors would have captured all of the gains. He claims it cost him and his investors $100 billion. Buffett only bought BRK to make a quick buck and get out but it didn’t play out that way. The story on how he ended with the whole company is an interesting one and you should look it up. BRK might not be in the textile business anymore but it is now one of the largest businesses in the world. Its Class A shares, which have never split, trade for about ~$215,000 each, compared to $19 in 1965. The company’s market value is about $356 billion.
Brian Langis 