Berkshire AGM in 140 character bursts – Alec Hogg’s running commentary

by

One of the first events etched into my annual diary is late April’s trip to Omaha, Nebraska for the Berkshire Hathaway AGM. This year we struggled to find a sponsor, a critical ingredient when you focus on sustainability through a low cost business model. Even so I still toyed with raiding my savings to make the trip – until the historic decision by chairman Warren Buffett to webcast this year’s Berkshire AGM for the first time. Staying home after eight visits to Omaha in just over a decade, proved the right call. The webcast was superb – Yahoo Finance did a spectacular job, more than taking us into the arena. For me it was like the difference between sitting in the stands at a rugby game – or watching it on television. Spectating provides unbeatable atmosphere; but as a journalist you see a whole lot more when technology is working for you. Staying home meant we were able to record and transcribe proceedings – a first – and as I’ve done in recent years, continue with the “running commentary” service of tweeting throughout proceedings. Here are the 140 character bursts that provide an excellent summary of the event. Read the transcripts for more detail. All round, staying home helped us deliver a far better service for the Biznews community. Even so, not sure it’s going to take something extraordinary to keep me away from Omaha again next year. – Alec Hogg    

Tapping into the Berkshire Hathaway AGM via the Yahoo Finance webcast was a novel experience for Alec Hogg. One that got him wondering why all companies don't do the same.
Tapping into the Berkshire Hathaway AGM via the Yahoo Finance webcast was a novel experience for Alec Hogg. One that got him wondering why all companies don’t do the same.

Alec Hogg’s Berkshire tweets – running commentary of the 2016 AGM in Omaha

Kid you not – having been there eight times, watching  on the Livestream is really much better than being in Omaha.

Congrats to Warren Buffett for his ability to move with the times and livestream  – shows never too old to learn – he’s 85

For shareholders – like Biznews Global Share portfolio – Warren at says don’t pay attention to anything below Operating Earnings

Questions have started at  – why is Berkshire buying low return utility-type businesses not high growth as in years gone by?

BUFFETT: Increased capital acts as an anchor on returns – it drives us into businesses that are much more capital intensive.

BUFFETT: We get decent returns on capital nowadays but not the extraordinary returns on capital anymore.

BUFFETT: Charlie and I have seen a lot of managers over the years; Precision Cast Parts’ manager Mark Donegan is one of a kind.

BUFFETT: Those running public companies spend quite a bit of time doing things that aren’t productive.

MUNGER: In early days we used to make wisecrack remarks that we’d buy businesses any idiot could run – and we did buy some like that

BUFFETT: We’d love to find another 3 or 4 businesses like Precision Cast Parts but it’s unlikely we’d find them.

BUFFETT: I am eating exactly what I like to eat; doing what I like to do, working with people I like. It doesn’t get better in life.

MUNGER: I do regret I didn’t wise up as quickly as I could have. But there’s a blessing – at 92 I still have ignorance to work on.

BUFFETT: Don’t think reinsurance business will be as good in next 10 years as last 10 yrs. So we sold all our Munich Re and Swiss Re

BUFFETT: The whole idea of (insurance) float is that it can be invested at a positive rate. That game has been over for a while.

MUNGER: We like to put our investments into places with competitive advantage (like Precision Cast Parts). We’re learning.

BUFFETT: Reinsurance is an easy way to have investment operation in friendly tax area, but that just adds to supply (of competitors)

BUFFETT: In US, 1930s in accidents there were 15 people killed/100 000 miles driven; now it’s down to 1. Cars have gotten far safer.

MUNGER: Geico has quintupled its market share since we bought 100% of it. Not worry if someone else has a good quarter.

BUFFETT: On Amazon.com  transforming business – Charlie and I are not going to out-Bezos Bezos, not by a long shot.

BUFFETT: Re internet commerce and Amazon – Lots of us have not figured out either to participate in it or how to counter it.

BUFFETT: Amazon has a real advantage – this intense focus on having hundreds of millions of happy customers getting products quickly

BUFFETT: I consume around 700 calories a day through coca cola – I elect to get my 2 700 calories a day from things that taste good

BUFFETT: A compensating factor for sugar consumption – I think if you are happy every day you’re going to live longer.

BUFFETT: Wish had a twin who only ate broccoli – sure I’d live longer. I won’t reach 100 if suddenly switched to water and broccoli.

BUFFETT: You’rr four and half times more likely get to 100 if you’re a lady. So it you really want to get there, have a sex change.

MUNGER: People criticising sugar consumption must also measure benefits – it’s immature and stupid citing defects without advantages

BUFFETT: Great benefits in renewable energy if regulation works with you. Without tax credits, wouldn’t have built as much capacity.

BUFFETT: Am not troubled by our BoA or Wells Fargo. But if you took the 50 biggest banks in world, we wouldn’t consider 45 of them.

BUFFETT: We have so much capital and sources of earning power, we use our float in ways most insurance companies can’t think about.

BUFFETT: Float not worth as much to insurance companies as it was 10 or 15 years ago. Having a lot of money around now is a problem.

BUFFETT: We love the idea of increasing our float. It’s still useful to us today under present conditions and even more in future.

BUFFETT: When you buy a stock get in mental state of mind that you’re buying a business – let the rest of the world go its own way.

BUFFETT: American businesses overall will do fine over time. Charlie – but not the average client of an American stockbroker……

BUFFETT: Don’t be distracted by envy (on lottery winners etc). You have to figure out what makes sense and follow your own course.

BUFFETT: The question of who subsidised renewables and for how much is going to be a political question for a long time.

Greg Abel of Berkshire Energy: By 2030 we will have eliminated 57% of our coal units and replaced them by solar. We’re on the right path.

BUFFETT: We don’t think we can predict commodity prices. Were thinking about other things with energy companies we bought recently.

MUNGER: If you want to expect financial efficiency in American higher education you are howling at the wind.

BUFFETT: In the US we spend $600bn a year educating kids in the public education system from kindergarten through to ending school.

BUFFETT: I was the trustee of a college and saw the endowment go from $8m to $1bn and I didn’t see the tuition fees coming down.

BUFFETT: If Donald Trump becomes President of the USA what risks for Berkshire? “That won’t be the main problem”.

BUFFETT: In my lifetime real GDP per capita in USA has gone up six times. The system works very well in terms of aggregate output.

MUNGER: The GDP figures in America greatly understate the real advantage the system has given US citizens.

BUFFETT: The pace of change has been amazing – I’m still staying with a landline though….you people are well ahead of me

BUFFETT: Public policy since 2008/9 has been to toughen up capital requirements to make large banks less profitable than small banks

BUFFETT: These higher capital requirements have not turned big banks into bad businesses, but into less attractive businesses.

BUFFETT: Together with Kraft-Heinz our investment in Wells Fargo bank is our biggest investment. And I’m very happy about that.

MUNGER: On investment banks – generally we fear them more than love them.

BUFFETT: It’s likely that even with my distribution policy my estate will be the largest shareholder in terms of votes for long time

MUNGER: If you were under attack from people you think are destructive – who better would you pick as an ally than Berkshire?

BUFFETT: What we want our managers to think every day how to achieve a stronger competitive position, we call it widening the moat.

BUFFETT: In business recognising reality is important. You don’t want to try fix something that is unfixable.

BUFFETT: In a sense I’m father of Sequoia Fund – when closing my partnership in 1969, we said we admired Bill Ruane who started it.

BUFFETT: The manager who made the decision to buy Valeant against opposition from the board of Sequoia is no longer there.

BUFFETT: I watched the Senate Hearings on Valeant and when the executives were interrogated it was not a pretty picture.

BUFFETT: You’re going to see disguised chain letters (ponzis) for the rest of your lives. At Valeant there were aspects of them.

MUNGER: Sequoia as reconstituted is a reputable investment manager – we trust those there. We think it’s fixed. Valeant was a sewer.

BUFFETT v Hedge Funds – For 2nd time in 8 years Hedgies beat the S&P, only just (1.7% v 1.4%) Cumulative S&P ahead 65% to 22%.

BUFFETT: After eight years, the totally unmanaged S&P ETF is 40 percentage points ahead of the hedge funds.

BUFFETT: If two fund managers who run $9bn for Berkshire were getting 2/20 as per hedge funds, they’d get $180m just for breathing.

BUFFETT: After eight years, the totally unmanaged S&P ETF is 40 percentage points ahead of the hedge funds.

BUFFETT: I hoped through making the bet of S&P v Hedge Funds it would show the elementary fact that index funds beat active managers

BUFFETT: Net result of hiring professional consultants, managers is negative. Instead just sit back and let index funds work for you

MUNGER: There are some good managers around but trying to find them is like looking for a needle in a haystack. There are very few.

BUFFETT: When I was given the job of naming good money managers in 1969 I knew four – that was all I could come up with at that time

BUFFETT: There has been far, far more money made by people in Wall Street through salesmanship abilities than investment abilities.

BUFFETT: Few have outstanding investment records – people paid to identify them don’t know how to, but do know how to sell you.

BUFFETT: It amazed me how fast the inquiries (at GEICO) migrated from the phone to the Internet. Adaptation of internet response incredible.

BUFFETT: Chances of Berkshire culture going off rails very slight. Bigger problem will be our size – size is enemy of performance.

BUFFETT: We want our directors to walk in shoes of shareholders – know enough about the business to know what should get involved in

BUFFETT: People around me make my job easy – we don’t have “make work” activities like committees and Power Point presentations

BUFFETT: The share price of Berkshire has come fairly close to 1.2 times our book value, but it never hit it. So no share buybacks.

BUFFETT: Share buybacks are the most certain way of making money at below value – like buying dollars for less than a dollar each.

BUFFETT: If it becomes apparent we can’t use capital effectively in the company, the threshold for buybacks may be moved up a little

BUFFETT: Anytime you can buy stock in for less than it is worth it’s advantageous to shareholders but must be by demonstrable margin

BUFFETT: If we have too much cash may up buyback limit. Full wallet is like a full bladder, you may feel the need to pee it away.

BUFFETT: What happened in 1945 (nuclear bombs) was like a popgun compared with what can be done now.

BUFFETT: Nuclear threat should be top priority for every President. You know someday, somebody will pull off something on big scale.

BUFFETT: I see mistakes made in business where people act so contrary to their long term self interests.

MUNGER clearly no Adolf Hitler fan: “Imagine a guy stupid enough to think the way to improve science is to kick out all the Jews?”

MUNGER: We know a lot about micro economic factors. If you talk about macro, we don’t know more than anybody else.

MUNGER: There can hardly be anything more important than micro economics – that is business. Macro is what we put up with.

BUFFETT: We really like understanding businesses. It is interesting to us. We read a lot, we love doing it.

BUFFETT: I have 1% of my net worth outside of Berkshire and 99% within it. My best ideas are off limits for me. They go to Berkshire

BUFFETT: The only real threat to Berkshire’s economic well-being over time is CNBC – Cyber, Nuclear, Biological or Chemical attack.

BUFFETT: Every year Charlie and I want to add something to the normalised earning power per share of the company.

BUFFETT: American business has been good enough that you don’t have to be smart to get a good result.

MUNGER: To be a successful investor you just have to be aversive to stupidity.

BUFFETT: I owe a great deal to Ben Graham about investing and to Charlie Munger on how to run a business.

BUFFETT: As Yogi Berra said you can see a lot just by observing. We’ve only tried to swing in our particular strike zone.

MUNGER: Berkshire tries to do what the preacher said about my grandfather: Nobody envies a man’s success fairly won and wisely used.

BUFFETT: Warren was lucky to have uncle Fred, one of finest people I ever knew. I also worked for him, many have terrible relatives.

BUFFETT: We’ve made mistakes in acquisitions. The mistakes always about an improper assessment of the economics of sector or company

BUFFETT: In negotiations I like to trust in the other person. Usually trust comes back to you. But there are bad apples out there.

BUFFETT: On negotiations – I am perfectly happy to lose small on small issues. You cannot win every point.

BUFFETT: Really able people can do anything. There is no limit to what talented people can accomplish.

BUFFETT: In terms of my succession, we’ll talk about it at the board and our thoughts are as one on that. We’re not announcing names

MUNGER: Why doesn’t Berkshire has a AAA credit rating? The ratings agencies are wrong and set in their ways. That’s the answer.

BUFFETT: Tom Murphy had the best approach to employees. He never hired a person he didn’t need. So he never had layoffs.

BUFFETT: There are all kinds of American companies loaded with people who aren’t doing anything or doing the wrong things.

BUFFETT: I have never seen anyone run anything more sensibly than 3G in taking over companies where costs are to be addressed.

MUNGER: It’s quite common for a company to have more employees than needs. And one or two customers you’d be better without.

BUFFETT: Classic case of sloppy management was tobacco companies many years ago, didn’t require good managers and they bought badly

BUFFETT: You will pay more for a business when interest rates low. Very cheap money, pay more for businesses than when money tight.

MUNGER : If you’re not confused about these low interest rates, you’ve not thought about it carefully.

MUNGER: I don’t think anyone knows much about negative interest rates. Our advantage is we KNOW we don’t understand it.

BUFFETT: Re Amex – Payments an area of a lot of interest to a lot of people, their position has been under attack from lot of people

MUNGER: The world changes – we can’t make a portfolio change when the company is less advantaged than it used to be.

MUNGER: I think anybody in payments with an established business has more danger than used to exist. It’s very fluid.

MUNGER: Asked about investing in a cattle business – One of the worst. Somebody has to occupy the tough niches in the economy.

MUNGER: The basic rule on incentives is you get what you reward for. If you have a dumb incentive system, you get dumb outcomes.

BUFFETT: We design compensation plans that make sense, think them through one at a time. There’s no simple formula for all Berkshire

BUFFETT: There’s a lot of misbehavour – in pricing of stock options. Have heard boardroom conversations where wanted at lowest price

MUNGER: On incentives: Imagine how your household would run if you constantly rewarded kids for bad behaviour, would be ungovernable

MUNGER: Competitors in railroads pretend to be environmentalists. There’s lot of that.We’re trying to do right thing, so far we lost

BUFFETT: Net, lower oil prices should be good for the United States as we’re a net oil importer – but it contracts capital values.

BUFFETT: Last year Walmart went to all their suppliers – one of the things they wanted suppliers to agree to is more extended terms.

BUFFETT: Walmart is under lot of pressure competing with Amazon, others. Extended payment terms one of the ways they are responding.

MUNGER: Asked why Berkshire doesn’t massage income statement numbers: “That’s like killing your mother to get the insurance money.”

Got a feeling after   Amazon’s share price going to jump a higher. Buffett has mentioned Bezos’s company frequently – in glowing terms.

Here he goes again.

BUFFETT: Look at value Jeff Bezos has added at Amazon – huge value. Really outstanding managers are invaluable.

BUFFETT: Berkshire fund managers Todd and Ted’s primary job is to invest $9bn each – one has 7 or 8 positions; the other 13 or 14.

BUFFETT: Todd and Ted have bigger universe to work with – better knowledge than me in industries that’s developed last 10/15 years.

MUNGER: IBM is attempting something very interesting in the computing world and nobody, not even Warren, knows if it will work.

MUNGER gets the final say at BRK2016: “I think if you see the world accurately it’s bound to be humorous because it’s ridiculous.”

Visited 142 times, 3 visit(s) today

BizNews