Weekend with Warren Buffet 2014Submitted by Castlebar Asset Management on May 5th, 2014
This was my fourth Berkshire Hathaway Annual Shareholder meeting and it was different than the other three. Warren is usually the star of the weekend but this year Charlie Munger stole the show. The 2014 edition saw the most credentials issued and the largest crowd ever to attend, estimated at 38,000. The arena was filled by 7:30 AM and the afternoon Q&A session was the most crowded I can remember. Links to more detailed recaps are at the bottom.
I’ll focus on some big picture takeaways from this year. The overwhelming theme was on the culture of Berkshire. Warren and Charlie elaborated on how Berkshire is unique or as they described “peculiar”. Their decentralized conglomerate model is different than the hundreds of others that haven’t had the same success. Warren and Charlie treat their stock as a precious commodity and almost exclusively use cash to purchase businesses. Other less successful conglomerates issue their expensive stock to buy businesses with lower valuation. This works well until the music slows or stops and the acquirers stock valuation drops.
Berkshire’s culture has lead them to be a preferred buyer of family operated businesses around the world. They have a track record of allowing businesses to operate without interference from the home office in Omaha. Warren and Charlie keep their promises. Private equity is a significant competitor in purchasing these businesses but business owners may prefer running a business under the Berkshire philosophy opposed to the private equity approach.
Charlie’s has been Warren’s straight man for years. His response to questions is always concise and matter of fact. On Saturday, Charlie was exceptional and his words of wisdom resonated more with me than Warren’s for the first time at a meeting. There was a question on executive compensation and why Berkshire did not disclose more of their manager’s compensation. Warren discussed that published compensation number has cost shareholders in the US more than if there was less transparency on the issue. Charlie interrupted to weigh in that envy among executives has created the culture of excessive pay. If your peer is being paid X you deserve more than X, even if you haven’t earned it.
A trait that has lead to Berkshire’s success is “ignorance removal.” Charlie brought this up that their purchase of See’s Candy’s eventually lead to their purchase of Coca-Cola shares. Constant learning and removing ignorance can make anyone a more intelligent investor in qualitative analysis. Warren also complimented Charlie on his patience to wait on a fat pitch saying he called Charlie, “the indomitable noman” for his persistence to say no to opportunities.
Charlie rarely ever answers a question before Warren has a chance to respond. However, Charlie had his partner’s back on the reason why Warren’s method of comparing Berkshire’s book value growth to the total return of the S&P 500 as his internal benchmark. He was quick point out this does not hold any logic and that Warren likes to make things harder on himself sometimes. Old friends stick together.
Berkshire has not paid a dividend and a shareholder proposal for Berkshire to pay a dividend was soundly defeated. Warren joked that he stuffed the ballot box voting his 20% stake against the proposal. The closest shareholder’s may get to a dividend from Berskhire is the free coffee, pastries and Coke products available before the shareholder meeting. Cash in, they are tax free!
I usually leave Omaha each year feeling that my value investing compass is set to true north. This year’s meeting was different and I am still trying to put my finger on why. It may be I have been a few years and can predict their answers or maybe it was something else. If I come up with it I’ll post something later this week.
Wall Street Journal: Recap: The 2014 Berkshire Hathaway Annual Meeting
Fortune: 6 things I learned at Buffett’s annual meeting
Disclaimer: The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. Castlebar owns Berkshire Hathaway shares for clients. We may change our holdings at any time.