Woodstock for Capitalists

This year’s Berkshire Hathaway annual shareholders’ meeting provided lots of little bits of wisdom, just like all the others. I’ve only been attending these meetings since 2001, and in these past seven years, attendance has tripled to where this year there were 27,000. Omaha may need to build a bigger convention center again to hold next year’s attendees!

For your reference, I’ve taken these notes this year, from all of the questions asked of Warren Buffet and Charlie Munger:


Hope over time to break even in underwriting because earn lots of dollars on the float and have lots of float.

Private Equity Activity

What could slow it down…..yields on junk bonds going up

BH owns forever and doesn’t sell so won’t really compete with private equity activity.

International/Global growth of BH?

BH is not on the radar screen overseas; no bias against buying outside US in marketable securities or the entire business; can be criticized validly for not doing so (investing globally); also have to inform the public in UK & Germany what BH is buying and when if greater than 300 million; all that public disclosures screws up making any purchases (price can rise with the announcement that going to buy and then not affordable to buy).

Executive compensation unfair to investors?

Poor management is worse than a poor compensation system. Envy is more the problem. No upside to envy; need to compensate for what is under the executives’ control.

Air travel

NetJets has been valuable to accomplishing business deals; corp jets have been a real asset to BH. Trappings of power when abused are disappointing to investors, but not when used for efficiency and effectiveness as with NetJets .

Explain credit contraction on BH?

BH benefits when others suffer.

The Fed Reserve was established to prevent the effects seen historically: bank failures, stock market crash, etc

Corporate profits now jumped up to 8% from 4-6% and as a result, there are higher corp taxes; so the labor component of GDP has fallen; a lot of the profits are now in the financial sector (banks, investment management groups).

(Need to be smart enough to have experienced troubles before)

Retirement accounts, etc., and cash on selling short:

Delays in delivery of stocks bought or sold is slop in brokerage firms

Lots of slop in derivatives

Clearance systems are failing

Gambling companies have a great future?

“Tax on ignorance”, like dreaming about having an ATV versus having one

BH won’t be buying gambling companies

Read all you can; fill your mind with various competing thoughts and then invest. Without all this learning and doing, it is like reading a romance novel and doing something else.

What do you own and why do you own it?

Get into the habit of thinking that way….buy a great business.

Health care mess – can BH help it?

In order to do very well in health insurance, you need low distribution costs; as it is now, benefits are paid out from premiums received but no one out there doing a good job with low distribution costs.

Intrinsic value:

BH retains all of its earnings and what will it do with them over time –

“Skill at which retained earnings would be used effectively”;

Each dollar has a greater value

Hard to judge at BH: future is not the same as the past; hard to think;

By being a “learning machine”, always reading, etc., = owner oriented

Derivatives = Financial Weapons of Mass Destruction

Derivative itself okay, but the usage of them on expanding basis introduces more and more leverage into the system.

We may not know exactly where danger begins or ends, but it will go on to increase and unpleasant things will happen (i.e., forced sales – stop orders, which are “portfolio insurance” or “doomsday machine”

For example, with GEN RE – mark to market per FASB but market is psychological and can vary instantly with any type of market hype.

Short term investing – participants are playing a different game

Human behavior is involved and irrational when en masse

Six sigma theory all out the window!

On replacing Warren: Not looking for someone to teach but rather who knows how to do it; someone who understands conditions we haven’t even seen yet and won’t blow it. (see intrinsic value above where he said that the future is not the same as the past)

Early investing: trade less attractive stocks for more attractive stocks (limited $)

Later investing: with more $ than investments to choose from – can buy 20% of a stock and not cause too much imbalance.

Railroads competitive now

Better on the labor front

Trucking industry fuel costs are 4 X Rail

No new capacity in rail business

What used to be highly regulated

It is highly capitalized and doesn’t get extraordinary returns but it can be a good business over time.

Best way a 10 year old can earn $?

Deliver newspapers

Business success correlations found best with the age at of the 1st business venture

Make yourself reliable

BH has a good group of businesses – DON’T WANT:

High labor content

Or goods shipped in from abroad

Or a competitive position that can erode over time

The $ is declining over other major currency.

Boards of Directors

Past members are “potted plants”

Recent rules require more “process” for transparency

The Right CEO is one who seeks counsel with the Board, not overreacting

Boards bring independent judgment

A real owner’s board is on in which there is no board compensation or de minimis and own stock in the company.

On business “partners

Normally don’t do deals with partners for dollars or in relying on the brains of others

Want 100% of any deal, upside or downside.


Have no opinion on commodities; but have opinions on the companies

Need business with little capital investment so can good return on the capital

Newspapers and the NY Times

The newspaper is like looking in the rearview mirror versus what you want to do is look through the window.

For more information, download the annual report from BerkshireHathaway.com