Letter from Berkshire’s Omaha Meeting

For the last several years I’ve been a Berkshire shareholder and also attendee at “Woodstock for Capitalism”, the Berkshire Shareholder Meeting in Omaha, NE.

What happened this year? It’s always interesting.

It’s better in longer form — the news snippets usually suck, as they focus on musings re: newsy/trending topics.

Long run

Warren told a story to kick things off. A key date: Mar 11 1942. The day he bought his first shares. After 3 years of throwing newspapers and researching, he had $150 and an idea. Shortly after he bought, bad stuff happened in the war effort and the stock fell a lot.

Then more.

Then it came back. And a relieved Buffett sold for a 3% profit.

Then it kept going. It reached 400% of his purchase price before being acquired by another company entirely.

Lesson: beware local maxima. The long run. Believe.

Gold

He had some flashy slides for this. One of them had a single number: $10,000.

The next one had $51 million. That’s what you’d have had if you bought the S&P with $10k principal in 1942. By today you would have done very well.

By contrast, gold would have had you at $5 million. 500x. But the stock market would have been 5,000x.

Why? Because Gold is not a productive asset, just a store of value. Companies do stuff: reinvest, invent, grow their earnings power. Buy “them all”, as Berkshire does, “buying the American economy”, then you are simply betting that the human ingenuity that is American Capitalism will keep getting richer and richer (and if you just hold, it compounds tax-free).

Politics

The man did not say the Tr*mp word. He did say:

“Trade wars don’t make sense. Trade is just too good for many companies and countries.”

Warren’s an optimist. He thinks the future will be good, our interests are roughly aligned on it, and that rational people (or at least rational systems) govern the large countries of the world. We will get through this, in short.

Ethics 1

Warren says (approximately): “Wells Fargo made mistakes (you know the scandals). But those mistakes created opportunities to be better, the best. It has happened at all the big banks. I see no reason why Wells can’t repair, or that it is fundamentally inferior.”

“Charlie pushes me to attack unpleasant problems. The question is what you do when you find problems.”

“It reminds me of the American Express crisis back in the 80s. It’s how we got to own so much of it. They had some side business warehousing/reselling fuel with a guy in Bayonne, NJ making up the numbers. The survival of Amex was in question. We got to own more.”

“The same happened at Geico. We own so much because the 1980s management made some errors. We bought more.”

Every conference starts with a funtime video of commercials and jokes, and a deadly serious snippet of Warren in front of the Senate in the early 1990s, appearing as CEO of Salomon Brothers. They had done some bad things. Warren shows up and says they will fix it. “Lose money and I will understand. Lose a shred of reputation and I will be ruthless.”

The questioner in the room had intended to confront him on this though, with the Wells example. Wells keeps doing wrong, again and again. Why are you in there?

Warren’s answer is that ethical behavior is a set of behaviors and stem from a culture — and these are fixable things. Companies are not “good or evil” as a permanent moral status. Buffett has an ethical theory, and part of it is No Original Sin.

What does Warren do all day?

Warren helps price Ajit big risks. They call him. The other businesses don’t.

“Warren does nothing all day. Just reads and thinks.” – Charlie.

And this random business nobody has ever heard of?

Mclain (?) is growing from liquor distribution not convenience store supply. Sometimes you need to walk away from customers. Hard to do when you employ a lot of people. (Sounds like they plan to reposition this business.)

25 Cognitive Biases paper from Charlie get some love from the audience. This, worth a read:

https://amol.sarva.co/charlie-mungers-25-cognitive-biases-its-actually-a-talk-called-the-psychology-of-human-misjudgment/

Ethics 2

Berkshire and Amazon and JPM JV, trying to do the impossible. This is their healthcare project to provide better and cheaper healthcare to the collective 1 million employees, and one to which many other large corporates are likely to sign up.

They give the rationale and motivation for this: change a system costing 18% of GDP up from 5% GDP in 1960. We used to spend $170 per capita and now $10,000. The corporate tax cut is a 10% improvement on tax rates for companies earning about 10% profits…so about 1% of the economic output. Not important. Health care is important.

News: a major CEO search underway.

Bigger news: the motivations are not primarily profit. Its for employees better care and cost. It is a public service project.

Now this is surprising. Warren and Charlie agree it will be very hard and may fail, and it does have economic self-benefit. But they frame it literally as a public service. Wow!

“The business of business is business” said Milton Friedman, the hyper rational markets guy. Well, Buffett says no. The business of business is at least partly improving society. Business makes society richer, and therefore able to do good things.

Munger: “Warren already has one thing in common with Rockefeller. Now he’s trying for another one.” (Apparently Rockefeller has a lot to do with the US national safety net — something about Medicare and Medicaid; I missed that history lesson.)

Trade and society

We have a system that every baby born gets a guarantee to $150k education and the elderly get support – all from the productive class. What about those made redundant in competitiveness.

Ethics 3

“Why did you say you wouldn’t mind if Berkshire owned a gun maker?”

They said:

The company isn’t political. There are things beneath us, and we try to draw the line as best we can.

And:

Though we can’t support banning all guns, surrounded by turkeys in Omaha.

This is striking. For all the talk about societal benefit and ethical culture, they won’t take a position on this. Unlike many on the left, who are outraged at people even saying the word gun, these guys are like “this is politics”. Moral law above legal law above mere politics, to expand a bit on the old classics of Just Law vs. Law (see Martin Luther King Jr.’s letter from Birmingham Jail here https://en.wikipedia.org/wiki/Letter_from_Birmingham_Jail )

Odds and ends

It’s hard to raise prices for advertising. Learned from the newspaper business.

Apple – they own $35bn worth. 5% and rising. It’s their new Amex or Coca Cola. Not for tech reasons.

Berkshire’s Annual Meeting: Buffett Approves of Apple’s Buyback Plan

https://nyti.ms/2HRyIe6

Finally

If you want to come with me next year, get on this knotepad and I’ll tell you more about how and when – https://knote.com/k/ovSRK96srzsgbWZmb