Berkshire Hathaway recently conducted its annual shareholders meeting. This is often an important and interesting event for value investors. I’ve put together some of the more interesting points made in the question and answer session with Warren Buffett and Charlie Munger.
• Buffett spoke several times about the importance of trust. At one point he said, “Trustworthiness is much more important than the brains.” This is a good reminder of the importance of integrity when evaluating management teams for investment opportunities.
• Berkshire might have earned higher returns overall if Buffett had leveraged its assets, especially early on. A high amount of leverage goes against Buffett’s approach to investing. Risk of loss is always important to him, which is why he focuses on margin of safety when investing. Early in his career, leverage would have risked his net worth, reputation, and even the life savings of many friends and family members. As Buffett noted, he would rather be 100% too cautious than 1% too incautious.
• Both Buffett and Munger were skeptical of the Federal Reserve’s low interest rate policy, saying it was like “throwing money out of a helicopter.” They noted that they had no uncommon knowledge of future interest rates and that interest rates would not affect investment decisions. However, they did say that, “If we get back to interest rates that are normal interest rates, these stock prices will look high. If these interest rates stay at these levels, stocks will look cheap.”
• Buffett took a shot at Whole Foods, and I thought that was interesting. He said, “I don’t see a lot of smiles on the faces of people at Whole Foods.” Even the greatest investor of our generation can be susceptible to behavioral bias. Buffett is known to be a junk food eater, and it appears that his assumption is that others feel the same way about food. Whole Foods are generally full of customers happily paying premium prices for organic produce. Buffett’s bias against healthy eating might be causing him to undervalue the Whole Foods brand. We all have our biases.
• Munger and Buffett don’t like the activist approach to investing, “I can’t think of many activists I’d want to marry into the family”, said Munger. Berkshire’s approach is long-term ownership and activist investors look to create short-term profit, often by distributing the wealth of the company to shareholders. Wealth distribution is fine at limited levels, but reinvesting in the business itself creates better opportunities for investors.
• Buffett does occasionally cite market indicators and make statements about inflation, economic policy, and long-term economic growth, but macro factors play a very small role in his investment decisions. Buffett said at the meeting, “Any company that has an economist has one employee too many.”
• Berkshire has the means and the will to make a big acquisition, but Buffett and Munger are waiting for the right opportunity. Just because interest rates are low and capital is easily available doesn’t mean one has to force a purchase. The same could be said for the cash in Liberty Hill client accounts right now.
• Buffett has often said that his work doesn’t take a genius, just the ability to separate decisions from emotion. Something that is much harder than it sounds. So Buffett doesn’t need to outsmart the market, he just needs to maintain a long-term consistent approach. As he said at the meeting: “”If people weren’t so often wrong, we wouldn’t be so rich.” The focus on long-term value rather than short-term results is the major reason Berkshire has outperformed the market for five decades.