Each year, the world riches man, Warren Buffett and his partner Charlie Munger hold the shareholders meeting for Berkshire Hathaway in Omaha, Nebraska. Given their legendary status within the industry, this “Woodstock for Capitalists” is one of the most highly anticipated events of the year, and Terry and I had the privilege of attending. Due to the global economic recession, punishing capital markets and its impact on investment portfolios, this year’s attendance was a record 35,000 people. In today’s increasingly complex world, Warren and Charlie’s common-sense approach to investing is a refreshing change and a philosophy that guides my recommendations and advice to you.
Here are some of the best quotes and comments made during the 6 hour meeting. Please remember that Warren Buffet is now 78 years old and Charlie Munger 85. They are still running the business and making all investment decisions. Here are few questions and quotes from the meeting:
What is required to be a good investor?
Buffett: You have to know how to value a business and how to think about markets. When looking at businesses, stay within ones that you understand. When thinking about markets, remember they are there to serve you, not to instruct you.
Munger: From an academia perspective, there is too much nuttiness in the way investing concepts are being taught today, reduce the nonsense.
Buffett: You don’t need to be a genius to be a good investor. If you have an IQ of 150 sell 30 points to someone else. You need emotional stability and inner peace with your decisions. Investing is simple, but not easy – remember ‘a bird in the hand is worth more than two in the bush’.
I am 11 years old, how will inflation impact my generation?
Buffett: The government is following a process that will have some inflationary consequences but the burden of government debt can be lowered by inflation. The best protection for you is your own earning power – be the best at what you can be. And invest in businesses with earnings power that are not heavily reliant on capital.
Munger: Young man, become a brain surgeon and invest in Coca-Cola.
You have identified four investment managers as possible candidates to be your successor. Can you tell us how they did last year?
Buffett: Just to be clear, we have three candidates to succeed as CEO, and they are all internal. There are four possible investment successors, both internal and external. In 2008, the four investment managers did no better than match the S&P 500 (down over 35%). A lot of things didn’t work, but they all have great 10-year records.
Munger: Last year, everyone got creamed.
· Look at expectation not current price. Look at shares you bought like the property you bought.
· Efficient market theory is non-sense. Markets are not efficient because of the emotional instability of investors.
· Current market lows will prove to be very temporary. Investing is all about cash flow,retained earnings and competitive advantage. The opportunities now are far greater than anything we have seen in years.
· Charlie Munger: At 85, the older I get, the more optimistic I become about the future. Don’t know when things will get better. Overtime things will get better. We have a system that works. It is a mistake to think about the probable misfortune. One must also look at the probable positives.
In the same line, someone else said, :” I’m an optimist because I have never met a rich pessimist”
To conclude, while we are in the midst of a spring rally, one can not help but feel elated and relieved. Please remember however that the economic recovery will be slow. While markets move ahead, we will sure see more down days and gut wrenching volatility. Please remember these few words of wisdom when these event occurs.
Let us worry about your investment choices and portfolio mix. We will be sure to practice the emotional stability needed to stay focused on the value investment choices we have made for you now and the future.