"Woodstock for Capitalists"

“Woodstock for Capitalists”

Berkshire Hathaway 2007 annual meeting

Even though I had been before, the 2007 Berkshire annual meeting was awesome. I, along with 27,000 others were educated, entertained and challenged by Warren Buffett and Charlie Munger.

After the film, the initial greeting was by Jimmy Buffett, singing Margaritaville morphed into Berkshire Hathawayaville. Actually the event is a weekend long, and has been described as “Woodstock for capitalists”. It is great business for Omaha; the Berkshire companies (Boorsheims, NFM, etc.) and at the event must generate huge sales.

But my real interest is to listen to Buffett and Munger (rarely, but worth every word). They sit on stage for 6 hours while drinking coke products and eating See’s candy and answer audience questions.

They had great advice; criticized accountants; finance Profs, investment bankers, hedge and private funds, derivatives and compensation consultants and committees; and had wonderful quotes from Aesop, Will Rogers, and Mark Twain.

Many of the questions were about becoming a good investor, my summary of their answers:

Investing

Read lots, books of any and all sorts, annual reports- fill mind with competing thoughts

Be like Munger's description of Buffett “a learning machine”

Don’t make dumb mistakes

Don’t time or trade markets- Munger says “It’s a fool’s game to try and beat the market daily”

Whether buying 1 share or the entire company

Analyze and know the business

Consider all the possible future events

Be deeply suspicious when the situation is too good to be true (Munger)

Consider the “opportunity cost”-(what else can you do with those assets-what is the alternative making)

Have a “too hard file”; lots of possible investments belong in there- look for easy problems

Remember Mark Twain’s saying that history doesn’t repeat but rhymes

Buy good businesses at reasonable values

Valuation

Basis of valuation is Aesop’s fable “bird in the hand is worth 2 in the bush”

Analyze how many birds might be in the bush and when

Company’s intrinsic value isn’t determined by the market price

Have a “margin of safety”- so you’ll be ok if /when market corrects

Make investments comfortable with if interest rates go up 1-2 point or markets closed for year or two

Value businesses the same way you would value a farm, how much return can it generate

Volatility and risk aren’t related- buy at fair prices

Expect Berkshire’s future returns to be more modest

They don’t know (or think about) what market or interest rates will do over the next few years,

Expect over 20 years for equities to outperform (especially against 4.75% bond yields)

Criticisms

Accountants-Much of the accounting profession don’t realize how stupidly they’re acting

Discussing the various values used on either side of hedges and derivatives

Finance Professors-lots of things easy to teach-even if don’t have value

Like to use math skills they have-even though answers may not be right

Smart people- Very smart people do dumb things

Company boards

Members should be Dobermans not lap dogs

3 tasks- pick great CEO, make sure CEO doesn’t overreach, analyze/question deals

Don’t believe investment bankers/management internal rate of return calculations and slide shows- they always are for deal

Watch value of stock swapped on deals

Other thoughts

Importance of personal learning

Considering what can happen in future and avoiding mistakes

Knowing what you know and what you don’t

Plain spoken/common sense

Having a T-bone and hash-browns at Gorat’s wasn’t quite as good as expected, and the 11/2 hour long wait was long, but that was offset by being about 10 feet away from Buffet as he left. Only time will answer the question of whether it was worth the cost and time to go Omaha. But my bet is that what I learned will benefit my life and investments many times over.

I hope this will benefit you as well.

Lindsey Torbett CPA, CFP

May 8, 2007