This is Part 1 of my visit to the 2019 Berkshire Hathaway annual meeting.
I arrived at the CHI Health arena in downtown Omaha at 5am. Yes, this was a bit crazy.
But the previous year, I went with my parents and we arrived around 7am, basically when the doors opened. And we ended up sitting 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.
But I got up really early this time. No way I was not sitting in the main hall. FYI. Here’s what the line looks like at 5am.
And I got a great seat and became the unofficial security guard for our section. Anyone who tried to squat in front of our seats was 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 he is is poorer than Warren if he is so smart.
His reply was “well, why was Albert Einstein so much poorer than me?”
Ok. Here are my take-aways. I’ve read all the Berkshire books and history. So I am looking for new insights. Stuff I haven’t heard before.
#1 Berkshire Will Opportunistically Do Share Buybacks – Assuming a Conservative Valuation
There were several questions about how Berkshire views share buybacks.
Buffett said he repurchases shares so that the remaining shareholders are immediately worth more, but not dramatically. It’s a minor strategy at best.
He also says he uses a “conservative estimate of intrinsic value”. As for his valuation method (Buffett is always vague on this), he says it is a range of about 10%. Charlie similarly has ranges of about 10%.
He also said it is not based on a planned amount to spend. That is a contrast to lots of companies, which have a board allocation for buybacks. Which then tends to happen. Buffett is opportunistic and begins with price, not a plan to spend.
#2 Railroads Are About Efficiency, Satisfaction, and Expanding Usage
There were interesting comments about railroads. 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.
#3 Wells Fargo Is an Example of Too Slow Management
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.
But he also said Berkshire has over 300,000 employees. If you have a city that big, you definitely need cops and courts. So these sorts of problems are inevitable. You need cops and courts. And people also shouldn’t go to jail for honest errors of judgement.
He 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, as mentioned, there are always going to be problems in big organizations. It is natural. You want external auditors and lots of checks and investigations.
He went on to say there are lots of banks where people are misbehaving. They have trillions of dollars of people’s money and a government guarantee. Anytime people give you money and you only give them a piece of paper, there are going to be problems.
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.
#4 Buffett’s Favorite Personal Investment Was Alted
This was like the 6th question asked by a kid, which was getting 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 (not Berkshire) 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 some of the shares.
It was a good investment because in the process of hunting ducks, they found oil in the property. And everyone became pretty rich.
#5 Companies Should Not Be Politically Active
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 1. In Part 2, I’ll have more notes.
Cheers, Jeff
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From the Concept Library, concepts for this article are:
- n/a
From the Company Library, companies for this article are:
- Berkshire Hathaway
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