Here are my thoughts from the 2014 Berkshire AGM. This diary entry was recorded this morning (US time) looking at highlights of Saturday’s meeting and explaining why 35 000 people made the trip to the centre of the USA to listen to Warren Buffett (83) and Charlie Munger (90). Click on the pic below to listen (that’s Dean, Kokkie, Kevin and I at the post event SA dinner). – AH
ALEC HOGG:  It is Sunday, 4th May, a much more reasonable hour. I managed to have a longer sleep than yesterday, and it’s coming home today. What a wonderful adventure that we’ve had here, in Omaha and, well another one going home. It’s been my seventh attendance at the Berkshire Hathaway AGN and I have to say this is my best. I’m not really sure why.Â
Kokkie said to me last night, he can’t believe how much I’ve changed in the ten years, or since I’ve come here ten years ago, to take on different values, different ideas, different thoughts, and I think that’s what happens. It’s almost by osmosis, when you’re exposed to really smart, wise people. You start reading what they’re reading. You start trying to think the way that they think and you change and anyway, that was a huge compliment, I felt, what Kokkie said to me last night and he’s been very helpful in this whole process.Â
I’ve talked to him a lot, as you know, from the different interviews that we’ve had for BizNews and I hope you’ve enjoyed the contribution that he’s made. I certainly have. We’ve had some other really interesting people here this year as well. I think, as Kokkie says, that’s half the fun.Â
Of course, David Shapiro (and he’s my dear friend)… We still get on like a house on fire. It’s a pity that I couldn’t speak to him after the meeting. He had to rush straight back. He left Omaha immediately afterwards – so yesterday afternoon – but the rest of the South African contingent went out to a restaurant. Kokkie had booked off a whole room and there were 54 of us there, having just a lovely evening of chatting and I took a couple of people into the scullery, which was, well I guess the closest I could get to a studio or a soundproof place, and had some really good conversations.Â
Roelf and Ilse Alberts: you can pick that up on BizNews and on the SoundCloud channel. They went to do a three-day course on ‘the genius of Warren Buffett’ and the chat that we had, both for recording and off-air, if you like, was very insightful. Roelf is an investor. He’s a professional investor. They work for themselves. Ilse is a psychologist, a very famous psychologist indeed, and they work together helping people to make money, I guess, by showing them the Buffett Way.Â
Theo and Warren are two good friends of mine, from Galileo Capital, that’s Theo Vorster and Warren Ingram. I had a lovely interview with them as well. They decided, ten-years ago, when they started their business that if they got successful they’d come here. Well, as Warren was saying, not Warren Buffett but Warren Ingram, that it was a business that… They could have come here a few years ago but anyway, this is it, they’ve come this year, and they really loved it and, hopefully, are coming back next year.Â
And then a really good chat with Gary Shane and Chris Dylan, the Coast-to-Coast guys. They were here in 2011. I really clicked with them – smart guys – they’re also a bit like Warren Buffett and Charlie Munger. The two off them they feed off each other. Very different. Very complimentary. They brought Ascendis Health to the market recently and they have big plans in other areas. That is also an interesting interview. Anyway, they’re all up there, on the SoundCloud, so go and have a read at that.Â
I think just engaging with those people was part of the enjoyment of this Berkshire Hathaway – the razzmatazz and the pom-poms. The latest estimate that has come through now, Warren Buffett said yesterday he doesn’t have exact figures, but it’s definitely the biggest ever. It was thirty-thousand, the last number I heard, in years, so in last year and the year before. Well they are now quoting thirty-five-thousand people, so that is kind of the official number, rather than the forty, which has been thrown around by some of the newspapers here.Â
It was very different in certain ways to the past but very similar in other ways. The energy of Charlie Munger, at 90, and Warren Buffett at 83, is extraordinary. In the morning, Warren walks around the exhibition. It’s this huge basement, at the bottom of the centre, where he goes to, where the subsidiaries are exhibiting, and he goes around and shows his face here and there. He goes to Clayton Homes, which is a mobile home company, he does a paper toss, a newspaper toss, and I have some videos of that up on YouTube that you can access. Then he goes to eat some candy at See’s Candy, well they call it candy but we call it chocolates, I guess he needed it to keep him going. I remember last year he was grabbing onto that Cherry Coke, to give him a nice caffeine boost.Â
This year I went and waited – what I did last year in fact, for some good pics – at Jordan’s Boots. I did manage to see a little bit of the paper toss, waited at Jordan’s Boots, and he didn’t come along but I got nice photographs and got chatting to the baseball players anyway. There’s a baseball team here, in Omaha, which is quite good. They are just below the Kansas City Royals, if you know much about baseball.Â
Anyway, that was very similar. The energy levels were good. I did battle here and there to hear what Charlie Munger was saying. I suppose that’s only to be expected. He is 90, but the wisdom came through and the overriding discussion was rational, it was clear, they were totally unemotional, but most of all they were having fun, and they really do have fun – these guys. If there’s one thing that the thirty-five-thousand who come here can learn from Warren Buffett and Charlie Munger, it is tap-dance to work.Â
I really have, in my own life, tried to do that since starting BizNews in August last year. I really don’t want to work with people who churn my stomach – that’s one of his credos – and I just want to have fun in what I do. If you can do that, you will probably live until 105, or whatever age it is that Charlie Munger is likely to live until. He looks in good health and, thank goodness for that, because this event would really not be the same if Charlie weren’t there.Â
Part of the illustration of the fun that they have was there was quite a long discussion around the new Shareholder Activist Funds. Now they’re not the Shareholder Activism as we see in South Africa, where a few people talk about salaries of executives. These things are more like the Gordon Gekko type (if you saw the movie Wall Street, where Michael Douglas was this corporate raider). They go in there, only interested in one thing, and that is making the most amount of money in the shortest possible time, and using, almost like sharks, taking apart companies that might be a little vulnerable. The way that Charlie Munger describes it is he went back into Oscar Wilde’s description of foxhunting in the U.K. where it was the pursuit by the unspeakables of the uneatables.Â
The knowledge and wisdom, well where do we start if I give you a feedback on five hours that these two gents were answering questions. It was a pity some of the questions were very narrow. I’m not sure that bringing in investment analysts actually works. Certainly, it doesn’t for me and I don’t think it does for most of the generalists, but I guess this is a shareholder meeting after all and shareholders do want to know more about the details.  It came through again that these are two very wise men and that their wisdom is based not just on their knowledge but, in fact, more so on the humility, on the understanding of their circle of competence. In other words, what they know and what they do know, they say, they have very strong opinions of, but they say that they know very little in context of everything that is available. That is where the secret comes in. It’s in knowing where the boundaries are to your circle of competence.Â
Warren said that he’s met many Chief Executives, who have no clue where their boundaries are and rather, if they were playing in their circle of competence, they would be far more successful, and that’s all based on this humility, this knowing what you don’t know. If there’s one thing that the South African contingent took back, it was that. Here you have this incredible human being, who has started a business (well, he bought an old textiles business) who turned it around and has developed it into a company employing three-hundred-thousand people. The fifth most valuable market cap company in the United States, he has a staff of 17, drives his own car, lives in a very simple house, and I’ve put pictures of that on Facebook as well. He just is a role model. He’s a role model in so many ways that those of us who are in the business community and who love business and love the economy and making a contribution can learn from.Â
As far as the major points were concerned, well I could go on for hours and I’m going to keep it very short and perhaps return to these subjects in a future period. The foreign aspect came out quite strongly: Warren saying that’s it a pity that they haven’t been able to make more foreign investments. Their reputation in the United States is such that the kind of companies that they are looking for are generally family-owned companies where the owner wants to continue working in the business. Maybe he’s not the greatest allocator of capital or maybe he would like Warren to allocate more capital for him, but he loves running his business – that kind of company. He said, they don’t have the reputation internationally that they have in the U.S., so they are not really ‘go to’ guys for global companies, and that’s one of his concerns and he wishes he could change that. However, the relationship that they have with H.J. Heinz… They (the Berkshire Hathaway) bought H.J. Heinz with a company called 3G Capital from Brazil and the relationship there he spoke about and so did Charlie Munger, in glowing terms. In fact, the only book that was recommended this year was Dream Big, which is the story of 3G Capital that is now being translated from Portuguese, which is, of course, the language in Brazil, into English.
There was discussion about quantitative easing, concerns that if there were to be inflation, it is a destroyer of value and not a grower of value, as some people erroneously think. They also spoke about Ben Bernanke and the fantastic job that he’d done but the difficult job that Janet Yellen has from here, reputation and trust, ‘unimpeachable’ is the view of Buffett, on reputation. He said they’ve got three-hundred-thousand people working at Berkshire Hathaway. At some point in time, somebody is not going to act honourably but the point there is to move as rapidly as possible, and to address the reputation issue. It reminds me of David Sokol; when he got into trouble a few years ago, and was the talk of the meeting in fact, by doing insider trading and certainly in that instance, Buffett moved fast and it has all been forgotten. It wasn’t even mentioned this time around. Of course, when it comes to trust and reputation, it brings us back to the movie, which goes on for about an hour – wonderful. You feel like this has been made especially for you and it has, for all the shareholders here. Lots of in-jokes and fun but every year they do include in the movie a very famous clip of Warren Buffett talking at the Congressional Hearings, about the Salomon brothers’ disaster, where he refers again, to the fact that reputation is something that is just not negotiable, as far as he is concerned.
The other big issue to come out of this was compounding the value of long term investing. You have to be humble, you have to keep adding to your knowledge all the time, because if you know how little you know then you will want to know more, and always look for the long-term bet. He illustrated that within Berkshire Hathaway with the acquisition of BNSF, the Railroad Company, that together with Mid-American, which was the utility are now called Berkshire Hathaway Energy – has the electricity utility. Those two businesses are the ones that are going to be sucking in most of the money for Berkshire Hathaway into the future.Â
They are sitting on $40bn in cash. Warren says he’d love to spend 20 of it in good acquisitions, but he reckons most of those will now come from within the companies themselves, but they are always on the lookout. As he says, they keep elephant hunting. They keep that elephant gun available. The portfolio of common equities is stocks, the shareholding in companies like Wells Fargo, Coca-Cola, and American Express. That has now peaked. That has now gone over $100bn for the first time, and just think about this: it’s not their core business. This is the investments that have been made at Berkshire Hathaway. Those investments alone are worth about 20 cents in every Rand that is spent in the South African economy for a whole year. Makes you think.Â