It was an unseasonably cold and drizzly Saturday in Omaha. But
that didn't dampen the spirits of the tens of thousands of
underdressed out-of-towners who shivered through the early-morning
security lines for the novelty of being part of Berkshire
Hathaway's annual shareholder meeting.
Indeed, the mood was festive at the CenturyLink Center, the site
of the annual love-fest that's come to be known as "Woodstock for
Capitalists." Shareholders gleefully snapped up rubber ducks
crafted in the likeness of CEO Warren Buffett and Charlie Munger,
the conglomerate's vice-chairman. Fruit of the Loom boxer shorts
featuring the visages of the two octogenarians sold out faster than
you can say "proxy statement." A scrum of fans mobbed the Oracle of
Omaha and Microsoft co-founder Bill Gates (a Berkshire director)
as the pair competed in a newspaper-tossing contest.
But it wasn't all silliness. There was plenty of substance, too.
Buffett and Munger answered questions for five hours on topics such
as Berkshire business lines and what the company will look like
once Buffett isn't around. Here are a few highlights:
1. Buy what you know.
Buffett has proffered this advice many times before. But it was
illuminating to hear how he put this tenet into action. For
example, he hinted he wouldn't consider an investment in the auto
sector. "We don't know which auto company will be knocking the ball
out of the park in five or ten years, or which will be hanging on
by its fingernails," he said. However, "we're virtually 100%
confident" about the long-term prospects of the Burlington
Northern railroad and insurer Geico, both Berkshire properties.
2. Ignore economic forecasts.
No one really knows what path the economy will take, Buffett
said, so it doesn't make sense to base investment decisions on
forecasts. "Charlie and I don't pay attention to macro forecasts.
We've worked together now for 54 years, and I can't think of a time
when we made a decision on a stock or on a company" that was
influenced by a particular viewpoint on the broader economy. If
investors try to time their purchases according to economic
forecasts and trade when those forecasts change, they'll make a lot
of money for their brokers, but not much for themselves, said
3. Invest in businesses, not stocks.
It is crucial, Buffett and Munger stressed, to consider any
stock investment as if you were buying the entire company rather
than a few shares. "We're buying businesses whether we're buying
100 shares or the whole company," Buffett said. Financial ratios
are useful but will never tell the whole story. What's more
important is to have a deep understanding of how a company operates
and the dynamics of its industry. "I don't know how I would manage
money if I was just trying to do it by the numbers," Buffett said.
Neither he nor Munger uses computer screens to sift out attractive
stocks. "It's not like we sit there and say, 'We want to look at
things that have low P/Es,' " said Buffett.
4. Consider an index fund.
Few investors, Buffett said, have the time and the temperament
to study companies and industries thoroughly enough to become
expert stock pickers. Most would be better off buying low-cost
index funds. Such funds let you "buy into American business in a
diversified way, over a long period of time." Moreover, Buffett
said, you shouldn't always be impressed with the records of
top-performing fund managers. They're more often the result of luck
than of skill, he said.
5. Shun trendy themes.
In response to a question on whether he's interested in
emerging-markets stocks, Buffett said he doesn't start his search
by looking at particular regions. "It isn't like Charlie and I talk
in the morning and we say, 'It's a particularly good idea to invest
in Brazil or China.' " Rather, he reiterated that they focus on
finding good businesses first. "When we hear somebody talking
concepts of any sort, including country-by-country concepts, we
tend to think they're going to do better at selling than
Similarly, he said that most exotic investment products, such as
hedge funds and private-equity investments, aren't worth the high
fees they charge. "Anything Wall Street can sell, it will sell,"
6. Buy Berkshire.
Over the course of the meeting, Buffett made a convincing case
that he has thought through the issue of his eventual departure
with as much or more care than any investing problem he's ever
tackled, and that he truly believes Berkshire will stay Berkshire
after he's gone. Or, as Munger more pithily put it, "Don't be so
stupid as to sell these shares." Berkshire's Class B shares (symbol
) closed at $111 on May 8, up 34% since we recommended them in
Fire Sale on Buffett