and Charlie Munger hosted Berkshire Hathaway's annual shareholder
meeting last month in Omaha, including several hours of
conversation with panelists and investors. (See the transcript
.) Below are some of the highlights.
On Choosing Investments
1. Bad markets can be an advantage. I take exception that I paid
fancier prices. GE was 20x earnings. I paid a far bit more than I
would. It gets tougher as we get bigger. The price would diminish
and we could still be satisfied. There are companies we should
have bought 30 or 40 years ago. Now we realize that paying up for
companies is good.
2. That's the great thing about investing - the universe is big
enough that you always find more, but it's not changing
dramatically all the time.
3. Different numbers are of different importance depending on the
kind of business. If you were a basketball coach walking down the
street and a 5'4" person said you ought to sign me up, you might
have a prejudice against him, but there might be one who's good.
And I might say good luck son, we're looking for 7-footers, and
then we have to worry about whether we can keep them coordinated
and keep them in school. We see certain things that tell us,
think further, look further. We've come up with the conclusion
that we can't make intelligent analysis of all kinds of
businesses and usually some little fact slips into view that
causes us to rethink something.
4. We don't know about a computer company 10 years from now.
We're virtually 100% confident about Burlington Northern or Geico
or some others I won't name.
5. Generally speaking, if we get a chance to buy a wonderful
business, and by that we mean it has characteristics that lead
you to believe it will return an unusually high return on capital
over time and better yet, get to deploy more capital at decent
rates of return, we probably should stretch a little.
6. A person needs to stop and spend a reasonable amount of time
becoming an expert on stocks. The real problem they have is they
may get excited about stocks at the wrong time and really the
idea of buying an index fund is not to buy stocks at the right
time or the right stocks but is to avoid buying at the wrong
time. You have to avoid getting excited when others are excited
and about industries. There's nothing wrong with being an amateur
investor, but in an index fund you just simply have a logical
profitable course of action which is to buy into American
businesses in a broadly diversified way.
7. We may not see many anymore, but most people in this room in
their lifetimes will see incredible opportunities in equity
markets and maybe in bond markets, and things will happen and you
have to be able to act, in terms of capital and mental fortitude
to jump in when people are jumping out.
8. Charlie: It's so old fashioned and boringly trite. Keep
plugging along. All the old virtues still work. And work where
you're turned on.
9. You have to love something to do well at it. There may be
exceptions. You're at an enormous advantage if you love what you
do every minute of it.
10. The game of life is a game of everlasting learning. At least
it is if you want to win.
11. Banking in the U.S. is stronger than in the past 20 years.
Compared to the EU or 20 years ago, it's dramatically stronger.
Don't worry about banking being the cause of the next bubble.
Usually we don't get to a bubble the same way we got to the last
one. I feel good about our investments at MNT and Wells Fargo (
). We won't earn as much return on equity because the rules
On Bank of America
12. Bank of America (
) in 2011 was subject to rumors, there was big short interest,
morale was terrible. It struck me that an investment by Berkshire
) might be helpful to the bank and might be to us. I never met
O'Brien, but gave him a call. Not because I calculated some
precise P/E ratio, but because I have some idea of what the
company may look like in five years and a reasonable amount of
confidence and there was a disparity between price and value.
On the Macro Picture
13. Charlie and I don't pay attention to macro forecasts. We have
worked together now for 50 years and can't think of a time we
made a decision on a company where we've talked about macro. We
don't know what things will look like in precise way. Naturally
we think if we don't know that nobody else knows. Why spend time
talking about something you don't know anything about? People do
it all the time. But it's not very productive.
14. Throughout my adult lifetime there have always been opinions
about what's going to happen in the next years; nobody knows.
What we know with a high degree of certainty is BNSF will be
carrying more cars in a year or two. That there will be two
important railroads in the West and two in the East and will have
assets that will have incredible replacement value.
15. We don't have anything against someone talking about a new
normal; my own guess is people will do very well owning good
businesses if they don't pay too much for them in 20 and 30
years. If they try to time based on what they're going to do
they're going to do very well for their brokers and not for
On Ben Graham Influence
16. I read every book in the public library on investing by age
11. But I never developed a philosophy, I just enjoyed stocks.
Graham's book gave me a philosophy, a bedrock philosophy on
investing that made sense. It taught me how to think about a
stock and the stock market. It taught me the market was there not
to instruct me but to serve me. Think about stocks and pieces of
businesses. So that philosophy was furthered by Phil Fisher's
17. The airline industry has situation where have very, very,
very low incremental cost per seat with enormous fixed costs. The
temptation to sell that last seat at a very low price is very
high and sometimes it's very hard to distinguish between that
seat and the last seat. It's labor-intensive and capital
intensive and largely commode type business. As Bill Miller
points out, it's been a death trap for business since Orville
18. Charlie: You really couldn't create another railroad. And you
could create another airline. And that's what I don't like about
On Share Buybacks
19. Warren: Our intrinsic business value is considerably above
book value and we have signaled that by saying we would
repurchase shares as long as we had substantial cash balance that
met the needs of operating companies at 120% of book value. We
got the opportunity to buy and could probably buy a whole lot of
it. The calculus is very important. We take care of businesses
with money first. If you can buy additional businesses that could
add to per-share value of the business you do that. If you can
purchase shares at significant discount it's like buying dollar
bills at 90 cents. Very proven way of - hard for us to do it
because every time we say we're going to do it, people say, well,
he thinks it's worth more. We've got mixed emotions.
20. If we go back long enough, we've done a reasonable amount of
short selling. We identified companies that we thought were way
overpriced and some that we were virtually certain were frauds.
Making a lot of money short selling is still not a game that
appeals to us over the long period.
On the U.S. Economy
21. I'm disturbed by a national debt that grows in respect to
GDP. I wrote an op ed in the New York Times in 2009 or 10 talking
about that very problem. By the time we came out of WWII debt was
higher and people were predicting terrible things at that time
because of that situation. The real problem is it continues to
grow and it's easier to print money than exercising discipline.
We've faced worse problems. This is not the country's worst
problem by far. We will do fine but with bickering that will
bother you day to day.
22. Charlie: All problems are trivial if GDP will rise 2% per
year per capita. All problems Republicans are screaming about
will be fixed if we can do that.
23. Finally overhang in housing ended about a year ago so we're
starting to get some recovery in home prices which has a
psychological effect and some improvement in construction but
don't want to start building again. We want housing starts that
more or less equal household formation. I don't think we'll surge
but I don't think we'll stall either.
On Foreign Investing
24. I'm willing to go any place where we can tell how things are
going to be in five years and management and all the things we
emphasize. We've never foreclosed anything but are going to find
most opportunities in the USA.
25. We don't really start out looking to either emerging markets
or industries or anything of the sort. We may find things as we
go around, but it's not like Charlie and I talk in the morning
and say it's a particularly good idea to invest in India or China
or whatever the case may be. We've never had a conversation like
that. It won't happen. It's not where our strength is. Know it's
not there. Think probably most people's strength isn't there. It
sounds good but it's not the best way to look at investments. If
you told me perfectly willing to do it - such as BYD - but if we
were told we could only invest in the U.S. the rest of lives we
would not regard that as a huge hardship.
26. I don't understand the moat around IBM (
) as much as around Coca-Cola (
). I have some understanding of it but would have more conviction
about the moat around Coke or Wrigley or Heinz than IBM, but I
feel good enough about IBM that I put money in it and nothing
precludes Microsoft and IBM both being successful. In fact I hope
both are. We have enough conviction about IBM's position. I like
their financial position. Odds are good. I don't feel the same
degree of conviction about that than BNSF railroad. I can't think
of anything going wrong with BNSF. I can think of some things
wrong with IBM. They have a huge pension fund too. Asset and
liabilities - a big annuity company on the side. They can have
balls that take 20 bounces in annuities. I would rather they
didn't have it but the fact is they do. They show assets and
liabilities equal, but assets are more reliable over time.
See Buffett's stock portfolio here. Undervalued StocksTop Growth
Companies High Yield stocksAbout GuruFocus: GuruFocus.com tracks
the stocks picks and portfolio holdings of the world's best
investors. This value investing site offers stock screeners and
valuation tools. And publishes daily articles tracking the latest
moves of the world's best investors. GuruFocus also provides
promising stock ideas in 3 monthly newsletters sent to