Berkshire Hathaway shareholders meeting excerpts

Berkshire Hathaway recently held their annual shareholders meeting.  I’ve come across a transcript of the meeting compiled by Peter Boodell, author of the value investing source blog.  I wanted to impart some of this information shared at this meeting to the visitors of the CFG website. 

Warren Buffett and Charles Munger fielded questions to over 24,000 company shareholders.  The best way to share the information is to show the question from the shareholder and then Buffet and Munger’s answer.  I’ve included 6 of the questions I believe will have the most universal value.

Question 1: Regarding the recession and the stock market being up in April.  What’s next?

WB: I could expand on that question, but I couldn’t answer it.  Charlie and I haven’t the faintest idea where it goes next week, next month or next year.  We are not in that business.  It isn’t our game.  We see 1000’s of companies priced every day.  We ignore 99% of what we see.  Every now and then, we find an attractive price for a business.  When we buy it, we would be happy if the market was closed for a few years. You wouldn’t get a price quote daily on a farm.  We look at expected yield, cost of taxes etc.  If you buy a farm, you would look at cost of fertilizers, what a farm produces relative to purchase price, price per acre, production per acre, etc.  We make judgments.

Question 2:  I’m bad at hiring good managers.  How do assess capabilities?

WB:  You have to understand that we cheat.  If you give me 100’s of MBA’s, I’m meeting over 30 schools a year, I couldn’t take the top 100 and rank them-it would be impossible.    We buy businesses with great management in place.  We have seen their record.  They come with the business.  Our job is not to select great managers; our job is to retain them.  A majority is wealthy.  They don’t have a monetary reason to work in many cases.  We have nineteen people at headquarters, and 250 thousand around the world.  Our job is to make sure they have the same enthusiasm.  We have to see passion in their eyes and believe the passion will remain, but we can create and environment to keep them happy.  At these annual meetings, we tell them what great jobs they did and make them feel appreciated.  We don’t have contracts. It doesn’t work.  Our managers are appreciated.  I can’t be of help if you are looking at a group of MBA’S.  They know at this point in life how to fool you, what answers to give you.  I would look for a person with passion for a job, doing more than their share, good communicators.  At baseball you have to hang up the cleats at 40, but our guys go on and on and on.  Mrs. Buffett worked until she was 103, then died the next year.  That’s a good lesson for our managers.

Question 3:  You are both generous.  What are the joys of giving and what are the pitfalls of donating money?

WB:  I’ve never given up anything that made a difference to me.  There are people that drop in the collection plate an amount that makes a difference in their lives.  I’ve never given a penny that way.  I’ve lived a long time, which gives you a huge advantage in accumulating money.  I’m giving away excess, not necessity.  What I am doing is useful, but it isn’t on a par with people who give real money.  Doris my wife gives away money and time; which is a real cost, she gives help beyond the money.  She is retail-I am wholesale.  You should give to things that you personally have interest in.  I won’t prioritize your giving.

CM-Regarding pitfalls, I would predict that if you have an extreme political ideology, you are very likely to make a lot of dumb charitable gifts.

WB: If you hang around Charlie enough, you get the sunny-side of life.

Question 4: What would you do if you could start over?

WB: You have to find your passion in life.  I would choose the same job.  I enjoy it.  It is a terrible mistake to sleep walk through your life.  Unless Shirley Maclain is right you won’t have another one.  Dad had a business, with books on his shelves and they turned me on.  This was before Playboy.  If he was a minister I’m not sure I would have been as enthused.  If you have obligations, you have to deal with realities.  Go to work for an organization you admire or an individual you admire. Which also means most MBA’s I meet would be self-employed.  I went to work for Ben Graham.  I never asked my salary.  Get the right spouse.  Charlie talks about the man who spent twenty years looking for a perfect woman and found her.  Unfortunately she was looking for the perfect man.  If you are lucky you will be happy and as a result you will behave better.  It makes it easier.

CM:  You’ll do better if you have passion for something in which you have aptitude.  If Warren had gone into ballet, no one would have heard of him.

WB:  Or would have heard of me very differently.

Question 5:  What advice would you give to the quieter population to raise their visibility and gain recognition they deserve?

WB: I avoided all glasses that had public speaking; I got physically ill if I had to speak.  I signed up for a Dale Carnegie course.  I gave them a check for $100, and then I went home and stopped payment on the check. Then I was in Omaha, I took $100 cash to Wally Kean, I took THAT Carnegie course, and then I went to the University of Omaha to start teaching, knowing I had to get in front of people.  Ability to communicate in writing and speaking is under taught and enormously important.  If you can communicate well, you have an enormous advantage.  Force yourself into situations where you have to develop those abilities.  At Dale Carnegie-they made us stand on tables, I thought maybe I’d gone too far.  You are doing something very worthwhile if you are helping introverted people get outside of themselves.

Question 6:  How can I grow a small business into a big business?

WB:  Berkshire was a small business at one time.  It just takes time; it is nature of compound interest.  You can’t build it in one day or one week.  Charlie and I never tried to do a masterstroke to convert Berkshire into something four times bigger.  We have felt and kept doing what we have understood consistently and have fun doing it then it’ll be something quite large at some point.  Nothing magical.  It would be nice to multiply money in a few weeks.  In a general way we have done the same things for years.  WE will have more businesses in a few years, some will do worse, and most will do better.  It is an automatic formula for getting ahead, but not galloping.  We are happy not doing anything at all.  As Gypsy Rose Lee said, “I have everything I had before, just two inches lower.”  We want everything in two years to be higher.

CM:  It’s the nature of things that most small businesses will never be big businesses.  It is the nature of things that most big businesses fall into mediocrity or worse.  Most players have to die.  We have only made one new business, and that is the reinsurance business- run by Ajit Jain.  We only created one small business into a big one.  We’ve only done that once.  We are a one trick pony.

WB:  Without Ajit we wouldn’t have done it all.

CM: The best investment we ever made was the fee we paid to our executive recruiter to find Ajit Jain.