Warren Buffett

View from the Chair: Windermere's Market Perspectives (May 2019)

Normally, I use this monthly blog post to share our own views on the markets and investing. However, this month, I’m choosing to instead share some perspectives from two of the best: Warren Buffett and Charlie Munger.

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The first weekend in May is unlike any other weekend in Omaha as annually, 40,000+ individuals make the journey to attend the annual meeting of Berkshire Hathaway. Last year, I was fortunate enough to attend the meeting in person for the first time. This year, despite not making the trip, thanks to the power of technology, I was able to catch the majority of the meeting on a replay of the live stream as well as the Monday morning CNBC three-hour masterclass with Warren and Charlie

Here are a 8 top takeaways from these two legendary investors and human beings:

1.) Remember what you are buying

Warren routinely reminds us to focus on what an investment in stocks really is - an ownership interest in a business. Asked about investing in IPOs, Warren encouraged individuals to challenge themselves to write out a rationale for why they are buying a stock (IPO or otherwise) at a given price - I am buying XYZ company for $x because (fill in the blank). He cautioned that if you can’t do that - or can’t come up with a reason beyond liking the product, hearing about it on CNBC, or following your neighbor’s advice, it’s best to move along.

Warren also emphasized how important it is to pay the “right” price for an investment (based upon your research). In Warren’s words, “ a business does not know how much you paid for it.” “Any investment can be turned into a bad deal by paying too much”

Lastly, as they have both done in the past, both Warren and Charlie emphasized not trying to time the market or worry about prices day to day

2.) Don’t dismiss capitalism or America

During Saturday’s meeting, Warren proudly declared himself a “card carrying capitalist” While not dismissing the inequalities in our country or denying his personal democratic allegiances, he made the case that the system is working and expressed his doubts that the US would adopt socialism in the future. In Warren’s words, “when you look at what was here in 1776 and look at what is here now, this country has done an incredible job in terms of deployment of resources and human ingenuity and that is a product of a system

Towards the end of the meeting, Warren also discussed their success and how fortunate he feels to have been an American. “This country has treated us incredibly well. We’ve had this huge tailwind which I wrote about in the annual report and it wouldn’t have happened in any other country….We’ve been very lucky that we’ve been operating in this country at this time”

3.) Better to collaborate

Charlie and Warren discussed the special relationship they have had and how the ability to collaborate on key decisions have helped them both personally and professionally. Whether it’s a trusted advisor or a business partner, being able to voice your ideas and have someone respectfully challenge them and help you further explore your thesis is exceptionally valuable. And as Charlie said to Warren “you usually end up agreeing with me. You’re smart and I’m right”. As the meeting wound down, they were asked about how they resolve conflicts. Both men stated they don’t as they’ve never been in an argument. Warren encouraged the audience to be cognizant of who you spend your time with - “having the right partners in life is enormously important. It’s more fun with a partner"

4.) Value investing

When questioned about whether a recent acquisition of Amazon in the investment portfolio was true to Berkshire’s value investing principles, Warren quoted Charlie saying “all investing is value investing. Putting out some money now to get some more later on – based on calculations as to the probabilities of getting that money and when you’ll get it…”

He went on to say that all the same calculations go in to valuing a company regardless of its multiple. If you can buy into a business now for less than what you think it’ll be worth in your specified time period at your desired rate of return, it is worth a closer look

5.) Don’t overdo delayed gratification

A young investor asked the two men about their advice on teaching the latest generation about delayed gratification and savings. Warren’s reply was somewhat surprising based on his frugal and savings-oriented nature, and of course contained a bit of humor “Delayed gratification is not necessarily an unqualified course of action under all circumstances.  I always believe in spending 2 or 3 cents out of every dollar I earn and saving the rest”

He cautioned that you need to enjoy your life and do things that bring you and your family joy. He then remarked about the people he has met in his lifetime and how he doesn’t think amassing more wealth will necessarily make you happy. “One thing you should understand - if you aren’t happy having $50,000 or $100,000, you’re not going to be happy if you have $50 million or $100 million”

6.) Find a niche

When asked about how the industry has changed since they began their careers, both men agreed that it is presently a more difficult environment. Charlie stated that it’s more important to specialize now and that the generalist/diversified approach they have taken likely won’t work anymore. As only Charlie could state, “no one wants to go to a doctor that’s half proctologist and half dentist”

7.) Think beyond our borders

While Berkshire tends to invest primarily in the US, there were many questions discussing potential investments abroad. Both Warren and Charlie did not dismiss the idea and said they’d be willing to consider opportunities (in the UK and China for instance, each of which were brought up in questions). Charlie was also sure to let the crowd know that they are in fact in China already - via their Dairy Queen holdings!

8.) Don’t lose sight of what really matters

Today’s world makes it easy for us to forget what really matters in this world. When asked what they value most in life today, Warren quickly replied - “it’s the two things you can’t buy - time and love. I’ve valued those for a long time.” Charlie, always quick with his wit said, “well, I’d like a little more of it”

Thanks for the words of insight and advice Warren and Charlie. The world is a better place with the two of you in it.

Invest on,

Pam


Berkshire Hathaway Annual Meeting: Top 5 Takeaways

 

Attend the Berkshire Annual meeting and you'll quickly realize it's a bit like drinking from a fire hose.  There is an astounding amount of content covered during this event and every word spoken carries an immense amount of meaning and content.  Summarizing six hours worth of wisdom is no easy task but here's my best attempt.  

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1.)    Focus on the big picture and stay the course – Warren acknowledged the “noise” in the markets, whether it be interest rates, trade, or politics.  He overlayed that with countless observations and statements proving that there’s always been noise.  He has lived under 14 of 44 presidents (7 republican, 7 democratic), he’s lived thru wars and terrorist attacks, he’s witnessed all levels of interest rates – and yet, throughout it all, GDP per capita has increased 6 times and the stock market has gone from Dow 100 to Dow 24,000.  We’ll never get rid of the noise – but we can put in some earplugs and continue to invest in businesses

2.)    Productive vs Non-productive assets  - when asked about Bitcoin, Warren and Charlie focused squarely on the distinction between productive and non-productive assets.  With a productive asset (like a stock or a farm), you benefit from ongoing cash flow and appreciation in the price of the asset.  With non-productive assets (like bitcoin or gold), all you are counting on is that the next person will pay you more (based upon their belief that someone else will pay them more).  You are speculating on price – not owning an asset that has the ability to produce something on your behalf.  Always know what you own and why you own it

3.)    Trade – As they simply stated, everyone wins when there is free trade.  US and China are the dominant economies in the world and Warren & Charlie don’t anticipate either will do anything foolish when it comes to trade.  Warren did remind us that some citizens (ie: US factory workers) may be personally harmed by trade negotiations  and that America must not leave them behind

4.)    Perfection is unattainable – Even Warren and Charlie make mistakes.  They openly admitted to having missed the opportunity in Google and Amazon.  They acknowledged the damage that has been done at Wells Fargo.  They expressed challenges in putting cash to work for new deals.  They reminded the audience to always keep learning (from mistakes and successes) 

5.)    If you are in a position to try, you should–  Health care costs have risen to 18% of GDP (from 5% of GDP in 1960).  No one would disagree that the system is in need of major improvement.  Berkshire has joined forces with JP Morgan and Amazon to explore solutions and refinements to the health care system.  Warren and Charlie both acknowledged it wouldn't be easy - but as Warren said "We are in a better positioned than most to try - and so we should do just that"

181 years of combined wisdom (between Warren and Charlie) was a privilege to experience.  I have at least 50 more takeaways that will make me a better student, investor, learner, and human being.  Thanks again for having us.  Until next year!