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1/ What might you want to take away from today's Berkshire meeting?
Focus on the way they think about the investing process. You are not them.
You have a different circle of competence and different resources, needs and goals.
How they think about investing is what matters.
Focus on the way they think about the investing process. You are not them.
You have a different circle of competence and different resources, needs and goals.
How they think about investing is what matters.
2/ As an example, the idea behind circle of competence is so simple it is embarrassing to say it out loud:
risk comes from not knowing what you are doing.
A VC might know a lot about software, but not much about biotech.
Recognizing the edge of your competence is valuable.
risk comes from not knowing what you are doing.
A VC might know a lot about software, but not much about biotech.
Recognizing the edge of your competence is valuable.
3/ Margin of safety is simple:
No matter how wonderful a business may be, it’s not worth an infinite price.
Paying less than assets are worth is protection against making errors.
The best margin of safety is the value of a company's sustained competitive advantage over time.
No matter how wonderful a business may be, it’s not worth an infinite price.
Paying less than assets are worth is protection against making errors.
The best margin of safety is the value of a company's sustained competitive advantage over time.
4/ But Munger bought BABA!
"It's important to never be satisfied with anything, including your circle of competence. One of the things you should always be doing with your circles of competence is see if you can push it a little bit more because the world changes." Thomas Gayner
"It's important to never be satisfied with anything, including your circle of competence. One of the things you should always be doing with your circles of competence is see if you can push it a little bit more because the world changes." Thomas Gayner
5/ But Buffett bought AAPL!
"Buying Apple stock shows either one of two things: Either you’ve gone crazy or you’re learning. I prefer the learning explanation.”
"“Any year that you don’t destroy one of your best-loved ideas is probably a wasted year.”
Charlie Munger
"Buying Apple stock shows either one of two things: Either you’ve gone crazy or you’re learning. I prefer the learning explanation.”
"“Any year that you don’t destroy one of your best-loved ideas is probably a wasted year.”
Charlie Munger
6/ But Berkshire is holding all that cash. It's lowering returns.
Refer to 1/ above. You are not them. Their goals are different.
“For many of our shareholders, our stock is all they own, and we’re acutely aware of that. We haven't pushed it as hard as others push it."
Refer to 1/ above. You are not them. Their goals are different.
“For many of our shareholders, our stock is all they own, and we’re acutely aware of that. We haven't pushed it as hard as others push it."
7/ What will be different in this year's Tweetstorm about the BRK Q&A?
1. More Bill Walton-style near real time commentary from me and less transcript (someone will inevitably create a transcript).
2. All in on "Munger Investing." The term "value investing" is dead to me.
1. More Bill Walton-style near real time commentary from me and less transcript (someone will inevitably create a transcript).
2. All in on "Munger Investing." The term "value investing" is dead to me.
8/ It begins. As is the case in investing and food, everyone should have their own style. For example, right now I'm listening to the Price and the Revolution joint Let's Go Crazy while eating a traditional pre-game peanut butter and bacon sandwich. You be you.
Oh, no let's go!
Oh, no let's go!
9/ Buffett is telling a story about humility with numbers and words. Unfortunately the people who most need to hear this message aren't listening. Betting on the economy getting better over long periods is relatively easy but predicting which horses will win the race is hard.
10/ The story shifted to creative destruction.
“Capitalism is brutal. Think of what's died in my lifetime. Just think of the things that were once prosperous that are now in failure or gone. It's incredible what's happened in terms of the destruction." Charlie Munger
“Capitalism is brutal. Think of what's died in my lifetime. Just think of the things that were once prosperous that are now in failure or gone. It's incredible what's happened in terms of the destruction." Charlie Munger
11/ Buffett: "I am the chief risk officer of Berkshire."
He argued that the airlines "might not have received the same support from the US government if Berkshire had remained a major shareholder. "We wish the big four airlines the best."
He argued that the airlines "might not have received the same support from the US government if Berkshire had remained a major shareholder. "We wish the big four airlines the best."
12/ Buffett: "We could have deployed $50-$75 billion before the Fed acted. The Fed took a market where Berkshire couldn't sell debt to a market where Carnival Cruise Lines could. Congress also acted on the fiscal side." Things changed *very* fast. The investing window was tiny.
13/ Buffett: "We can't buy shares of other companies as cheap as we can buy our own shares. We have been able to do that with a fair amount of money."
Buffett is saying that the charities to which he will contribute 99.7% of estate to should own Berkshire, but not his widow.
Buffett is saying that the charities to which he will contribute 99.7% of estate to should own Berkshire, but not his widow.
14/ Focus should be on subsidiaries that have a significant important carbon footprint like BHE. Important foundations like high power transmission lines are necessary to successfully make the transition to cleaner energy possible. $5 billion already invested in those lines.
15/ BNSF will decrease its carbon footprint by 30% by 2023, which meets the standard for the Paris agreement.
Buffett: Energy transmission is an important problem to solve. Energy must get from where the wind is blowing and the sun is shining to where people live and work.
Buffett: Energy transmission is an important problem to solve. Energy must get from where the wind is blowing and the sun is shining to where people live and work.
16/ Jain: "When we price insurance we add something for unknown unknowns."
Buffett: Most surprises in the insurance business are unpleasant. But we want to underwrite insurance so as to get paid for that risk.
Buffett: Most surprises in the insurance business are unpleasant. But we want to underwrite insurance so as to get paid for that risk.
17/ Munger: "Warren and I don't have to agree on every little thing we do." By implication Costco might be one example. Munger seems to be a bigger Costco fan
Buffett: "Charlie and I have not been mad at each other in the 62 years we have known each other."
Buffett: "Charlie and I have not been mad at each other in the 62 years we have known each other."
18/ Buffett: No one with a leadership role in a major business "is aging at a rate less than Charlie" on a percentage basis. In three years he will be 100.
I'm trying to make this more exciting but Becky is asking very good questions. Not a lot of great joke material so far.
I'm trying to make this more exciting but Becky is asking very good questions. Not a lot of great joke material so far.
19/ "We look at it like we own 5.3% of the Apple business. It is a marketable security, but is shows up as way bigger than other marketable securities. Tim Cook is one of the best managers in the world. Charlie let me know that selling some of our Apple shares was a mistake."
20/ "I feel like I understand the value of Apple better than the other big tech companies."
On big tech valuations, he noted the level of interest rates as making big tech valuations as not unreasonable. The "risk free rate is currently nothing." That's the opportunity cost.
On big tech valuations, he noted the level of interest rates as making big tech valuations as not unreasonable. The "risk free rate is currently nothing." That's the opportunity cost.
21/ Buffett: If present zero rates rates of interest on risk free US treasuries are appropriate and last, big tech companies are bargains. Big tech has an ability to deliver cash that makes their valuation very cheap. Big tech companies do not require lot of capital and gush cash
22/ Munger said that MMT's effectiveness may last for longer than people imagine, but it can't go on forever without huge problems. Munger said that everyone who makes macroeconomic projections "has much to be modest about." He reiterated that he does not know what will happen.
23/ Buffett said this (I believe) : "Day trading has better odds than playing the state lottery."
Munger: "I don't blame the fish that gamble." He doesn't like the people who run the casino. "There's a lot fee driven buying." Promoters sell anything that generates fees.
Munger: "I don't blame the fish that gamble." He doesn't like the people who run the casino. "There's a lot fee driven buying." Promoters sell anything that generates fees.
24/ Munger: "Investing is harder now. The millennial generation is going to have a hell of a time getting rich."
25/ Buffett on stock buybacks: There is nothing wrong with repurchasing shares from some partners in a business who want to sell at a price that is agreeable to everyone.
26/ I'm really struggling to tell any jokes or channel Bill Walton. Becky is good.
Munger: "I wouldn't move across a street to save my children $500 million in taxes." But states should pay attention to what causes people to move.
WB: "We'll adapt to whatever tax rates are"
Munger: "I wouldn't move across a street to save my children $500 million in taxes." But states should pay attention to what causes people to move.
WB: "We'll adapt to whatever tax rates are"
27/ Buffett would rather have 97.7% of what will be ~$100 billion in his estate go to charity when he dies rather than reduce the US national debt.
Buffett said he doesn't think he will care where his estate goes. Charlie added that when Warren is dead he can't care.
Buffett said he doesn't think he will care where his estate goes. Charlie added that when Warren is dead he can't care.
28/ The Covid reserve for exposure by BRK insurance companies is currently about $1.6 billion. The insurance industry total related to Covid might be about $100 billion said both Jain and Buffett.
29/ Warren Buffett: "The amount that would be paid for the Kansas City Southern railroad in this deal would not be happening in another interest rate environment."
"We would not pay this price. But it is kinda play money to some extent in this interest rate environment."
"We would not pay this price. But it is kinda play money to some extent in this interest rate environment."
30/ Buffett: "Charlie says 'investing is not like having children.' The bad investments become a smaller and smaller part of your portfolio."
31/ The discussion now on energy isn't a good source of comedic material. People are talking about issues that are within their circle of competence. Everyone is articulate. It is a desert for Bill Walton style commentary. My deepest apologies. But competence is great to see.
32/ Jain said he would pass on insuring a SpaceX Mars mission.
Buffett said he might write the Mars mission policy with the right premium, particularly if Elon himself on board. Buffett said Elon should call him instead of Jain if he wants to buy insurance.
Buffett said he might write the Mars mission policy with the right premium, particularly if Elon himself on board. Buffett said Elon should call him instead of Jain if he wants to buy insurance.
33/ Munger: "The Chinese government will allow business to flourish. Communist Chinese added Adam Smith to their system and there's never been anything like it in the history of the world." He quoted Deng on China liking any cat that catches mice.
34/ Buffett: "I like banks generally, I just didn't like how much of our portfolio was in banking. The banking business in the United States is better than it is abroad."
Buffett declines to give an opinion on Verizon. That's up to the questioner to figure out. No stock tips.
Buffett declines to give an opinion on Verizon. That's up to the questioner to figure out. No stock tips.
35/ Buffett: "There is less demand for insurance now." It is harder to put money to work in insurance. Previously in the session he said the value of float is lower given interest rates.
Jain: The supply side in insurance is much more competitive now.
Jain: The supply side in insurance is much more competitive now.
36/ Buffett: Problems are caused by the myths people have about their organization. As they are repeated, it leads to enormous errors. He can name names, but won't now.
Munger: "If you repeatedly prattle out [things like myths], you are pounding them in even if they're wrong."
Munger: "If you repeatedly prattle out [things like myths], you are pounding them in even if they're wrong."
37/ Munger: "The cost of healthcare in Singapore is 20% of the same cost in the US." He said Buffett is right that the US is fighting a tape worm on health care.
38/ Munger: "We are not getting to big to manage. We are so decentralized that we can keep doing what we do at our scale for a very long time."
"Greg will keep the culture."
Buffett's successor has never been more apparent. It's Greg. Ajit is more focused on insurance.
"Greg will keep the culture."
Buffett's successor has never been more apparent. It's Greg. Ajit is more focused on insurance.
39/ Buffett is looking forward to reading the Robinhood S-1. The number of people just buying puts and calls bothers him. He said you can't build a society around the instinct of people to gamble. He hopes this type of trading doesn't increase.
40/ Munger: "The states are worse than Robinhood" in that by creating state lotteries they took over the numbers business from the Mafia."
41/ Buffett: "We don't make lot of money trading stocks," responding to a question about Jim Simons.
There's the same amount of stock turnover right now in the BRK portfolio as there has been in the past."
Munger: "We would do better if we turned over our stocks less."
There's the same amount of stock turnover right now in the BRK portfolio as there has been in the past."
Munger: "We would do better if we turned over our stocks less."
42/ Munger: "If you are not a little confused by what is going on now, you don't understand what is happening."
Buffett: "This past year was a very unusual movie. We enjoy watching it." They want to know how this movie comes out.
Peace Out.
Your friend Tren.
Buffett: "This past year was a very unusual movie. We enjoy watching it." They want to know how this movie comes out.
Peace Out.
Your friend Tren.
43/ Berkshire had net income of $11.71 billion.
In the same quarter last year net loss was $49.75 billion.
That's a somewhat bigger difference than between an operating profit of $7.02 billion now versus operating profit of $5.87 billion a year earlier. https://www.reuters.com/business/berkshire-operating-profit-rises-buys-back-more-stock-2021-05-01/
In the same quarter last year net loss was $49.75 billion.
That's a somewhat bigger difference than between an operating profit of $7.02 billion now versus operating profit of $5.87 billion a year earlier. https://www.reuters.com/business/berkshire-operating-profit-rises-buys-back-more-stock-2021-05-01/
44/ Buffett said odds were “very, very good” next year’s meeting would include shareholders. "We really look forward to meeting you in Omaha."
Buffett understands how it benefits local businesses. They sell many copies of my Charlie Munger book each year. https://www.reuters.com/article/businessNews/idUSKBN2CI3DM
Buffett understands how it benefits local businesses. They sell many copies of my Charlie Munger book each year. https://www.reuters.com/article/businessNews/idUSKBN2CI3DM
