Knowing how this thing works, I come prepared. Rather than waiting 15 minutes for a lousy drink and having to face the crowd sober, I made a pit stop in the parking lot with some premium cannabis sativa. AK-47, for those taking notes. In addition to alleviating my social anxiety, it allows me to read the thoughts of others. A power I would otherwise have no grasp of around this many people. Mostly, people tend to be thinking about how awesome my mustache is. Or how they're glad I'm not their son in law.
As usual, the reception crowd is well-dressed and predominantly local. People are from all age groups, but with a trend towards middle age. Very few aren't white. I only spotted two cowboy hats. Compared to the actual meeting, there are a lot more youngsters. Perhaps they should have an open bar at the meeting itself.
Now, before I get a bunch of flack for biting on Hunter S. Thompson's style, I'll defend myself by saying that I take gonzo journalism very seriously. It's not just an excuse to show up to work high. It's a way of interacting with reality with new eyes. Eyes that don't pass up the obvious. Besides, Warren practically suggests people come to the thing stoned. The shareholder meeting is nicknamed "The Woodstock of Capitalism." On the other hand, maybe they're just referring to the lines at the porta-johns.
It occurs to me that Berkshire is a very good stock for people who aren't too financially savvy and don't have the temperament for day trading or even paying attention to stock prices. It works better than a mutual fund, because there's no fund manager trying to validate his salary by seeking out career-building deals. Sure, Buffet does deals, but he only makes money on the good ones.
The Berkshire Hathaway Annual Report is available here.
There's Nothing Like The Smell of Khaki's In The Morning
It's 6:30am and 47º outside the Qwest Center. Doors don't open until 7:00am sharp, but people have already been out there for hours. I'm surrounded by people dressed much the same as the night before. Men are unshaven. Smart-disheveled is probably the best word for it. Khakis are everywhere. Shoes are either athletic or comfortable loafers. The theme seems to be sensible, comfortable, and safe. This also describes Warren Buffet's opinion of Berkshire.
Awating me inside are danishes, coffee and Coke. As the doors open, people lose all sense of decency. Cutting in line, scooting past people, etc. The prize at stake isn't the free carbs, it's seats. The Main Arena only holds about 20,000 people. Last year, there were 35,000. People want to avoid getting stuck in one of the satellite rooms. This year, it works a little differently: Instead of jockeying for nosebleed seats, many people now head straight for the ballroom to get the best seats available there. Latecomers, seeing the rush for ballroom seats figures the arena seats are already full. In short, the arena feels a little emptier, despite numbers that will probably rival last year's.
It starts off with a financially educational children's show, Secret Millionaire's Club. It's cheesy, but better than some of the drek on PBS (I'm looking at you, Dinosaur Train). Plus, it teaches something that kids actually need to know about in order to survive (Still looking at you). Much of the rest of the program is all new material. Commercials from Coke, Geico, Garanimals. Some new comedy bits. One with Charlie and The Desperate Housewives and one with Warren pitching for the Red Sox and striking A-Rod out. Warren even edited himself into a supporting role in the new Wall Street movie. Overall, it's good fun. This indicates it's been a good year for Berkshire.
The meeting itself is a big Q&A session with an open mic to the world's second richest man. Though Gates is also at the meeting, he doesn't ever address the crowd. The questions fall within a range encompassing ass-kissing or self-serving to esoteric or insightful. The first, as a warm-up and to get the most common question out of the way, one of the press asked about Goldman Sachs. Turns out, Warren loves the situation. Right now, it's paying back about $.15 per second, or $500mln per year. Goldman can do a buyout for $5.5bln, but TARP rules won't let them, and BRK is in a much better position for income than it would be with the cash. Predicting this would be a big question, Buffet prepared a slide showing the investors in his original $5.5mln at Diversified Holdings in 1967. Goldman is on the list, though they preferred to keep this secret at the time.
Wall St. Reform: Charlie and Warren agree that something needs to be done. Charlie even goes as far as blaming congress instead of the banks later in the day. Neither have read the current 1550 page bill, so they won't comment on it specifically.
Derivatives position: As he understands it, BRK's investments in derivatives will not be subject to the collateral requirements set forth in the bill. Warren compared it to selling a house: $120k furnished or $100k unfurnished. Buyer takes the unfurnished one, then the gov't comes back and says that furniture is required on the house you already sold and now you have to give the furniture to the guy for free. Charlie says the law could pull capital out of an operating company, just to be sent to Wall Street as a bond. The law, as Warren understands it, will only apply to businesses who's future is critical to the nation like the bailout banks were. BRK carries only about 250 contracts and total investment is less than 1% of what the specialists carry.
Harley Davidson: Someone asked why BRK didn't buy stock. It was easy to figure out what 15% was going to make us. Buying stock would have required knowledge of the motorcycle industry and so forth. Junior securities may make you richer, but senior securities make you sleep better.
Corporate Culture: It can't be changed. Build your own company around the culture you want to cultivate.
India: Hard to get into for insurance. Iscar should be opening there someday though.
Inflation: Bet on it. Maybe even much higher inflation. -Charlie Munger
College: McDonald's is better at educating than colleges are. They successfully teach people discipline and responsibility. Later notes no formal apology from any business school for the current economic situation. Adds, "Your money can be inflated away. Your talent cannot."
Taxes: Guy asks Warren why, if he believes in higher taxes on the rich is he denying the gov't any access to it. His move to bequeath nearly all of his estate to charity will keep it out of their hands. For society and humanity, he thinks his money will serve a higher purpose in the hands of a charity.
On taking advice: If the problem doesn't bother people more knowledgeable in the area than you, it shouldn't bother you either. - Charlie Munger
Stock tips: KRAFT was stupid to sell it's pizza business and buy Cadbury. The company's stock is now valued at less than the sum of its component parts. While the move seems stupid, he hasn't discussed the reasoning behind it. Of course, BRK is always suggested buying. Charlie's sales pitch goes something like this: Berkshire is a good stock. While we are stupid in many ways, we have avoided a small, but important, subset of stupidity.
Long term investing: Look at a stock as a portion of a business you expect to do a certain amount of business each year and produce a predictable amount of profit. Think about it like buying a farm. Don't look at day-to-day stock prices which are irrational and emotional. Look at the produce it will create at harvest.
Predictions: Lowering the expectations is easier than delivering results.
Energy: Charlie says he never misses an opportunity to put solar panels on his roof. Too expensive and he's gotta think about the long term payoff since he's 86. He does, however, believe that prices will fall and humans ingenuity will solve the future energy needs of the species through solar energy, enhanced power grids, and things we can't imagine yet.
The short, overall message is this: Be honest. Be logical. Do what you love. Invest with Berkshire. Fix the problems.
During the one-hour lunch break, I took a 100 minute long tour of the tradeshow. I had a goal: Get some cowboy boots from Justin Boots. First stop was the Bookworm though. Having a booklist hand-picked by Berkshire, there's always some gems. My favorite from last year, "Influence: The Psychology of Persuasion" was still on sale. My pick for this year was Peter Buffet's book "Life Is What You Make It". A Swedish kid named Erik was holding those two books, so now we're Facebook friends. Andrew Sorkin was on hand to answer questions and sign books.
The boot booth was on the opposite end of the show floor, and it was swarmed. I decided to buy cowboy boots after realizing I'd not owned a pair since I was 5. I got a pair of the pointiest ones I could find, saving $40 off retail with my shareholder discount. Now I'll have something to wear to the Las Vegas cowboy festival known as Helldorado Days, where I'll be competing for best mustache at the Whiskerino. Come vote for me. (This is the same style of shameless plugging you miss Warren doing all day long at the convention)
I picked up a Geico Caveman T-shirt too. Why? I dunno. It seemed like a dumb idea last year. If anything, I've learned that most of the ideas from last year were themselves dumb. Therefore, last year's dumb ideas must be this year's good ones. Also, I'm hoping people will wonder what Ché has to do with Geico.
This year, BNSF was new to the event. They set up a model train set in the lobby, along with train driving simulators, and a booth that explains their entire business. There's a reason there's no Train Simulators in arcades, but I think an iPhone app targeted to middle aged men might do very well based on preliminary research.
In the end, I only spent 2 shares of BRK.B. I could have gotten a house to put it in for a share of Class A though.
Until next year, Omaha. Keep it classy.