Our Trip to the Berkshire Hathaway Annual Shareholders Meeting

This weekend my wife and I attended our first Berkshire Hathaway annual shareholders meeting in Omaha, Nebraska. It was phenomenal. We stayed at a newish hotel, Springhill Suites (owned by Marriott) in Council Bluffs, Iowa, which is only about 5 minutes or so from the Qwest Center in Omaha, where the actual meeting took place. There’s a big difference between meeting veterans and rookies like us. We didn’t really know what we wanted out of the meeting, except that we wanted to be around for the entire Q&A with Warren Buffett and Charlie Munger on Saturday. We knew we wanted to see the Berkshire movie, too, which is different every year and has a reputation for being excellent.

We arrived at our hotel in Council Bluffs on Friday evening. Council Bluffs is located in the Southwest corner of Iowa, while Omaha is around the Southeastern corner of Nebraska. Council Bluffs seems to be a newish area, surrounding my casinos, shopping, restaurants and a large movie theater with an IMAX. We arrived at the hotel just before 6 pm and set out for the first shareholders event at Borsheims, a jewelery store wholly owned by Berkshire. It was a large event, mostly an opportunity for Borsheims to sell things, but investors do get a discount. Hors d’oeuvres were served, but we didn’t bother, because the line was ridiculous. Parking was an adventure as well. There were a lot of people there. We went into the store, and as we looked through the variety of expensive jewelry, crystal, fancy plates and dinner ware, etc., I couldn’t help being repeatedly struck by the thought that the store was full of the kind of things that Buffett himself would never buy. At least, in a way he wouldn’t buy it – he did buy the entire business. One woman near us was talking about how she tried on a thirty karat diamond ring – valued at around $1 million. Blatant rampant consumerism at its finest. The shareholder’s weekend ends up being an incredible sales weekend for lots of the Berkshire businesses, including Borsheims. We didn’t stay long and didn’t buy anything. We went downtown in Omaha and had sushi at a restaurant my wife chose, then went to the theater near our hotel and saw the new X-Men movie, Wolverine. We were in bed before 11.

On Saturday we got up promptly at 6 am and got ready to go to the meeting. We were both tired but excited. When we got down to the hotel lobby, it was already full of business casually dressed Berkshire shareholders adorning their shareholder credentials on lanyards around their necks. (Note: there are at least 3 type of the credentials, which were all really cool: (1) ours said “Partner”, (2) if you were an international s/h you had one that denoted that, or (3) the press had a credential as well. All were pretty similar, and a neat way to issue tickets into the meeting.) The place was buzzing. In the Omaha area, the shareholders meeting is like a national holiday. The front page of the Omaha World Herald was a huge graphic just like the one on our shareholder credentials, and the paper was filled with articles about Buffett’s year, investing style, and the meeting itself.

We arrived to a backed up exit ramp in front of the Qwest center about 5 til 7. There was a long line of people backed up around the side of the Qwest center. We paid $9 to park for the day and joined the line (I don’t have any advice as to how to park – we got the last spot in the Garden Inn’s parking garage). As soon as we got through the door, we went straight for seats and got pretty good ones. We were far away but had an unobstructed view of both the stage and one of the many big screens that the meeting was being broadcast on. We did sneak up closer after the Q&A, when the actual meeting part was going on, and got to see Bill Gates and the rest of the board of directors nearby (celebrity sighting!).

We settled into our seats and met the people on either side of us as we settled into wait. We met Bob and Sue Larson (from South Dakota), a retired farmer and nurse, respectively, and very nice people. They have been shareholders for more than 10 years and were attending their 10th shareholder meeting (if memory serves me correctly). My wife and I both really enjoyed talking to them both. They seemed like really good, down to earth people.

On the other side of us we met Tom Pace and his personal assistant, Joe. Tom Pace is an author and business man, check out his site. He buys and sells used cell phones and according to his site, this is a multi-million dollar business. He told us a great story about what he’s learned from being a mentor. Very charismatic guy. His wife (I assume) was with them, too. Check out his book as well, The Kid and the CEO. It’s about what you can learn from mentoring others. He told us an excellent story about how Domingo, a young fellow he mentored, gave him the ideas to start his current business and to invest in Berkshire, amongst others. Domingo currently lives in Mexico and buys cell phones from Tom, which Domingo sells for double his cost. Domingo once allegedly walked up to Buffett, stuck out his hand and said, “Hi, I’m Domingo.” Warren replied, “I’m Warren,” and shook his hand. It sounds like they’re both doing well. Cool stuff. The people you meet at events like this tend to be interesting people.

The Berkshire movie was very entertaining. It was filled with ads from lots of Berkshire owned companies, and prominently featured cameos by people like Tiger Woods, the Geico Gekko, and John Stewart. It was very well done. And the only way to see it as to be at the meeting, which is kind of cool. The meeting isn’t webcasted. There isn’t footage of it. If you want to see it you have to actually come to the meeting. Since I was able to go to the meeting this year, I like that.

The main event (for us at least) was, of course, the Q&A with Warren and Charlie. Warren was the charismatic, charming, folksy, funny person that people have come to love. Charlie Munger is actually really funny, too. His answers were short, dry and abrupt, and often drew a laugh from the crowd. Warren obviously sort of likes the spotlight, but Charlie sits up there like he couldn’t be less interested in what was happening. They drink cokes and eat See’s candy the entire time. I bet they went through twenty boxes of candy. They can really put that stuff away.

This was the first year they had journalists asking some of the questions. They were instructed to make sure that a large percentage of the questions were Berkshire oriented. There was also a lottery for in-person questions asked by the audience. The format worked pretty well. The questions the journalist tended to be pretty good ones. I guess last year a lot of the questions weren’t about Berkshire. One was whether Warren believes in God (he said he’s agnostic). Several were about environmental or political issues involving Berkshire subsidiaries. This format worked really well and we got to hear Warren and Charlie sound off on a number of issues. Overall, I’d say the things they tended to say were consistent with what they always say. My wife and I were both impressed with how witty and articulate they both were at their advanced ages. If Buffett has lost anything, then he started with too much. Here are some of the issues they addressed during the Q&A:

Discounted Cash Flow Analysis

In case you don’t know, discounted cash flow analysis is an analysis of all the cash flow for a particular company over time, discounted based on the time value of money. In other words – how much cash are you getting (is the business getting) over the life of an investment in exchange for your investment of cash today. Warren and Charlie said that if you need higher mathematics or a calculator to decide whether something is a good investment, move on to something else – it should be obvious. According to Charlie, “they do [discounted cash flow analysis] in business schools because, well, they’ve got to do something.”

On Ratings Agencies

Buffett said he was confident that their ratings downgrade wouldn’t affect Berkshire’s cost of borrowing. In fact, he said that as a rule, he doesn’t really pay attention to ratings for the most part, unless he thinks they’re contributing to an investment being undervalued (low ratings could potentially give a bond a higher yield than it deserves).

On His Successors

There are 3 candidates for the CEO position, and all three are internal candidates, currently running Berkshire subsidiaries. There are currently four candidates for the position of Chief Investment Officer, and it could be one, all or any combination of those candidates for the investment position. If I had to guess with regard to the CEO position, Buffett speaks extremely highly of Ajit Jain. He’s very impressed and taken with him. One of the questioners asked why not name his successors now, so he could train them. He said that all of his successors were in more productive positions than they would be if they were hanging around with him in his office. What are they doing to do, he asked, hang out in my office while I read 5 newspapers and listen to my phone calls? It’s a good point. If Ajit were the next CEO, for instance, it would take him away from running General Re, a job he’s reportedly extremely good at. Buffett offered the example of General Electric. They had three internal candidates for Jack Welch’s job. When Jeff Immelt was named CEO, the other two both left to run other businesses. There’s really no benefit to Berkshire if that were to happen. It’s hard to argue with his logic.

As for the investment position, he said that the candidates were both inside and outside the organization. He didn’t give any hints as to who they might be, but he’s said in the past that they are young to middle aged, don’t need the money and share his investing values. This could be a lot of different people. When asked how his candidates did in 2008, he said that he would guess they did no better than the S&P (-37% in 2008), but that over a ten year period they outperformed the market by a decent amount. He said they weren’t looking for the kind of manager that went all to cash before 2008, because this would be the type of person who thought they could time the market. They admitted they can’t time the market, and mentioned that they don’t think anyone else can, either.

On Business School

Warren said that if he ran a business school, there would only be two courses: One on how to value a business and one on how to think about markets. He also brought up how much time they spend on the efficient market hypothesis in business school. He doesn’t see how they could possibly spend as much time teaching it as they do, “after you say, everything is priced correctly, what do you do for the rest of the hour?”

On the Strength of the Dollar

“I guarantee you the dollar will buy less 5, 10, 20 years from now.” On the other hand, he admitted that currency valuations versus other currencies are extremely unpredictable because all the other countries are running enormous deficits as well.

On Berkshire’s Future Growth

Buffett’s stated goal when he had his partnerships was to beat the Dow by at least 10% every year. Now he uses the S&P as his standard and his goal is to beat the S&P by a few points every year. He said it’s “impossible” to expect the 20% annual returns they had when the company was significantly smaller. He also made it clear that he does not plan on paying a dividend or spinning off any businesses any time in the near future.

Obviously, in the hours of questions asked that day, this encompasses only a few of the questions that were asked. I’m sure transcripts of the entire meeting will be available if you’re interested in more specifics. Buffett has made a lot of people very wealthy by managing their money. We had a great time at the meeting. Despite the endless sales pitch for all the products owned by Berkshire’s subsidiaries, it was a great time. Thanks for reading.