Berkshire 2016 AGM Q&A

In Investment Theory, News, Uncategorized on June 8, 2016 at 10:03 pm
Berkshire Hathaway 2016 Annual Meeting

Berkshire Hathaway 2016 Annual Meeting

The annual “Woodstock” of capitalism, Berkshire Hathaway’s annual shareholders meeting was held in Omaha, Nebraska on Saturday April 30, 2016. The meeting was open only to investors in the Company and required meeting credentials to attend. But for the first time ever, Berkshire decided to live stream the event via Yahoo! Finance. You can watch the whole thing from the comfort of your living room right here:

And, as been the case for the last few years, some wonderful soul has painstakingly recorded every word said and made the full transcript available for download. Check that out here:

The highlight of the meeting is a six hour question and answer period with the Chairman and Vice-Chairman, Warren E. Buffett and Charles T. Munger. These are two of the brightest minds in investing. The Q&A session is entirely unscripted and shareholders from around the world who attend the meeting can ask almost anything they want. For six long hours, Warren and Charlie do their best to answer these questions whilst sipping Cherry Coke and munching on See’s peanut brittle.

Some abridged highlights:

Q: “In your 1987 letter to shareholders, you commented on the kind of companies Berkshire liked to buy: those that required only small amounts of capital. You said quote; “Because so little capital is required to run these businesses, they can grow while concurrently making almost all of their earnings available for deployment in new opportunities.” Today the company has changed its strategy. It now invests in companies that need tons of capital expenditures, are over regulated, and earn lower returns on equity capital. Why did this happen?”

A (Warren): “Well, it’s one of the problems of prosperity. The ideal business is one that takes no capital but yet grows. There are a few businesses like that and we own some, but we’d love to find one that we can buy for $10bn/$20bn/$30bn that was not capital-intensive and we may, but it’s harder and that does hurt in terms of compounding earnings growth. Obviously, if you have a business that grows, gives you a lot of money every year, and it isn’t required in its growth, you get a double-barrel effect: from the earnings growth that occurs internally without the use of capital, and then you get the capital it produces to go and buy other businesses.

A (Charlie): “Well, when circumstances changed, we changed our minds. In the early days quite a few times, we bought a business that was soon producing 100 percent per annum on what we paid for it and didn’t require much reinvestment. If we’d been able to continue doing that, we would have loved to do it. But when we couldn’t do it we went to Plan B. Plan B’s working very well…”

Q: “You’ve explicitly stated that you’ve not considered diversity when hiring for leadership roles in board members. Does that need to change?”

A (Charlie): “Years ago, I did some work for the Roman Catholic Archbishop of Los Angeles. And my senior partner pompously said, you know, you don’t need to hire us to do this. There’s plenty of good Catholic tax lawyers. And the Archbishop looked at him, like, he’s an idiot and said, Mr Peeler, he says, ‘last year, I had some very serious surgery and I did not look around for the leading Catholic surgeon’. That’s the way I feel about board members.”

Q: “With the rise of and others, there’s been a shift from push marketing to pull marketing – from millions of catalogues having been sent out in the past, to consumers now searching online for what they are looking for. What is your take on how this shift [affects Berkshire]?  ”

A (Warren): The development is huge – really huge – and it isn’t just Amazon. Amazon is a huge part of it and what they’ve accomplished in a fairly short period of time, and continue to accomplish, is remarkable.

We don’t make any decision involving even the manufacturing of goods, the retailing, or whatever it is without thinking long and hard about what the world will look like in five, ten, or 20 years. With that hugely powerful trend that you just described, we don’t look at that as something where we’re going to try and beat them at their own game. They’re better than we are at that.

The effect of Amazon and others that are playing the same game…the full effect on the industry is far from having been seen. It is a big force, which has already disrupted plenty of people and it will disrupt more.





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