In February 2017, I chaperoned 20 business students from Peking University to meet Warren Buffett in Omaha. It turned out to be a once-in-a-lifetime trip, an investment pilgrimage of sorts.

In 4 articles, I document what happened and what we learned. I have included a lot of detail, especially on the Berkshire companies we visited and on Warren’s comments. So this is a pretty long account. This article is Part 2 (Part 1 is here).

Part 2: Q&A with Warren Buffet at Anthony’s Steak House

Being a professor has a couple of perks. You can pretty much say what you want, without any corporate considerations. You don’t actually work that much. You can get away with unprofessional clothing (and excessive facial hair). And you can meet Warren Buffett.

Buffett probably receives +5,000(?) invitations for meetings and events every year. And he declines virtually all of them, probably politely. But he does create space in his schedule to meet with students. And if you’re a professor, you can tag along.

In Part 1, I detailed our arrival in Omaha and our morning visit to the Nebraska Furniture Mart. After that, at around 9:45am, we got back on the bus and did a quick five minute drive south to Anthony’s Steak House for the big meeting with Buffet. This was the whole point of our trip so everyone was buzzing at this point.

Anthony’s Steak House is in Western Omaha, just off the I80, and next to a couple really big mobile home parks. It’s particularly easy to see from the freeway because it has a giant cow on the roof. This is actually a really effective marketing approach and is maybe something more restaurants should do. If KFC had a massive chicken on the roof I would probably pull in.

On a side note, one of my students (Jonathan Ly) ended up chatting up the owner of Anthony’s steak house on the flight out of Omaha the next day. My students are awesomely outgoing like that. This is also the same guy who showed up for the Buffett event wearing a green suit and red socks. And to his credit, he made it work.

Ok. Back to the story. At the steak house, the seven other participating schools also showed up. In total, about 160 students descended on the steak house for the Q&A. We sat at 8 long tables in the main banquet room, with one school per table. There was a stool and a microphone placed conspicuously at the front.

Warren showed up at 10:00am. As no photo or recordings were allowed, I will describe as well as my limited vocabulary allows. He arrived in a black Cadillac, having been driven presumably from his office on Farnam Street. And no he doesn’t sit in the backseat. He was up front with his driver. He was wearing grey slacks, a white shirt and a tie and jacket. And, to be blunt, his hair had clearly not been combed in quite some time.

Warren welcomed everyone and began with a joke about checking Charlie for hearing loss. It’s a pretty good joke but he has used it quite a number of times at events, which is a problem in the information age (you can find it online easily). We then had a 2.5 hour Q&A, which was simply fantastic. And as my students are hyper-organized they had self-organized a “Shorthand Group” with 4-5 students assigned to write everything down in English and Chinese. The team even had a Shorthand Group leader (hi Carly). You can find that summary here in English and here in Chinese.

As Warren tends to get asked the same questions over and over, you can find his answers to many questions online. The best complete summary I know of is at www.buffettfaq.com.

Here are my own notes from the Q&A. The below are all his comments and opinions (not mine).

• On newspapers, he said print news is continuing to decline. Only the WSJ and the NYTimes (and maybe Washington Post) have actually created viable digital businesses. These are viable and could be used to support their print businesses. However, the other +1,300 daily newspapers in the USA have not found viable digital businesses yet.
• He thought older generations of Americans would stay with their habit of reading the print versions longer than they have.
• He thinks local businesses will still need a way to reach local customers. In the past, newspapers had been the “megaphone” for local businesses but that is mostly gone now.
• He also asked if anyone knew the only ads and sections within newspapers that have not declined. Nobody knew. The answer was the obituaries.
• He had interesting comments on how you can’t fix bad businesses and it’s just no fun to try. Originally, Berkshire Hathaway was 12,000 employees but was down to only 3,000 when he bought it. And half of those employees spoke Portuguese. It took him 20 years to get out of it. If you are in a leaky boat, don’t try to fix it. Get in another boat.
• He said artificial intelligence won’t change investing. It can’t beat a person at actually finding investments.
• He talked about his bet on index funds versus hedge funds. He said to look at www.longbets.org. He wrote a lot about his bet against hedge funds in his 2017 annual letter, which is located here.
• When asked about regulations and the financial sector, he said to read an October 2016 article by Tim Geithner. It was a good piece on the role of regulation in the financial markets.
• He said optimism is a huge strength in business and life. It also gives emotional stability. His optimism is not an adopted position. It comes from analysis. He mentioned how everyone in the room was wealthier than the world’s richest person when he was born in 1930.
• For valuation, he talked about a bird in the hand being worth two in the bush (My question: does anyone actually hunt birds anymore?). He had a great quote about this which I wrote down and underlined. He said “investing is about knowing a business well enough that you can predict how many birds will be in the bush, and when they will appear.”
• Valuation is about focusing on what the numbers will be in 5 years. He also said the financial numbers of a good investment will usually not be good when you are buying.
• His joked that his “lifetime formula” has to been to let other people do the work while he just sits and thinks.
• He said China has more possibilities for Berkshire than any other outside country of the USA due to its size. He went first to China in 1995(?). He thought Chinese were just as smart and worked just as hard as Americans but didn’t have a system to capture this for a long time. Now they have figured out their “secret sauce” and they have compound interest working for them.
• His BYD investment came from Li Lu of Himalaya Capital (note: Himalaya Capital jointly teaches a course at PKU). He said Charlie Munger told him the CEO of BYD was Thomas Edison and he should buy. Then he said he was Thomas Edison plus Bill Gates – and he should buy. They he said he was Thomas Edison, Bill Gates plus himself – and he should buy.
• He doesn’t like having to file and announce what he has buying. It has a market effect and is like giving away his intellectual property.
• Hedge funds get rich on fees. Wall Street “sells you what you will buy”. He wrote a lot about this in his annual letter as well.
• He talked a lot about how too much investment activity is bad. Do the twenty card punch test (i.e., assume you can only buy twenty companies your whole life).
• In 1951, there were really only two sources of information for investors, the S&P and Moodys manuals. They had the information on public companies, typically one company per page and he would just go through these manuals. He talked about how he found companies near the end and would then go talk to the companies.
• He similarly bought 20-30 Korean stocks at 2x earnings this same way. It took him 3 hours of work on a Sunday to flip through a Citi report listing the Korean companies. Then he bought. His point was you don’t need an informational edge. You just need a willingness to act.
• He said the big opportunities happen periodically. When it rains gold, some people run inside. Some people run outside with a thimble. He runs outside with a bath tub. It’s also about being able to sit in a room by yourself and think. To ignore the chatter.
• As an investor starting out, you need an audited track record. Even if its tiny. 5 years of what was done. How was it done. A record is necessary.
• Work for an institution or individual you admire. Pretend you are rich and don’t need the money. Who would you work for? Find someone better than yourself. It will naturally make you a better person.
• Don’t postpone things in life for money or career. Imagine what you would do if you didn’t need to worry about money. You should do that now.
• The duty of a company’s board is to 1) pick the right CEO, 2) make sure that person doesn’t over-reach, 3) have a successor ready and 4) stop acquisitions sometimes. He did say there is too much self interest in M&A by all involved in the process. Most M&A doesn’t create value but the deals are hard to stop. He has stopped deals at the board level twice and it was not pleasant. His idea for acquisitions is that the CEO should hire an investment banker to fight for the deal and the board should hire one to fight against it. Only the winner will get paid. But it probably won’t work. Killing deals is unpleasant and makes you unpopular. Then you don’t get invited back. Plus you basically get on boards by having CEOs recommend you to other CEOs.
• Board members who need the money are not independent.
• His wealth has no utility for him. He can live happily on $100k, except for his plane (he said it cost about $1.5M per year). But his wealth can have great utility for others. So he hoards money because he can grow it faster than others. Otherwise there is no reason for him to keep it. Now he is deploying his wealth into situations where it has big utility. He said to think about those who need money but have no ability to raise it (i.e., villages needing wells, not universities asking for money). He is not giving up anything by giving up his money.
• “If you buy ten houses, you have basically gone into the hotel business. Are you happier with ten cars than one good one? Does it make you happier?”
• It’s bad to try and control your kids through money.
• “Money is like manure. If you pile it up it stinks. If you spread it around it makes things grow.”
• GEICO was his most important investment idea. It was also his first stock recommendation and your first recommendation to others matters.
• Invest in the right friends. They will shape you.
• He would have been successful in business no matter what. But he would have failed as a person without his wife.
• Early on, he learned about new industries by asking CEOs and managers. He would call them up and go see them. He liked to ask CEOs about other companies in their industry. If they could buy only one company in their industry, which one stock would they buy? Which would they short?
• When he first went to visit GEICO in Washington DC, he didn’t know much about insurance.
• The quadrant you want to focus on is what is knowable and important.
• Two things that MBA students should master: 1. How to think about a business? Know what to look at and understand the business model; 2. How to value a business.

The Q&A was really fantastic. I paid a lot of attention to his comments about valuation a he has never really said how he values companies, except in vague terms. I think that is the thing he keeps secret. How he is able to see around the corner in terms of a company’s financial performance and value. I’m working on a new valuation course for Fall 2017, and I have been reverse-engineering his approach.

His comments on the utility of wealth have also really stuck with me over the past weeks. I have found I am past the point of caring about nice things anymore. I’ve simply had enough nice hotels and expensive dinners for one lifetime. And I have been gravitating to a simpler, almost minimalist, lifestyle. His statement about wealth and possessions having no impact on his happiness really hit home for me. Although I wrote this blog in a Kyoto hotel and there was this awesome Miso soup machine in the lobby that dispenses soup like coffee. I must have one of these.

Finally, kudos to the PKU students for asking particularly good questions. Part of their application for the trip was to submit what questions they would ask. And they had actually rehearsed asking them the night before, as they were worried about their accents.

After the Q&A, we got a huge surprise. Warren came over to the PKU table and had lunch with us. Nobody saw this coming. He spent the next 1.5 hours answering virtually every question the PKU students had. And we made sure every student got to chat with him personally and ask questions. It was pretty stunning. The details of this are in Part 3 (located here).

Enough for now. Going for my 5th bowl of miso soup. The lady at the counter is starting to stare.

Cheers, jeff

• You can read Part 1 here and Part 3 here.
• I Took 20 Chinese Students to Meet Warren Buffett. Here’s What Happened (Part 1 here, Part 2 here, Part 3 is here, Part 4 is here)
• You can also read “7 Things I Learned At Lunch With Warren Buffett” here (in Chinese here)
• You can read another summary of the Q&A here in English (here in Chinese)

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I write, speak and consult about how to win (and not lose) in digital strategy and transformation.

I am the founder of TechMoat Consulting, a boutique consulting firm that helps retailers, brands, and technology companies exploit digital change to grow faster, innovate better and build digital moats. Get in touch here.

My book series Moats and Marathons is one-of-a-kind framework for building and measuring competitive advantages in digital businesses.

Note: This content (articles, podcasts, website info) is not investment advice. The information and opinions from me and any guests may be incorrect. The numbers and information may be wrong. The views expressed may no longer be relevant or accurate. Investing is risky. Do your own research.