APPROACHES

Berkshire "restaurant": Open Buffett in Value

First, I was impressed by Zinedine Zidane. Then, I started playing basketball and moved to Ray Allen. Now, I'm 20 and studying Economics and Finance and my idol is, naturally, Warren Buffett.

07 · 06 · 2018
PABLO Yusta

4 minutes

Buffett is a genius. When he was 11, he had saved 120 dollars and asked his dad to buy him three City Service shares. Regardless of the result of his first investment, this does show his talent.

In early 2018, I was given the great news that I would be going to Omaha to attend the conference of the financial holding Berkshire Hathaway. I can now say that it was probably the best experience of my life.

We woke up at four in the morning and at five we would queueing to enter the conference. The atmosphere was amazing! Around 45,000 people surrounding the Century Link and sharing the same two emotions: awe and gratefulness. There were people from all over the world (at first glance, more than half were not American) and, interestingly enough, a lot of children. You could breathe knowledge, respect and, mostly, Value Investing.

They opened the doors at seven and, even though we thought our early start would get us good seats, that wasn’t the case. We made a beginner’s mistake. A lot of people had been queueing since the day before.

At 8:30, the 45-minute “Company Movie” began. The film was divided into various clips showing some of the companies that Berkshire Hathaway invests in, such as Coca Cola, Nebraska Furniture Mart and Fruit of the Loom, but mostly a good sense of humour and interesting thoughts and lessons.                                                                                                                                        

In one of the clips, Bill Gates and Buffett share their experiences: “Being successful means being passionate about what you do”, said Buffett. This reminded me of a section in the documentary “Becoming Warren Buffett” where, when they meet, Buffett’s dad asks them to write down the most important thing in their careers. They both write “focus”.

Another great thought was put forward in the video of Buffett’s 1991 speech after the Salomon Brothers’ scandal: “Lose money for the firm and I will be understanding. Lose a shred of reputation for the firm and I will be ruthless.”

Every clip showed a good sense of humour. For example, Katy Perry disclosed a big secret: the famous shark dancing at her Super Bowl performance was… Mr Buffet!! We also discovered Buffett’s hidden talents singing and playing the ukelele. However, the funniest clip was undoubtedly the one showing Charlie Munger, Buffett’s partner, having serious difficulties opening a box of peanut brittle at the 2017 conference. He took approximately three minutes to do it. I recommend watching it on YouTube.

At 9:15, Buffett began his short introduction before the Q&A session. He said: “I’m Warren. He’s Charlie. Charlie does most things better than me, except for something that’s really hard.” Warren then got out a box of peanut brittle and opened it in 20 seconds to the laughter of everyone. You can tell they’re great friends.

The rest of the conference was pure magic. Buffett showed the New York Times issues from the 8th, 9th, and 10th March 1942. The headlines were all bad news because the USA had just joined World War Two and they were losing. Buffett was 11 at the time… What do you think of straight away? That’s right. He made his first investment on the 11th of March. It’s beyond belief. He was not only able to detect an underrated company at such a young age but also able to stay away from short-term emotions.

You may think it was 120 dollars and he didn’t mind losing them but that was not the case. Buffett was already very familiar with the concept of compound interest and knew the golden rule was not to lose your investment. Proof of this is his beginner’s mistake since he sold the share when it had gone up by 4.5% because he was afraid of losing. In the long term, the share went up by more than 420%.

At around 9:30, the Q&A session started. Around 60 questions from the audience, analysts and journalists were answered. I wanted to ask one and entered a draw to do it but, unfortunately, didn’t get a spot.

The most recurring topics had to do with the future of Berkshire Hathaway when some of these investment geniuses are no longer there; their opinion on macroeconomic and political events such as the recent trade war between the USA and China; the investment thesis of the companies they currently invest in; and their investment opinions or advice.

However, the answers that surprised me the most were not related to investment. They were their advice based on their personal experiences. When you listen to them, you realise that as well as excellent investors they are great people. This is a short summary of the answers given by Buffett and Munger:

Warren Buffett’s answers

  • “We lost great opportunities because we didn’t understand them well enough. The important thing is to remain within your circle of competence.” In my opinion, this is another of the big secrets of any great investor. Invest in what you know well, in what you can easily explain.
  • “You should certainly always be working on improving and defending your Moat.” This was his answer to Elon Musk (Tesla’s CEO) and his recent comments on Twitter against Moats, defending the pace of innovation. To understand the concept of Moat well, I recommend reading the post: “Munger, Buffett’s competitive advantage” under “Approaches” in this blog. As an interesting fact, I was introduced to the big expert in this area: Pat Dorsey.
  • “If had to choose between someone with a high IQ and someone who has assimilated chapter 8 of the ‘The Intelligent Investor’, I would choose the second person. It’s not complicated but it requires a lot of discipline.” He was explaining that it is important to know about accounting and the basics but a great investor does not need advanced knowledge.
  • “If you decide to invest in a productive asset (shares in a company that manufactures a product) instead of a non-productive asset, the difference will be more than 100 times.” He gave the example that, if in 1942 someone had invested 10,000 dollars in a hypothetical index of American companies, they would have 51 million dollars now. However, the same investment in gold would be worth 400,000 dollars today.
  • “I feel optimistic about the human race.” He explained he has two sisters that are as intelligent as him but with better personalities. However, they haven’t had the same opportunities. But things are changing and he is optimistic for the long term. In fact, half of the last six or seven CEOs appointed in Berkshire’s companies are women.

Charles Munger’s answers

  • “If the difference between value and price is not enough, I discard the idea and focus on something else. You cannot summarise investment in one formula. If you want a formula, go back to school. You will be given loads of formulas that don’t work.”
  • Addressing young investors: “Those of you who sell shares when we’re not here anymore will be making a mistake. I recommend that you keep the faith.” With this answer about the company’s future, Munger received a warm ovation. As Buffett said, Berkshire will still have the same principles, values, philosophy and culture.
  • “When there is nothing to do, Warren is really good at doing nothing.” It may seem very simple but, on the contrary, it refers to one of the most important characteristics of any investor: sometimes doing nothing is the best option. You shouldn’t let yourself be dragged by the masses.”

In short, it was amazing to be close to these two geniuses and surrounded by wonderful people. I’m taking back several memories from this experience:

  • · Munger is really extraordinary. I was so amazed that I didn’t hesitate to buy “Poor Charlie’s Almanack”.
  • · The countless number of companies that Berkshire Hathaway is a part of. I read a sentence that summarizes this perfectly: “If you make a deposit, catch a flight, drive a car or pay with your card in the USA, you’re likely using one of the brands managed by Berkshire.”
  • · The great Bill Gates was at the conference studiously listening to Munger and Buffett and he didn’t say a word. You can tell he shares our admiration.
  • · IT’S REALLY IMPORTANT to learn English. You will be able to communicate with everyone.
  • · Every person I met in Omaha knew a lot about the subject but, what’s even better, they want to keep learning all the time. I feel pretty ignorant, which was only an added reason to keep learning. Munger summarises it: “If you’re going to live a long time, you need to keep learning all the time. What you already know is never enough.”

THE BLACKBOARD

UNDER THE DESKLAMP

APPROACHES

FROM THE DECKCHAIR