On MBA programs Warren Buffet, chairman of Berkshire Hathaway, compared teaching in business school (MBA programs) to the teaching of a biblical scholar he could know all the books of the Bible, but in reality there are very few things outside of the 10 commandments that you really need to know. However, since they have this knowledge, it then becomes taught. The thing is the teachers know the formulas. The only thing that a BA needs to know is how to evaluate the worth of a company. Its better to buy a great company at a fare price than a fare company at a great price.
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As for longevity and succession, Charlie Munger, Vice Chairman of Berkshire Hathaway, stated Warren Buffet was still a youngster who has yet come up to his true potential. He said that Warren has no intention of slowing down and when he and Warren die, they want the attendees at the funeral to say, My god, thats the oldest corpse Ive ever seen. He went on to say that they really want to be like Mrs. Blumkin, the owner and starter of Nebraska Furniture Mart, who worked until age 102. She died a year later, a case in point that one dies if they retire too young.
Warren Buffet said he wanted to be like Methuselah, but had given up the idea of running Berkshire Hathaway from beyond the grave.
He admitted that the board of directors of Berkshire Hathaway had chosen 4 candidates, each of which was equally capable of running Berkshire Hathaway; some better than him, in some respects. Their qualities were spelled out in the 2006 Berkshire Hathaway report.
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Philanthropy and impact personally of giving Warren Buffet stated that philanthropy means very different things to different people. Specifically, he stated he never gave away anything that meant anything to him, and that others have given far more than him. For example, there are some people who place money in the collection plate on Sunday, where that money is a huge contribution for them. They miss a meal in order to do so, and this will seriously impact their own lives. That is real philanthropy
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When asked about how much to give, his business partner, Charlie Munger, said: "Extreme political ideology, either to the right or left, means you are likely giving too much.
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At a recent university speech, Warren Buffet was asked, Who should you work for? Someone you admire. Later the dean of the University asked him, What are you telling my students? So many are going to work for themselves.
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Warren Buffet advises to be successful, it helps to marry the right person. Then he talked about spending 20 years looking for the perfect woman, and when he finally found her, she unfortunately was looking for the perfect man!
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When asked if they diversify their portfolio, Warren Buffet spoke on diversification vs. non-diversification in investments Experts have the ability to make huge investments in one area and not suffer, while individuals who are not knowledgeable need to diversify to decrease risk. Buying an index is not a bad means of diversification
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About oil When asked about oil production and the risk of what happens when oil runs out, Warren Buffet gave a fascinating view of the oil industry. He said that currently we produce about 87 million barrels a day. This oil production is at all time highs, which is good but also bad. Specifically he said that there was not much potential for higher levels of development. In fact, there probably hasn't ever been a time when such high levels of oil were produced and the upside potential of ratcheting up the level of production was so limited. That means that if there were a problem, we wouldn't have much in excess that we could produce.
Additionally, he went on to state that the curve of oil production won't be like a cliff and go from 87 million barrels a day to nothing, but that the oil fields will produce less and less over time, but this will be over 30 years or so. That may spur alternative energies such as the sun, wind power and coal power, but each source has its negatives. He asked Charlie Munger what he saw as the general trend for oil production. Charlie Munger, known for his verbose answers, stated succinctly, Down.
Additionally, Warren Buffet pointed out that many of the oil fields have been worked in such a way that there is significant oil still inside them, but they were damaged while taking it out and it may require ingenuity to bring them back to workable condition. Perhaps the wittiest comment of the day from Charlie Munger:
What we should have done would have been to buy all the oil from the Middle East in 1930s and put it in the ground in the U.S. We still should buy it all now, which is another problem that the U.S. isn't doing right.
Charlie said Ethanol/corn usage to produce oil is a stupid idea and on its way out.
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On Keeping Up With The Jones One questioner asked-: What do you talk to your kids about to show how to live? Do you keep up with the Joneses?
Answer: Tell them to keep up with the Buffets! Being a spendthrift is bad, but also being too frugal is bad. If the kids live in a repressive environment, they will rebel when they grow up, but the opposite is bad, too. Go to Disneyland, even if it means saving less, because you have to enjoy life, too.
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On banks Some institutions are viewed by the government as institutions that are too big to fail. Still, Warren Buffet feels the government did the right thing in the Bear Sterns situation, as 2-3 other banks would have gone bankrupt if Bear Stearns was allowed to fail.
Charley added that one must be careful of banks and institutions assets that have assets that are good until reached for in many of these institutions. Warren stated There are more banks than bankers.
Warren buffet said that there are more banks than bankers. Charley Munger said that more regulation will likely ensue, and It wont work perfectly.
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Warren Buffets comparison is that investing in derivatives can be a bit like betting on the tooth fairy. Just because everyone else is betting on it doesn't mean that you have to and these investment vehicles were and are stupid.
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On quality Investments Warren Buffet said that if an investment is good, it is good and you will see it. You don't like to make investments that go out to 3 decimal places. "If I look at a person and they are 300 lbs I don't need to see if they are 350lbs to see if they are fat! Thats the way Charlie Munger and I like to choose companies, choosing the ones that are fat financially.
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Due diligence He compared the way that Berkshire does business with other companies and said that when they say they will buy a company, that means they will buy it and there are no clauses saying that if there is a flu epidemic, nuclear bomb or if Ben Bernanke runs off to South America with Paris Hilton, the sale is off.
There was quite a bit of discussion about how they do business, the challenges of doing business, and making decisions when you have to make a 50 billion dollar investment to make any sizable improvement in company earnings. This means that the company won't make huge profits compared to several years ago, but will still make good profits. He said that he and Charlie would be happy with a 10% increase per year. If you want more than that, you are advised to sell your Berkshire Hathaway shares.
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There was an analysis report that said if the company continues to grow at even 3.5% a year, a share of BH will be worth 9 million in 2030. Thats the magic of compound interest. Warren Buffet said, Our favorite time to hold a share or a company is forever.
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On religion When asked what religion he was, he replied he was an Agnostic, which means that he doesn't know if there is a God, but doesn't doubt other people's feelings. If his parents were asked, the answer would be quite different. Charlie said I dont want to talk about religion.
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Quote from Einstein: The atomic bomb changed everything except how men think. Buffet said that terrible things can happen, and Munger said that though the Mexican population decreased by 95% due to European pathogens when they came, this still didn't wipe them out, and even horrible things can be surmounted. The most dangerous thing is the nuclear proliferation and that some knowledge may need to be controlled.
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How people should pick the best investments He said to imagine you were given a car when you were 16 years old, but told that it was the only one you would ever get in your life. Obviously, you would read the manual many times before you purchased, but this should pertain to your body and life in general, since you don't get another one of them!
Then he went on to say that you should value people in the same way. If you could invest in a classmate who would you invest in? Not necessarily the smartest one, usually, but the one with the highest morals and ethics and one that other people respected.
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On buying baseball teams as an investment Asked by a 9 year old, Warren responded that TV, especially cable and pay per view, has expanded the audience and multiplied the seats. An owner gets psychic income from buying a baseball team, becoming instantly associated, but economic rewards are not that good at present.
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Discussing how little we save in America It is bad that we don't save, but we don't seem to be suffering as much as we ought to suffer. A very rich country may not need to save as much. $47,500 GDP per capita is amazing, whatever the case.
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Quote: Warren Buffet The politicians are never so bad you don't live to want them back.
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More about the mortgage mess Charlie Munge said that it was a particularly foolish idea. A couple of years ago, I discussed an idea (with Warren Buffet) that seemed idiotic, where groceries were bought via the Internet and a company became valued at huge amounts of money even without showing that it would succeed. The company was Webvan and, as dumb at it was, it was a better idea than what led to the mortgage mess.
On mass transit The rail system as a means of transportation is not too likely. The American public has an aversion to mass transit. They have a love affair with the automobile. I dont want to bet against something that has gone one way too long.
Warren Buffets greatest influences When asked who influenced him the most, he said his father. He referred to his partner, Charlie Munger, age 84, as having learned a lot from Ben Franklin, but some people think that Ben Franklin learned from Charlie. Munger felt that he had received more influences from reading vs. people influence and referred to books as his father.
One influence on Buffet that he has consistently talked about was the book, The Intelligent Investor, by Benjamin Graham, first published in the 50s and recently revised.
All in all, an amazing experience. If you haven't ever been here for the meeting, you should come to Omaha for it in the future. Over 30,000 people attended it.
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