The Olympics of investing. This is how many investors would describe the much-anticipated annual general meeting (AGM) of Warren Buffett’s Berkshire Hathaway in Omaha, Nebraska, earlier this month, which I was fortunate enough to attend. I joined 40 000 other Buffetteers descending upon the town for the weekend for one thing only – to listen to the Oracle of Omaha. Buffett is widely regarded as one of the greatest investors of all time. Capturing all the wit and wisdom imparted by the Berkshire Hathaway Chairman and Vice Chairman Charlie Munger in only a few words is a near impossible task, but here goes.
With much excitement I got up at 5am to start queueing to ensure a good seat to soak up the knowledge of Buffett (87) and Munger (94). The energy in the CenturyLink arena was infectious and as the two sages made their way to the stage, the Buffetteers – including Bill Gates – all rose to their feet to welcome the gold medallists.
Buffett shared newspaper headlines from 1942, explaining how well stocks have done over the long term. He’s seen 14 US presidents come and go, and despite all the ups and downs of the markets, shares have made him one of the richest people on earth. His first nugget of wisdom relates to his very first stock, Cities Service. At age 11, he bought six shares at US$38 each and sold out at US$40 for a US$2 profit per share. With the stock price eventually rising to over US$200, he learnt a valuable lesson: buying and holding stocks for the long term is far better than trying to time the markets (there are no market timers on the Forbes 500 list of the world’s richest people).
PATIENCE, DISCIPLINE, SIMPLICITY
The AGM covered a wide variety of topics but key takeouts included the importance of patience, discipline and keeping it simple. These concepts came up repeatedly during question time, which lasted around six hours. With Buffett answering most of the questions and Munger interjecting with witticisms, the duo explained difficult concepts in layman’s terms, breaking them down to their purest and simplest forms. As Buffett said, ‘What we do is not a complicated business. It’s got to be a disciplined business, but it doesn’t require a super high IQ or anything of the sort.’
As always, the issue of succession planning was raised, reflecting shareholders’ concern about a Berkshire one day without Buffett. He put their minds at ease, saying a strong team was in place for when this day comes. He clearly has a high regard for Gregory Abel, head of Berkshire’s non-insurance businesses, and Ajit Jain, leader of insurance and operations, one of whom will in all likelihood take over the reins someday.
With reference to Wells Fargo, Buffett reminded investors that large companies are likely to make mistakes along the way, and these often provide opportunities to buy businesses for less than their intrinsic value. Berkshire would never have owned American Express if bad decisions hadn’t been made by this company in the 1960s, which provided a good entry into a mispriced world-class business. If the gap between the value of a company and the price isn’t attractive, the duo moves on to the next idea. Which reminds me of a famous Buffett quote: ‘Price is what you pay. Value is what you get.’
CRYPTOCURRENCIES AN ‘UNPRODUCTIVE ASSET’
Buffett referred to Amazon as a ‘miracle’ for achieving what it did, saying, ‘I tend not to bet when I think something will take a miracle.’ Both the Chairman and the Vice Chairman agreed that the US and China would remain the two superpowers of the world economy for some time. On China, Munger was more bullish. He said in 2017, ‘What I like about China is that they have some companies that are very strong and still selling at low prices.’
The Oracle of Omaha warned that cryptocurrencies are likely to come to a bad end. They’re an ‘unproductive asset’ – very similar to gold. Not producing any dividends or growing profits, ‘the asset itself is creating nothing’, he said. ‘When you’re buying non-productive assets, all you’re counting on is the next person paying you more because they’re even more excited about the next person coming along.’ And Munger’s response? ‘I like cryptocurrencies a lot less than you do.’
With words like value, moats, durability, capital allocation, discipline, patience, time, simple and assessing heard frequently throughout the AGM, it’s clear that at Berkshire Hathaway, they stick to their recipe. While here at Sanlam Private Wealth we have our own investment philosophy, many of these concepts are entrenched in what we do on a daily basis, with one goal in mind: growing and preserving our clients’ wealth for generations to come.
