The Wit & the Wisdom of Warren Buffett & Charlie Munger in May 2015, Omaha, Nebraska
In May 2015 I had the privilege of being brought as a guest to the annual shareholders’ meeting of Berkshire Hathaway in Omaha, Nebraska. It was the 50 year (Golden Anniversary) with Warren Buffett running the company, and I was given a shareholder pass by a person in the industry.
Back then I used the 7 filters from our Perspective Newsletters to pass on to our membership base what I learned from Buffett and Munger at the meeting. Bearing in mind that they mostly spoke about their business and such things, I have strived to allocate their comments in to some relevant wheel of life filters, some of which are not obviously associated with business.
- Health & Wellbeing
- Wealth & Financial
- Vocation / Career / Business
- Personal: Focus & Objectives
- Education and Development
I’ve done my best to get as close as possible to what they actually said at the meeting, and anywhere that I provide my own interpretation or opinion, it’s either clear that it’s just an opinion, or I specify it as being my own perspective rather than theirs.
With regard to Buffett, his track record over 60 years as an investor is also unequalled anywhere. Lastly, add integrity, trustworthiness and grade-A leadership abilities into the mix and you’ve got a good picture of how his peers and colleagues have generally described Warren Buffet over the past few decades.
So, what did Buffett and Charlie Munger they have to say on 2nd May 2015?
– Health & Wellbeing
The irony of filtering comments through the perspective of Health & Wellbeing from an 84 year old Warren Buffett, who admits to eating like an unsupervised 6 year old, and Charlie Munger, the candy chomping 91 year old, are not lost on me. But I’ve decided to give it a go anyway…
Their company is a large shareholder in Coca Cola, and when asked about being heavily invested in sugar at a time when there is a global backlash against it the reply from Buffett was “I am one quarter coca cola”. This is his joke regarding the amount of cherry coke he drinks all day.
He then said – I don’t think you’ll see anything revolutionary. Food and beverage companies will adjust to the expressed preferences of consumers; no company does well ignoring its consumers. I predict that 20 years from now, that more Coca Cola cases will be consumed than today. Back in the late 1930s, Fortune ran an article saying the growth of Coca Cola was over. When we bought stock in the 80s, people were not enthused about growth.
Both he and Munger have what most would describe as seriously unhealthy diets and yet they are fully coherent, in fact razor sharp, and physically they are in pretty good shape (healthy even?) for an 84 and 91 year old, not to mention still running the 4th largest company in the world.
So, my take?
They simply love what they do, and this one thing alone contributes enormously to good health and wellbeing.
That said, I am not recommending a diet of coke and candy like the ones they live on, yet it does provide food for thought in the value of knowing yourself and knowing what works for you, and at the same time operating as much as possible in the areas of your own personal talents.
I appreciate that this is not a typical coaching piece on health & wellbeing…
When asked about culture and values…
Buffett: culture has to come from the top. It has to be consistent, part of written communications, followed, and rewarded when followed, and punished when not.
It took us a very, very long time to become solid.
It’s much easier to do if you inherit a culture you like. It’s easier at smaller firms. It is a grain of sand type of thing.
Just as your child sees what you do rather than what you say, it’s the same thing in business. People see how you behave, and they move in that direction.
When asked by a 7th grader: “How do you make lots of friends and get people to like you and work with you?”
Buffett: Not a bad question. Very good question.
People see all kinds of virtue in you. Both Charlie and I were on the obnoxious side early on. But you tend to get smarter about human behaviour as time wears on, and I was fortunate enough to have some very good teachers.
So these were people I admire, and I asked myself, “Why do I admire these people?” And if I admire these people, I figured I should take on some of those qualities. So look at people you like, and write down three of their qualities. Also take note of people who turn you off, and write those qualities down.
If you think about that stuff, you’ll find out what’s wrong, and what needs to be done.
Munger: Like in marriage — change yourself instead of trying to change your spouse.
Buffett: Charlie has said that the most important thing in selecting a marriage partner is not intelligence, humour, or someone you’re attracted to, but low expectations!
(at this point they got a lot of laughs, not for the first time or the last time).
– Wealth & Financial
Where do I start..?
At a meeting for the world’s 4th biggest company, run by the world’s greatest ever investor, and with two out of the top three most financially wealthy people there in the room, and involved in the company (Buffett, CEO & Chairman and Bill Gates, Director), there was a lot on offer in the area of wealth and financials.
Question: 50 years ago, when you were getting into new industries, how did you figure out the relevant operational metrics to focus on?
Buffett: we didn’t have it thought out that well at the time.
We basically looked for companies that we thought… we looked to see what we thought the future would look like.
We didn’t have to get it to four decimal places. And then the prices were different at the time, so we didn’t have to worry as much about getting as much value for our money.
We just read a lot and looked, and we were capital-constrained at the time, so we couldn’t do as much. And we probably leaned more towards things where we were certain of getting a decent result, as opposed to places where we thought we might get a brilliant result.
Buffett: We thought we knew about the department store business in Baltimore, and we thought we knew about the trading store business.
We’ve had a lot of experience with bad businesses.
We’ve had a lot of fun along the way, though. You’re bound to get a better result if you’re enjoying what you’re doing.
Buffett: I’ve still got my father’s desk from 75 years ago.
Munger: That’s exactly what we did, and it worked well.
Part of it is because the people worked so constructively. We were a little lucky.
Buffett says it was lucky, but not every 20-year-old is going to DC knocking on doors — we made some of our luck by being curious and seeking out wisdom.
I would recommend that to anyone else. Nothing brings wisdom more thoroughly than getting your nose whacked. We got a fair amount of that.
Question: How were you able to persuade your early investors to overcome their doubts and fears and to believe in what you were doing? Q2: You’ve said you’re 90% Graham and 10% Fisher — where does that percentage stand today? (RP Note: Fisher & Graham relate to investment philosophies)
Buffett: Well, you know, I started selling stocks when I was 20 years old at Columbia. And although I was 20, I looked like I was 16 and acted like I was 12.
But when I came, some of the people who joined me (family and friends), those people just had faith in me. And my father-in-law, he just gave me everything I had.
They knew I’d done reasonably well by that time — at that point I’d been investing for five or six years. And they gave me their money. The ex-president of a college came out, and Graham was rolling up his partnership, and he recommended him to me.
And then a doctor family came along. Things just happen if you keep plodding along. And the track record of the partnership – that helped in time.
But early on, it was just family and friends.
Munger: We’ve now watched a lot of other people get started. The ones who follow Graham have done pretty well.
Avoid being a perfect idiot!
– Vocation / Career / Business
Note: For this one I am going to refer to a commonly stated key to Buffet’s success. Then I will recount an actual question from the meeting which in my mind serves to demonstrate Buffett and Munger actually applying the key, and therefore walking the talk.
The statement from Buffett is that one of the keys to his success is to know your circle of competence and stay within it, and being able to clearly and accurately define this circle of competence is key.
At the meeting when asked about the newly mooted Asian Investment Bank (which to date the U.S. government has decided to abstain from), and what the bank’s potential impacts on the U.S. economy and geo-political influence might be; neither Munger nor Buffett knew how to answer, and rather than pretend to know it all, they gave the following reply:
Buffett: That is a subject that I know nothing about. Let’s hope that Charlie does.
Munger: I know a little less than you do…
Buffett: If we started talking about it, we’d be bluffing. You have a second question? I really apologize with regards to your question.
LESSON? Stick to what you know and if you venture into what you don’t know, then don’t pretend to know it and don’t worry about how you look.
Another question that was asked of them related to IBM and its very patchy performance especially recently, and what they thought of their own investment in IBM?
Munger: IBM is a very interesting company. It totally dominated punch-card computing. And then it dominated electronic computing. It’s rare for technological change to happen, and for a company to keep dominating. We own a lot of companies that have temporary reversals. IBM is still a very admirable enterprise, and we bought it at a very reasonable price.
Buffett: When we bought it, it was a 2-0 vote. We are often asked about investments that we own. People think that we want to talk about them. We have no interest in talking about the company that we own. We or the company will buy the stock in the future. Why would we want it to go up? The mentality of Wall Street is that people think you’re better off if it goes up the next day. If we talked our book, we’d be better to say bad things about our stocks. People don’t seem to get that point. Any idea why, Charlie?
Munger: Warren, if people weren’t so often wrong, we wouldn’t be so rich.
LESSON? Be ok with being a contrarian. Follow the crowd at your peril.
– Personal Focus & Objectives
Question from the audience: “You both had success investing even before Berkshire Hathaway. What would you say is the most important reason for your early success with small amounts of capital — and given the power of hindsight, what would you do differently?”
Buffett: I had a great teacher, had exceptional focus, and the right sort of emotional qualities to help me be great investor. I enjoyed the game, but in the end, you give it all back. I was good at it. (RP: this is Buffett’s reference to when he closed the fund and returned huge sums to his investors having made most of them multi-millionaires).
Buffett continued: I think Gene McCarthy said it best: “Football is hard enough, but just hard enough to be fun.” Investing is hard, but it’s not that hard. Like I said, I started out between ages 7 and about 19. I had that same enthusiasm, but I didn’t really have any guiding principle.
Then I found Ben Graham and The Intelligent Investor, and I had this philosophy. Running Berkshire has been far more fun than, in my case, running an investment partnership. Berkshire has been incredibly more satisfying.
(Great lesson here in my opinion: your intensity of focus, enjoying what you do, and your ability to prevent your emotions from harming that focus, or other areas of your life, are critical).
– Education and Development
Both Buffett and Munger are hungry for learning and are eloquent on the topic. When I arrived at Omaha airport there was a great big photo of Buffett in the arrivals hall with his famous quote:
Buffett – “my best ever investment was in myself”.
(he has being saying this for 60 years and when I arrived at the local airport there was a giant photo of Buffett with that quote on the wall)
Munger – The one thing we did… we were always dissatisfied with what we already knew. We wanted to know more. It’s only that we kept learning that made it work… and I don’t think that’ll ever stop.
Opinion: These words are from a 91 year old (as of May 2015). Think about that!
Ok, the Omaha meeting was not a retreat or anything of the like, and even if it was I fully appreciate that just the word spiritual alone might annoy some people. So I will define what it means in the context of the Perspective letters, and then hopefully do that some justice by sharing some more wisdom from these guys before wrapping up.
In the context of the Perspective letters, Spiritual simply means something bigger than you or more than you, and it also includes the notion of purpose; meaning, what are you on this planet to do. That’s it.
It’s personal and unique for you and everyone else and private for some and that is all perfect and wonderful.
So what did Buffett and Munger say that could possibly fit into this part of the letter?
Question “… I’d like you talk about the giving plan and your thoughts on philanthropy — giving money to charity versus leaving an estate.”
Buffett: Well, it depends very much on the individual situation, and actually, I promised to give over 99% in my case. As you know, the estate tax exemption has been moved up substantially here in the next few years.
I might have a very different opinion if I had a child who’d worked with me and helped build the business, and I could probably avoid the estate tax then. But when you think about how to deal with the options, you don’t have many options.
But, as Charlie likes to say, “Where I’m going, it doesn’t matter too much.”
There’s no Forbes 400 in the graveyard. In the end, it comes down to where it’s going to provide greatest value.
So that’s why I’m giving some of the money to my children, because I think it’ll do great good. But I think everyone should follow, and do what they think is best.
They should ask themselves where it can do the greatest good. It can sometimes do a lot for millions of people, in terms of affecting great change, but what can it do for me?
Charlie and I have very simple tastes.
When I call some people on the giving pledge, they say I don’t know what I’m going to do. I ask them, “Do you think you’re going to make a better decision when you’re 95 with a blonde on your lap?”
Munger: Remember that they recently changed the estate tax rules. I think that’s a very constructive change in law. We shouldn’t assume politicians will always be completely crazy.
Question: How can corporations be encouraged to make an even greater impact in the lives of those who are not shareholders?
Buffett: I agree entirely with your motivation on increasing philanthropy; however, I’m a much bigger supporter of individual philanthropy versus corporate philanthropy. I work for the shareholders, and I feel that they should get to decide to do with their money.
We encourage our companies to continue doing what they do with their communities, but I don’t think it’s my business to write a check to my alma mater and do it with company funds.
We’ve always looked at this as a partnership. We used to have a system where the shareholders could allocate contributions, but we had to abandon that.
I’ve never given money that has meant that I couldn’t do other things. Other people give up money that means they can’t go to the movies, or do other things.
It’s people like your son that I really admire.
Munger: My taste for giving away someone else’s money is also quite restrained.
Buffett: I was on the board one time on an organization that needed a bunch of money, and they asked me to call on four or five corporate chieftains.
They said, be sure not to ask them to give personally, ask them to give corporate money. I said I wouldn’t do that, if they weren’t willing to give money on their own. I have real reservations about corporate philanthropy.
Question: What matters to you most, and why?
Buffett: I would say it’s not very noble, but what matters to me most now, and probably has for some time, is that Berkshire does well.
I’m basically in the position where we’ve got a million or more people who are involved with us. It’s enormously enjoyable to me, so it works out well.
I would not be happy if Berkshire was doing poorly — that doesn’t mean the stock. But that it’s growing every year. It’s enormously fun for me.
Munger: I think that I have an unfortunate challenge in life — I was better at figuring things out than anything else. I was never going to succeed as a movie star or anything. I early got the idea (partly from family) that really, your main duty is to become as rational as you can possibly be.
Since I was good at that, I was steered into something that worked well for me.
I do think rationality is a moral duty — that’s why I like Confucius.
What’s really admired around Berkshire is someone who sees it the way it really is. That’s the way I did it. That goes beyond a technique for wealth — for me, it’s a moral principle.
It’s dishonourable to stay stupider than you have to be. That’s my ethos. You have to be generous because it’s crazy not to be. We’re social animals.
Buffett: We can lose money on individual things, and we can have bad years in the economy, that doesn’t bother me in the least.
What really bothers me is when I do something that really harms Berkshire’s value. That’s not a good day for me.
Munger: A doctor doesn’t like it when a patient dies on the table, either.
Fabulous to witness 2 people at the top of their game on a global level, at the ages of 91 and 84 not retired or even thinking about it, running what was then the 4th largest company in the world, loving what they do, giving back to society, and fully looking after the interests their clients (shareholders) at the same time. Inspiring lessons for everyone I believe.