My Notes From the 2019 Berkshire Hathaway Annual Meeting (Pt 2 of 3)


This is Part 2 of 3 on my visit to the 2019 Berkshire Hathaway annual meeting. Part 1 is here.

I got to the CHI Health arena in downtown Omaha at 5am. Yes, this was a bit crazy. But last year, I went with my parents and we got there around 7am, basically when the doors. And we ended in an over-flow room, which really sucked. However, I then got on the Yahoo half-time show, which was pretty much the highlight of my year. So I got up really early this time. Here’s what the line looks like at 5am.

And it worked out this. I got a great seat became the unofficial security guard for our section. Anyone who tried to squat in front of our seats were promptly kicked out.

Doors open at 7am

The meeting opened, as usual, with a funny movie. They are usually kind of campy. My favorite part was the clip of Charlie Munger being asked why Warren is so much richer than him. His reply was “well, why was Albert Einstein so much poorer than me?”

Ok. Here are my notes. Lots of interesting subjects this year.

Multiple questions about buybacks of Berkshire shares.

There were several different questions about how Buffett approaches buybacks. He said he repurchases shares so that the remaining shareholders are immediately worth more, but not dramatically. He also says he uses a “conservative estimate of intrinsic value” and it is not based on a planned amount to spend. Lots of companies do this with the board allocates an amount of money that can be used on buybacks. And then it tends to happen. He begins with price, not a plan to spend. As for his valuation method (he is always vague on this), he says it is a range of about 10%. Charlie similarly has ranges of about 10%.

Questions about precision railroading and expanding rail usage

Berkshire has major holdings in US rail and there was the question about precision railroading. The concept (you don’t hold a train until it is full, you depart on time regardless) was developed by Hunter Harrison.

Buffett’s take was he wants improvements in efficiency – but also in customer satisfaction. You don’t want to go for the first and sacrifice the second. Union Pacific has better operating margins than BNSF (Buffett’s company) but they have cut more costs. This may impact customer satisfaction.

Charlie Munger said nobody is interested in imprecision railroading.

There was another question about whether rail could replace vehicles in more situations. It was kind of a dopey question but Buffett explained (nicely) that the cost savings of rail depend on the distance traveled and other factors. Long-haul and heavier traffic are better on rail. But not for shorter distances and lighter loads. You have to look at ton mile per gallon of diesel used.

Question on penalties for Wells Fargo

The big scandal at Wells Fargo came up again. Buffet gave his standard answer that incentives do work – and that Wells Fargo incentivized the wrong behavior. He also talked about the need for management to immediately address problems – and not to delay. That’s one of the big roles of the leadership – to immediately investigate. Because there are always going to be problems in organizations. It is natural. You want external auditors and lots of checks and investigations.

He said Berkshire has over 300,000 employees. If you have a city that big, you definitely need cops and courts. But people shouldn’t go to jail for honest errors of judgement.

He went on to say there are lots of banks today where people are misbehaving. They have trillions of dollars of people’s money and a government guarantee. Anytime people give you money and you give them a piece of paper, there are going to be problems. And it has been shareholders that ended up paying for bad bank behavior. Buffett proposed that if a company needs to go to the government for a bailout then the CEO and his/her spouse should lose their net worth. And everyone on the Board for the last 5 years should as well. If they are not comfortable with that rule, they shouldn’t take the job.

Question on his best or favorite personal investment (not by Berkshire).

This was like the 6th question asked by a kid, which was getting kind of annoying. Little kids would come to the microphones and read business questions that were obviously written by their parents. The first 1-2 of these were cute. But 4-5 were annoying.

Buffett said he made a personal investment in  company called Alted, which is Delta spelled backwards. It was founded by 100 delta military guys to buy land and hunt ducks. They each put in money and got one share (one hundred shares total). But two guys defaulted so it ended up as a company with 98 shares. Buffett bought in for some of the shares.

In the process of hunting ducks, they found oil in the property. And everyone became pretty rich.

Questions on socialism and political active companies.

Buffett’s take is he only speaks about political subjects for himself – and never for Berkshire Hathaway. And if you do this as CEO, you should be careful because people will assume you are speaking for the company. But he said you don’t want to pursue your own political interests with other people’s money. Or their assets. Or their labor.

He mentioned that his companies in energy and rail do donate to PACs. They are in regulated businesses and this gets them access. But, generally, he doesn’t like money in politics.

On the question of socialism, he said I “am a card-carrying capitalist”. The private sector does better than the government in most things.

Munger chimed in and said he is favor of a social safety in a prosperous country. But he doesn’t like the “vast stupidity” in the way the government does things.

That’s it for Part 2. In Part 3, I’ll have more notes.

Cheers from Bangkok, jeff


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