Meeting Minutes

We had a wonderful meeting at Chili's.  We had 3 attendees: (from left to right) VJ Arjan, Ry Zamora, and Elena Swindull. 

Ry's Trip to Omaha and the Berkshire Culture

There are not too many individuals in their early 20s on planet Earth who would drive by themselves for 16 hours through mostly desert and farmland to attend an investor's convention in Omaha, Nebraska. 

Ry Zamora is one of those individuals and the convention he attended was Warren Buffett's Berkshire Hathaway annual shareholders meeting.

Listening to him tell us his first-hand account of the meeting was a very fascinating experience.  He proceeded to tell us about the experience of what it was like and also the procedure of the meeting.  There was a good deal of material, but we will try to capture it here.

Just going into the convention hall there is an enormous line of people waiting to get in (there are about 30,000-40,000 people who attend this annual meeting) and right beside the line, there are numerous protests from civil rights activists groups who are condemning Berkshire Hathaway.  Ry thought it was quite ironic that someone who is  looked upon as a grandfatherly figure, like Mr. Buffett, would have such vehement detractors as well.

Once one enters the building, there are essentially set up a vast array of "shrines" (Ry's word) installed for each one of Berkshire Hathaway's companies.  He noted that many of the individuals there were, rightly or wrongly, so-called "Buffett worshipers".

(The Geico Gecko, an insurance company owned by Berkshire Hathaway)

(Fruit of the Loom, a clothing company owned by Berkshire Hathaway)

At about 9 am, the show begins.  And it literally is a show - Ry explained that almost like a concert, some dance music starts playing and Warren Buffett, Charlie Munger, Bill Gates, and the rest of the Berkshire Hathaway directors come on stage and start dancing to the music.  The whole place erupts, of course, as the fans get to enjoy seeing their stars.

(A view from inside the convention)

Warren kicks off the meeting and gives a short 30-45 minute speech about the performance of Berkshire Hathaway during the past quarter, mostly the key statistics and general outlook of the business.  After this is over, from 10 am to 4pm, is the question and answer session.  Mr. Buffett and his partner, Charlie Munger, field questions from online and in the audience about not only the business, but also about their take on the economy, etc.  It turned out that this year, Ry mentioned that most of the questions were about the state of the economy rather than the prospectives of the company.

Regarding the economy, Buffett explained that he remains optimistic on equities and lauded the FED Chairman's Bernanke's job.  He expressed concern and uncertainty regarding how exactly the FED will unwind its balance sheet. 

Asked about the mega-mergers in the airline industry, he mentioned that airlines are a "capital-intensive, largely commodity type business" and has been a death trap for investors since day one.

In his answer to how Buffett picks a stock to buy, he responded that he looks for companies that display a penchant for "brains, passion, and Kaizen (Japanese term meaning constant improvement).  He is also looking for high barriers to entry and competitive advantages.  In his view, economics trumps personality.

There were several more questions and answers and perhaps we will list them all in another post if we can.

After this Q&A session is over, Mr. Buffett accompanied by Bill Gates take a tour of all the "Berkshire shrines" all the while competing in newspaper tossing competitions, eating Dairy Queen, and playing the ukelele.

Ry was at one point walking about and saw Warren Buffett and Bill Gates come around.  He was about 10-15 feet away from them.  He tried to get close enough to talk to them or even snap a picture, but there were so many people around them that he couldn't get close enough. 

Ry also met an individual who claimed to have had a sit-down with the Oracle of Omaha and the impression that he got was that Mr. Buffett is actually quite superficial and that the grandfatherly external is really a cover for a very shrewd businessman underneath.  A brilliant strategy on Warren's part, if that is the case.

(Rockefeller dispensing nickels and dimes to children)

VJ Arjan noted that this was not the first time in history someone has taken on that strategy.  One of the greatest and shrewdest businessmen of all time, John D. Rockefeller Sr., would take on the same persona in his old age dispensing nickels and dimes to children.

Elena's Visit to South Korea

If it wasn't enough to hear of Ry's experience in Omaha, Elena had another truly insightful 

and fascinating relaying of her recent travel to South Korea for a class she is took in International Business.  

She along with her classmates were taken inside several of the large Korean corporations and given a tour of their facilities.  She also toured the world-famous DMZ (demilitarized zone) between South and North Korea.  It was truly amazing to hear her describe what she saw there. 

There are several pictures that are attached below for which I would like to thank Elena for giving her permission to share here.

(DSME Shipping)

(Fleets of cars waiting to be exported)

(The astounding size of the facility)

The first company she visited was DSME Shipping (some of you may have heard of Daewoo, which is affiliated with DSME).  She took note of the sheer size of the corporate campus.  There is almost a university on campus not only for training but for the business as well.

She was then taken to visit the corporate center of Hyundai Motors.  Although the presentation their group received was from a PR rep and not very informative, they were allowed to go inside and watch the assembly line where cars are made.  The sheer size, again, of the assembly line is what Elena took note of.  Each car will take its turn down about 50 assembly lines all connected by one conveyor belt.  She estimates the size of this belt and the assembly lines to be about a quarter of a mile.

(Inside the Hyundai Corporate Office)

The PR person revealed very little about the company's practices, which Elena believes is to protect certain proprietary technologies.  The corporate hierarchy is represented by the color of each person's vest - certain colors signify higher ranks.  Also, every mechanism that can be automated is automated and when a person is involved in some task, oftentimes there is a quality analyst that confirms that the job is done correctly, right on the assembly line.

Elena, after asking around a bit, found that the average salary of an automotive worker at Hyundai is $80,000, which is incredible as Korea was considered a third world country only 25 years ago.

The next company they stopped by was a Korean Broadcasting station, and Elena was impressed by the amount of equipment and sophistication of the technology they had there.

Their group then went to the Korean Stock Exchange.  As one can imagine, Elena and the group were excited to see the hub-bub of people screaming trading orders like at the New York Stock Exchange.  

However, she was very surprised when she entered the trading room to find absolutely nobody there.  The PR rep mentioned that the Korean Stock Exchange had gone to a completely electronic trading system since 1997.  They have had, therefore, very few systemic errors, often caused by humans to disrupt their trading systems since the change.  Some of the characteristics the rep used to describe the electronic exchange were "liquid", "velocity", and "proprietary system which can execute trades in 40 milliseconds".

(A view of the Korean Stock Exchange trading floor)

In a small Q&A session after visiting the KRX, the rep mentioned that the greatest challenges that Korea faces are a lack of natural resources which have to be imported because the money is not there in agricultre, a weakening currency, and a dependence on other countries like China and the United States.  The rep also mentioned that another problem the country is facing is that the youth are "overeducated" and therefore cannot land the few jobs that are there in their respective fields.

(The Korean Demilitarized Zone)

The last place that Elena visited was the famous Korean DMZ between North and South Korea.  She noticed how there was barbed-wire that went the entire length of the demarcation, which spans 250 kilometers and is about 2-4 kilometers wide.  Elena peeked through some binoculars and even saw people, farmers perhaps, in North Korea, which is more than most people in the world will see from such a country. 

There has been a history of deception and espionage between the two countries.  North Korea, for instance, has alledgedly built several underground tunnels into South Korea to pass along goods and information - several of these have been discovered, and the North Koreans have denied their existence.

In her conversations with the Koreans about King Jung Un's threat to attack South Korea, virtually everyone shrugged it off, saying that these threats have come before and probably nothing will come this time around as well.

Inevitability of the U.S. Dollar

VJ discussed that the real shift in the balance of economic power may be once the U.S. Dollar loses its status as the world reserve currency.  At the moment, according to the IMF, over 60% of financial transactions are denominated in U.S. Dollars.  However, there have been discussions across the world, and especially amongst the BRICS (Brazil, Russia, India, China, and South Korea) nations to move off the U.S. Dollar and to create another form of currency to denominate their transactions.

Ry has discussed before how the demand for the U.S. Dollar across the world is holding up the value, but once this desire is lost or there is a better alternative for the world, this sharp decrease in demand will come home and a drastic lowering of standard of living can be expected, drastic could be somewhere between 10%-30%.

As prudent investors, VJ mentioned it may be prudent to put some assets that are not denominated in U.S. Dollars as a hedge, such as precious metals (which has been discussed several times in previous meetings) and also a basket of currencies such as the Swiss Franc, Australian Dollar, and the Swedish Kroner.  It may be advisable to own currencies in countries that are not likely to get into a war, as war results in a huge destruction of economic life.  Therefore, the Chinese  yuan or renminbi, may not be the optimal bet, but it may certainly still be an alternative to the U.S. Dollar.

Euro Drama Continues

Although it is not in the mainstream news, the Cyprus financial crisis has been staved off, for the moment.  However, there continue to be splinters in the Union which threaten to dissolve it.

When Mario Draghi, President of the European Central Bank, recently announced certain deadlines to reduce fiscal deficits, French Prime Minister Francois Hollande responded: "He will not let Brussels dictate policy in Paris".

Also popular support for the EU is also losing steam.  Current polls suggest that public support remains highest in Germany, but of the average citizen in the EU, only 45% support the Union as opposed to 64% from the same time a year ago.

Potential Investments

The following were mentioned as potential investment opportunities:

NOV (National-Oilwell Varco) 

Ry has mentioned this as a potential value play. He created a very extensive analysis of this company, which provides equipment for oil and gas drilling.

FLIR Systems (FLIR)

Another value play from Ry.  FLIR is a manufacturer and marketer of thermal imaging system.

FNMA (Fannie Mae) 

VJ mentioned this as a speculative play.  As Fannie reports profits from the slew of home owners who can now afford their mortgage and make payments on time, it seems that this company may be back on the rise again as housing values catch up the the excess that was created in the system from 2002-2007.

AAMRQ (American Airlines) 

VJ also mentioned this speculative play after hearing about it from a friend of his.  The move upwards seems to be propelled by the major reduction in cost with the merger with United Airlines.

The next meeting will be on Sunday, July 7th, 2013. 

For those who have not attended a meeting, but would like to attend, please email your wish to VJ Arjan at scarletkings@gmail.com

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