Learning from Warren Buffett Berkshire Hathaway AGM – 2018

– By Meghashyam Sinkar

Attending Berkshire Hathaway Annual General Meeting (AGM)and listening to Buffett- Munger thoughtsis not less than doing pilgrimage experience for people like us in investment world. Though, it was my successive  second visit to OMAHA – largest city in the state of Nebraska -United States,i was more excited than before to know what new lesson or learning wise men of OMAHA going to share this year . The electric atmosphere created by the presence of 42,000 fans of the legendary investors is unmatched.

On Investing :-
Knowing the investors usual concerns with regards to recent past and near future of stock market movements , Buffet started with the headlines of New York Times dated March 12, 1942  related to World War II and how the US was in trouble in the Pacific . He had been watching City Service as a preferred stock for a while. It was $84 per share the previous year and $55 a share at the beginning of 1942, and then in March it was down to $40 a share. He told his father to buy 3 shares of it as it was the only money he had at that time . He was only eleven years old that time . His father bought the stock at $38.25 and the stock market went down next day . He sold the stock at $40 for $5.25 gain after watching it go down all the way to $27 . But the stock did well in future and company called the shares back at $200 apiece.

He mentioned that If you had invested $10,000 in an index in 1942 and forgotten about it over the years, the value today would be in the region of $51mn. and you wouldn’t have had to do anything. You wouldn’t have had to understand accounting or look at quotations.All you had to do was figure that America would do well over time, and American business would in turn do well and overcome difficulties. You didn’t have to pick out winning stocks or know when to buy or sell.

He mentioned that If you had taken $10,000 and listened to the prophets of doom and gloom and bought 300 ounces of gold instead, today that still would be 300 ounces of gold. You could go down to the safety deposit box and look at it and fondle it, and it wouldn’t produce anything. That gold would be worth $400,000 today. If you had decided to go with a nonproductive asset versus a productive one, it is one hundred times the value difference.

On US – China Trade War :-
Responding to questions about the US-China trade war,Buffet explained that both US and China will be two superpowers of the world for a long time.These two intelligent countries won’t do something extremely foolish. Sure, they do some mildly foolish things, and there’s some give and take. In 1970, imports and exports were 5% of GDP, and now exports are 11+% and imports 14+% of GDP. I don’t want the gap to be too wide. It’s not the worst thing to have someone send you goods you want and hand them a piece of paper.

Charlie Munger added that “Both countries are advancing, and China is faster, it came from a lower base and has more virtue with its high savings rate. And it was mired in poverty for a long time, so it will grow faster. Both countries are getting along fine, and both will realize last thing they should do is have ill will for the other.”

On Crypto-currencies :- 
There was a question  from Ukraine on latest hot topic i.e. crypto currencies like bitcoin who wanted to know Buffett view .  Buffett had a view that Crypto currencies would come to bad endings.Anytime you are buying a non-productive asset you are basically hoping someone else in the future buys it an even more inflated price hoping to repeat the same. Its like buying a stamp collection hoping someone else buys it for a higher price. This means that any gain in value depends on the “greater fool theory” i.e. more people coming into the market so one holder can sell it to the next at a higher price than they bought it for. The same argument goes for gold. “Nonproductive assets remain that way. If one held Gold since Christianity the CAGR would have been 0.2%!!!   These assets won’t deliver anything other than supposed scarcity, but so what, what does it produce itself?

Munger described the situation as “Someone else is trading turds (human excreta) and you decide I can t be left out.”

On technology :-
Buffet has been asked about his views on technology companies on hundred of occasions . This year too he was again asked about why he never invested in Google, Amazon or Microsoft. Buffet’s response on Google and Amazon was about having missed them despite Bill Gates having recommended investing in at least one of them.

Bill Gates has been independent director on the board of Berkshire for long and as a standard of governance prevented him investing into Microsoft .We went to Apple on the  consumption driven company than technology company . Buffett mentioned that amazon was really miracle but he preferred to refrain betting on the something which would take miracle to turn around .

Charlie Munger mentioned that he visited the Google headquarters; it looked like Kindergarten to him! Not many people of their age understand technology and at the same time businesses are transforming rapidly.

Investing in Emerging markets like China:-
While Mungar is keen and open to look at taking allocation to these markets …It appears that Buffett is clearly more comfortable sticking to his home turf.

The other questions were pertaining to his holdings like Geico , Duracells ,Heinz , railroad BNSF etc. which I am not covering but he emphasised on moats again when asked  his views on latest comments of Elon Musk . Elon Musk recently commented that moats are lame, what matters in today’s world is the pace of innovation – that is the fundamental determinant of competition. Buffet said that moats have always been susceptible to innovation but there are quite a few moats out there which are still working very well for him like his famous candy company . Later at the end of the day , Elon Musk tweeted announcing his serious intention of starting candy business .

Surprising there was no mention of India at all. Not a single word was uttered during entire session . There were 10 questions from China representatives but none from India representative . Lets hope to have questions from and on India next time.

Overall , it was worth attending 8 hours session . The underlying learning is that if you believe India would do well in coming decades , then remain invested in portfolio of good quality companies , ignore all sort of noise around  and Keep The Faith !

Happy Investing !!!!