For what it's worth, I put this summary together. Much of this has been covered.
A sign at a coffee shop said it all. “Welcome Formerly Rich People.” That’s why 35,000 Buffetheads went to Omaha, Nebraska to see and hear Charlie Munger and Warren Buffet who entertained and enthralled them for over 5 hours in a question and answer session at the overflowing Qwest Center. It was the second meeting I had attended, the so called “Woodstock for capitalism” which many go to as a yearly pilgrimage, and according to many who were present, it was the best meeting ever.
And for those who were expecting bad news - partly because of the economy and partly because Berkshire failed to release its earnings on the Friday before the meeting – they were gravely disappointed. Warren explained the missed the report because it was a calendar week early, and shocked all involved with $1.7 billion in income, during one of the worst recessions in history, compared to $1.9 billion for the first quarter of last year, when everything was “rosy”. Warren and Charlie were in fine form, completely optimistic as to the long term prospects for America and Berkshire. Indeed, they felt many of the companies they own were better off for the downturn. And they felt many would be much better off as the ranks of the competition thinned.
And in some areas - such as GEICO – they are leading the charge and rapidly seizing market share. “We want everyone to know that we are the lowest price – bar none. If anyone is concerned about prices, they need to see us, “ says Warren.
This was a rare, wonderful meeting – probably Charlie Munger’s greatest hour. Whereas previously, he’d usually just say “I have nothing to add.”, at this event he literally was unplugged, showing his copious whit and wisdom. Part of what aided this was the new format, in which questions from three hand chosen panelists were interspersed with those from the audience. This allowed the questions to stay “on track.”
Of course, there was the well honed wisdom. For example, Buffett counseled that finance is simply applying the 2,600 (Warren originally said 600 B.C. but soon stated that he forgot exactly when it was written, although he’s old, he wasn’t around then – but Charlie was) old Aesop fable – “a bird in hand is worth two in the bush.” To apply this today you must be able to weigh the variables accurately –the number of trees, the number of birds, how difficult it is to catch a bird in the trees, etc.
Then he went on to say that to evaluate companies, you don’t need advanced mathematics. In fact, higher mathematics and high I.Q. are often a detriment – if you have an I.Q. of 150 give away 30 points to a friend. An universities and MBA courses need to only teach two courses – how to evaluate a company’s worth, and when to invest in it. And a great reference is Benjamin Grahams book, “The Intelligent Investor.”The reason there are so many courses is because professors need a reason to exist and if they didn’t have something to teach, it’ll be a pretty short course.
He also went on to say that watching good investors and copying them is not a bad idea. AS for Berkshire, he said that the company and its leaders didn’t “cover ourselves in glory” in 2008. The companies value dropped by 9.6% on 2008, by his count, and it’s stock price dropped by a third. While he didn’t come right out and state that Berkshire was a good buy, he did state that Berkshire offers excellent value. With book value of the stock at around 90,000 – you get a lot more with Berkshire than most stocks – including Warren Buffet picking stock at a yearly salary of 100,000.
Several times to questions, he stated he felt that Wells Fargo was the best positioned to capitalize on growth. He also stated that they got Wachovia and a great price. When the stock hit $9.00 he told one university group, which he was speaking to when it happened ( announced, of course, by a student using one of those blackberries or “what ever you call them things”), that if he was to put all his value in one stock, he’d do it in Wells Fargo. At another time he said, if he could, he’d buy all of Wells Fargo and MTB, but he lacked the money.
But he cautioned that it’s difficult for the average banker to understand enough about banks to invest in them. He noted that he invested, wrongly, in Irish banks in 2008 and lost Berkshire some money. He stated that investing in a vehicle that tracks the overall stock market isn’t bad.
In a discussion on housing, the duo of Munger and Buffet stated that the nation produces 1.3 million units a year but built and excess of 2 million housing units. Now construction is 500,000 units a year, but it will take time to absorb the excess.
Munger went on to say that in markets like Omaha, prices have neither risen or fallen sharply. “If I were a young person wanting a home in Omaha, I would buy it tomorrow,” he said. Some markets, such as South Florida, will have difficulties for some time, added Buffett, but it will recover.
“The main problem is everyone thought prices would rise forever. It never has but this time was different. When prices fell, we ran into the situation we are now in, “ said Buffett.
Regarding the future, Buffett said there will likely be inflation and less buying power of the dollar. “That will occur because it’ll be the easiest way to handle this financial situation – paying back in future dollars that’ll be worth less. Some say the Chinese will pay for it because they own the most U.S. bonds that will be paid back in depreciated dollars.”
Half the questions came from Carol Lewis of Fortune magazine, Andrew Ross Sorkin of the New York times and Betty Quick of CNBC, who chose questions from those sent to them. The other half came from attendees who entered a lottery to be chosen.
Asked about his successor, Buffett stated that if he died tomorrow there are three individuals in the Berkshire ranks that can take over the reigns tomorrow and four in or available to Bekshire who could do the investments. “The one who can’t be replaced is Ajit Jain who is unique,” said Buffett.
After luch, Buffet showed cheque on the “big screen” showing Berkshire lost $90 on a 4 month 5 million dollar treasury bill. “I’m not sure you’ll see this again in your lifetime.”He jokingly said, “You would have been better off to put it in a mattress from Nebraska Furniture Mart.”
Asked if federal money should be best spent on infrastructure projects like they did in the thirties, Munger said “yes”.
To end off the event, Buffett’s nephew asked what is the best way to stimulate the housing market. Buffet said, Create more families.” His sisters grandson then proposed to his girlfriend, who said, “yes.”
