Flying to the Berkshire Hathaway shareholders meeting in Omaha from Cape Town is long and painful and this year was made worse by a number of weather delayed flights. Was it worthwhile?
Listening to Warren Buffett and Charlie Munger (the CEO and deputy CEO) for five hours is undoubtedly the highlight, but there are other benefits:
- The preparation beforehand, reading the previous year’s letters to shareholders;
- Using the time to reflect on your own actions over the past year as well as your current portfolio.
But for me the enjoyment and most of the learning comes from the breakfast/lunch/dinner discussions during the weekend. But judge for yourself, as this review is largely about "what did Warren and Charlie say?"
Investing is often described as the process of laying out money now in the expectation of receiving more in the future…
Warren Buffett goes into some detail on this starting midway (page 17) into his most recent letter to shareholders. I strongly recommend you read it, but here are a few extracts:
- The risk of an investment is NOT measured by its beta, but rather by the probability of that investment causing its owner a loss of purchasing power over their entire holding period.
- It takes $7 to buy what $1 bought in 1965; hence being invested in low yielding assets has caused its holders considerable loss when measured in terms of purchasing power.
- Whilst "In God We Trust" is imprinted on the US currency, the hand that activates the printing presses is all too human.
- High interest rates can compensate purchasers for the inflation risk they face but, right now, bonds should come with a warning label. Shelby Cullom Davis made this comment many years ago: "Bonds promoted as offering risk-free returns are now priced to deliver return-free risk."
Warren and Charlie are of the opinion that the current low interest environment means you have no choice but to invest in equities, but find that most investors don’t because they…
- Focus on the poor macro environment;
- Have lost heavily in similar circumstances in the past because they gambled on beaten down bargains (read poor quality companies) rather than used the opportunity to buy good quality companies.
Buffett looking out of step; not his year
Jason Zweig (The Wall Street Journal, 7 May 2012) wrote a good article on the shareholder meeting with a deceptive heading: "Buffett Looking Out of Step". He says since 26 Aug 2010 Buffett’s Berkshire Hathaway investors have underperformed the market by 29 percent. But, he says, the message Buffett gives them is: "Invest in good businesses at great prices and the market will take care of itself."
Article continues on pages two, three, four and five...