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| VJ Arjan, Ry Zamora, and Trey Jackson infront of the CenturyLink stadium in Omaha, NE |
To
use the phrase "an experience of a lifetime" to describe the Berkshire Hathaway shareholder's meeting would probably not do it justice.
It
was Saturday, May 3rd - the Scarlet Kings meeting in Omaha, Nebraska. Ry Zamora, Trey Jackson, and VJ Arjan flew to
Des Moines, Iowa, and drove through 2-3 hours of farmland to Omaha to attend
the Berkshire Hathaway shareholder's meeting.
We
all sat down at the figurative boardroom table across from Warren Buffett and
Charlie Munger and were content on just letting them talk as we listened carefully with both our eyes and ears.
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| Inside the CenturyLink stadium |
What
was remarkable was that of the 38,000 people in the stadium, there were many,
many more who flew from every corner of the world to gain nuggets of wisdom,
not only about investing but about life as well. There were people who came as far as Italy,
Shanghai, Canada, Taiwan - all over the world.
We
are not going to go into the details of every question that was asked and
Warren and Charlie's responses.
You can
find them here:
But
what we will try to do is to put down our experience of what the experience was
like and also our perspective of how Buffett operates Berkshire and what we felt
were some of the reasons he and Charlie are able to make it work.
First
of all, let's talk about the "Buffett Shrines". Ry had talked in length when he went last
year about the booths set up in this massive warehouse under the stadium itself
which are like shrines set up for each of one Berkshire's companies.
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| Dairy Queen stall |
There were so many of these stall set up that
we did not have the to really visit all of them. You name it, they were there: Dairy Queen, Coke, NetJets, Borsheim's,
Heinz, and, of course, Geico, just to name a few.
Here
is a video below:
Perhaps learning from his branding experience with Coca-cola, Warren and Charlie have turned the entire shareholder's meeting into a wonderful and completely shameless promotion of their companies.
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| Coca-cola stall |
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| Ry Zamora in front of the Geico gecko |
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VJ Arjan with The Acme Brick
When we first entered the massive warehouse that all the Buffett-shrines were kept, out
of the corner of our eyes, we saw a huge group of people gathering at the end and we knew that 'The
Man' was here.
So while Ry got something
to eat, Trey and VJ went to see what was going on and it was Warren Buffett and
Bill Gates participating in a newspaper tossing contest with other shareholders.
Here
is the video below:
Afterwards,
we went to the stadium and even though we were there 40-45 minutes early, the
only seats we could find were all the way at the top of the stadium. We were able to find much better ones, thanks
to Ry's efforts, after the lunch hour, but up till that point we had seats
shown in the picture.
|
Q&A
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| Warren and Charlie on stage |
After
the introductions and seemingly endless commercials for several of Berkshire's
companies on the jumbotron, it was time to talk for the 7-hour Q&A session.
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| Bill Gates (in green) |
The format was as follows: a question from the media (CNBC, Bloomberg, and Reuters), then a question from an analyst (Moody's, S&P, etc) and then one from the audience. Here is a sample how the question and answer session went - in this question, Warren talks about the activist approach that 3G has and whether Berkshire can learn to manage their companies with that model.
https://drive.google.com/file/d/0B_G3ob4AabOtU2p2dTJSQ2ctWVk/edit?usp=sharing
A
key point that needs to be made. It is
not that we ourselves are "Buffett-worshipers" although we met
several at the shareholder's meeting.
There may have been times when Warren went into what can be called
"The happy grandfather" mode.
It is the facade that he has perhaps created when we see him on CNBC or
Bloomberg. It happened particularly when
he wanted to avoid touching upon a certain question.
Warren
and Charlie are remarkably skilled at keeping control of the flow of the
conversation even though they were being grilled with the questions. For most of their answers, it seemed that Warren
and Charlie were very frank with their responses and the "nuggets" of
wisdom below are assuming that they were speaking in earnest. Just a point to keep in mind.
The
key nuggets of wisdom, out of several, where these:
An almost obsessive and thorough knowledge and analysis of the
numbers
Now
it might be normal in Warren and Charlie's circle perhaps, but it was incredible
to see Warren, who is 83, and Charlie, who is 90, rattle off numbers from
various businesses Berkshire owns like they could do it in their sleep.
It
would not be surprising if Warren and Charlie have a sort of photographic
memory because there were instances where not only could they quote the
numbers, but they would point out in which paragraph on a certain page of a
certain year's annual report the number was mentioned.
Social Intelligence and Birds of a Feather
Warren
mentioned this term "social intelligence" several times along with the term "business intelligence". What was apparent for those who were looking
for it was that along with having business IQs that are off the charts, Warren
and Charlie are very good at reading people and reading their values as well. They are very good at making sure that the Berkshire
values fit well with those of the managers of the companies they own.
There
was one instance in which, Warren talked about Choice RV, which is a company that actually went
bankrupt before Berkshire acquired it 10+ years ago. The owner desired a laissez-faire approach
from the private equity financiers, but it turned out that that was not what he
got. The managing directors of this
venture from the private equity firm kept meddling into the business affairs of
the RV manufacturer and due to a clash of personalities, the company
subsequently went bankrupt.
Warren
and Charlie took notice of this and saw how their passive investment style
would suit what the CEO at Choice RV was looking for. 10+ years later, this company is now doing $4
billion of business and that number is expected to double in the next 3-4
years.
It
also seems that Warren and Charlie know the kinds of company they keep. They seem to know the kinds of people and
companies they want to "hang around" with. Hence the phrase: birds of a feather flock
together.
There
were several questions about whether or not they should try joint ventures with
such-and-such a group, or whether they should try "xyz" sort of
financing, and both of them acknowledged that there may be potential for that
to occur, but it was very, very low.
As
Charlie put it, "if our performance so far is considered a sort of failure
for some in the face of higher returns elsewhere, then we want more of this
kind of failure." Basically, if an
approach has worked, and is time tested then it is best to stick to what is
working.
Ignorance-removal
This
one was huge because it showed to us that as much as outsiders might think they
have come to see the Oracle of Omaha, Warren and Charlie actually come from the
fact that they don't know and as Charlie mentioned seek to be very good at
"ignorance removal".
Charlie
mentioned that he believes that for Berkshire shareholders, what you don't know
can hurt you and therefore a great effort goes into this.
One
of those epiphany moments for all of us was when Warren was asked about
self-driving cars, which are being produced by Google at the moment and there
is a trajectory of between 5-10 years before they become mainstream.
Warren
discussed that as much of a cash-cow that Geico has been for Berkshire
shareholders, he estimates that should self-driving cars become mainstream, it
will reduce accidents caused on the road by human error by up to 90%. He mentioned that with the drastic reduction
in accidents, the auto insurance company premiums would collapse and the
industry, including Geico, would be devastated.
To
see that Warren was not attached to his companies and he truly considered new
knowledge coming into about coming trends and such was amazing. He had "removed the ignorance"
about self-driving cars and, therefore, keeps an objectivity towards his investments.
This
was just once instance of "ignorance-removal", there were several
instances in different industries.
For
example, Charlie had mentioned that when they bought See's Candies they
realized the power of branding and had learned about all the aspects of
branding and applying it to all the other Berkshire companies. He said that if we had never been through the
"ignorance-removal" process about branding with See's, they would probably never have taken their very-famous stake in Coca-cola.
Buy-and-hold?
Warren
had mentioned that their investment approach is very simple and that is that as
long as there is a positive return on investment, more dollars are coming in
than going out over the long-term, the business is worth owning.
However,
what is interesting is that he never used the term "buy-and-hold",
which is often attributed to Buffett's style of investing. He did mention that he liked to buy companies
that showed a competitive advantage over the long-term. However, when they no longer have that
advantage he is content with either lessening his stake or selling it outright
as was the case with his stakes in PetroChina and Conoco-Phillips.
On a larger note, this
"buy-and-hold" theory of course is flawed, as no company will last
forever, no matter how great. A case in
point is if an investor split up his original portfolio in 1896 when the Dow
Jones was first created, of the 12 companies that made up the Dow, every one except for General
Electric went bankrupt.
Knowing your core competency
There
was a question that came up from a tech entrepreneur who said that most
entrepreneurs today are focused on the tech field, would Warren or Charlie have
decided on another field if they were young in today's time. Both of the answered that they would do
exactly what they are doing right now.
Charlie
said something that was very powerful.
He said, oftentimes, for young people today, one of the ways to find
your core competency is to find out what you are not. If you are a writer and you don't know that
yet, try taking a physics course and you will eventually run out of things to
try which you are not.
Whatever remains
- that is your core competency.
Certainly it is a long-winded approach, but ultimately it is an effective strategy
nonetheless.
Partnership
Throughout the entire 7-8 hours that Warren and Charlie were
grilled with question after question, it was hard not to notice the incredible
level of respect and trust these two men have for each other.
Warren called it "a 60-year old marriage without an
argument". If it is true, what a
relationship that must be indeed.
Perhaps "It" is what allowed a business partnership to last
longer than most marriages on earth last is an intangible that cannot be
quantified by a financial analyst.
Whatever "It" is, it has perhaps been a key to Berkshire's
growth and success story.
What
is also remarkable is that very few individuals who have worked for Warren and
Charlie leave Berkshire. There are
exceptions like David Sokol (Lubrizol incident), but those are clearly the
exception.
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| At the Borsheim's Reception |
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| At the Menlo Cafe in Menlo, IA (population ~300) |
A Reflection On The Oracle Of Omaha
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| Warren Buffett |
It's
clear that whatever formula Warren and Charlie have used to build Berkshire
into the megacap firm it is today, has worked and continues to work time after
time for them. It's also clear that
Berkshire Hathaway has done extraordinarily well in all sorts of economic
environments and the impression that was left in our minds was that in the
future nothing will materially change regarding the company's prospects.
There
were several questions about Warren's successor and he mentioned how the plans
are in place should anything happen. He
was, however, quite confident that Berkshire would continue to keep growing for
several, several decades after he and Charlie are gone.
To
many of us observing Warren and Charlie, perhaps some of the greatest investors of all time, it is like watching a piece of history
come alive. They have created a standard of excellence so wonderful that it lives on in posterity and longevity, it seems, has been embedded into the Berkshire's
culture.
As
simple as it looks from the surface, Berkshire's model may be very difficult to
replicate because the characters of the helmsmen at the top are difficult to replicate.
Although
Warren and Charlie's business intelligence is off the charts, there is the
intangible emotional and social intelligence which most pundits cannot
quantify, that may indeed be the real secret sauce to their success. That secret sauce may consist of such
elements as "knowing your core competency", participating in "ignorance-removal"
exercises, being with "birds of the same feather", and building
relationships and partnerships within an organization for life.
It goes without saying that
barring some emergency or unforeseen circumstance, going again next year to
visit the Oracle of Omaha again is pretty much a foregone conclusion.
The
next meeting will be on Sunday, June 1st, 2014.
For
those who have not attended a meeting, but would like to attend, please email
your wish to VJ Arjan at scarletkings@gmail.com
Also it seems that there are many domestic and
international readers who are following our blog posts not only in the United
States but all over the world including Europe, Latin America, and Asia. If you
wish to be added to our email list, please email at scarletkings@gmail.com
