“I was pretty obnoxious when I was young. The only way I got people to like me was by getting rich and giving a lot of donations” — Charlie Munger, Berkshire AGM, 2015.
Charlie was at his best, Warren was sharp and tens of thousands of people flocked to Omaha to see this amazing duo celebrating Berkshire 50th anniversary. One thing though, it seems like Warren Buffett did more than the usual amount of deflecting tough questions and it was a bit disappointing to see that in many cases he chose to answer like a politician rather then provide a thorough answer. The annual Omaha festival was just over and it’s time to summarise the main takeaways from this year’s meeting and there is also a nice surprise at the end of this post…
Buffett already touched upon the importance of going local in the newspaper business as a way to maintain a newspaper as a viable business:
“In Grand Island, Nebraska, everyone is interested in how the football team does. They’re interested in who got married. They’re maybe even more interested in who got divorced.”
This year, being asked about the Van Tuyl–Berkshire’s new car dealership business–Buffett said that the strength of this business is in being a very local business where people want to buy a car from a dealer that they know and trust. According to Buffett, while this business doesn’t enjoy economies of scale, the economics of the business are nevertheless attractive and there are many growth opportunities. My guess is that in the first crisis that the automotive sector will experience we’ll see Berkshire getting aggressive in buying car dealership and expanding it’s reach, while maintaining the “local” appeal of those dealerships. One thing we can all take away is that for some businesses, being local is an advantage and can serve as a moat against big national chains who will try to compete.
“People who drink Coke are happy, people who go to Whole Foods aren’t”
That was Buffett’s poor response to a good question about the long-term trend in beverage consumption (thanks to Oded from Buysidemetics for the link). Consider the chart below, which shows the long-term trend in beverage consumption from 1965 to 1990, a period when carbonated soft drinks took over tap water:
However, this long-term trend is changing:
In a response to a question about that with regards to the Coca-Cola investment that Buffett did, he chose to say that he believes that more cases of Coke will be sold in 2030 than there are now and that people who drink Coke are happy. He also poked at Whole Foods by saying that when he goes there he doesn’t see people smiling. As a big Whole Foods fan I didn’t like his answer at all.
ExxonMobil as an alternative to holding cash?
When he was asked about his in-and-out investment in Exxon, Buffett said that once in a while he will do such investments and did not regard this investment as a mistake because Berkshire made money on it. Commenting on the subject, Charlie hinted that this investment was an alternative to holding cash (dividend yield) and a way to hedge against inflation (which both he and Buffett thought would occur as a result of the Fed’s QE).
“We never said that there should be more people working than are needed in a company”
Ethical questions come up once in a while in those meetings and this year the question was about the partnership with the PE firm 3G that is known for it’s cost-cutting measures and for letting many people go after they take over a company. Buffett said that this isn’t an ethical problem because companies get bloated over time and the guys in 3G are coming in fixing the situation because there should not be more people working than are needed. Personally and based on that statement, I think that Coke could easily be the next target for the Berkshire-3G corps.
Stock market valuation
Buffett: Stocks are selling at fairly high prices historically, but they wouldn’t be selling at those price without interest rates like this. If we get back to normal interest rates then stocks at these prices will look pretty high, if we continue with this kind of interest rates then stocks will look very cheap. And now I’ve given you the answer and you can take your pick.
Charlie: Since we failed to predict what happened and what exists now, why would anybody ask us about our prediction for the future?
Buffett: incidentally, one thing that I can assure you, Charlie and I, as far as I remember, never made an acquisition or turned down one based on macro factors.
And now, a nice surprise
Getting up at 6am on Sunday morning for the 5km Invest in Yourself run was definitely worth it as you can see below:
I rubbed my eyes when I saw Ted Weschler standing alone and nobody approached him, so I did. I was extremely lucky to have him talk to me, one-on-one and answer some questions that I had. He was incredibly open and direct in his answer and I’m really thankful for this. I couldn’t have asked for a better way to end this year’s visit in Omaha.