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Q & A of Berkshire Hathaway Meeting 2011

Lose money for my firm and I will be understanding; lose a shred of reputation for the firm, and I will be ruthless.
~ Warren Buffett

These famous words of Warren Buffett come to mind when the David Sokol scandal first surfaced. Has the Sage of Omaha eaten his words? It is therefore no surprise that Warren Buffett choose to start the Q & A session explaining the circumstances that led to the Lubrizol purchase.

This is the only part of the meeting that was fully transcribed so I won’t repeat it here. You can read it (and the audit committee report) here:

Questions and Answers on Trading of Lubrizol Corporation shares by David L. Sokol

Based on his reply, I believe Warren has acquitted himself well.

How the question and answer session is conducted is that shareholders will take turns with three journalists in asking Warren Buffett questions. The questions asked by the journalists are pre-selected from the thousands sent to them. After Warren has given his answer to his question, he will turn to his partner, Charlie Munger, for additional comments.

Charlie will then give his inputs or say “I have nothing to add” if he has nothing to say.

Both Warren and Charlie would not have seen any of the questions beforehand.

Having done this for years, the two of them have a lot of chemistry and will usually insert some friendly banter into the process.

Here are some points from the session:

On investing in China or other countries outside US

Being unfamiliar with the culture, law and other areas of a country would affect his evaluation of the business. A greater margin of safety would have to be factored in compared to investing in a company in US.

On Whether it is a good time to invest in Oil

Warren has no clue in the direction of the price of oil and currently does not have directional trades in them (other than positions taken by some of his subsidiaries in their ordinary course of business).

On Too Big to Fail

Rules should be in place so that if companies that are too big to fail needed to be bailed out using taxpayers money, the CEO and spouse should be left dead broke. Other chief officers and directors should also face severe consequences. The current system where everyone enjoys the upside but none or very little of the downside does not serve any kind of deterrent.

On the Kinds of Business to Invest in during an Inflationary Environment

Companies that do not require much capital spending and has strong pricing power would be preferred. For example, See’s Candy was doing about $25 million in sales on 16 million pounds of candy with $9 million in tangible assets (when Berkshire first bought it). Now, it has $40 million in assets, does $300 million of sales on 30 million pounds of candy.

Industries like utilities will not do so well.

On Investing in Gold

Warren will rather invest in a good business than gold. Take all the gold in the world and you can put it into a cube that is 67 feet on one side. You can touch or fondle it but it won’t produce anything for you. You are hoping that someone else in a year or five years will come along to pay you more for it.

That amount of money can be better used to buy many notable businesses and generate regular earnings.

On Currency Investing

Any currency related investment is a bet on how the government would behave. Warren doesn’t really has any currency positions at this point in time. However, there is no question that the dollar will decline over time. The problem is that other currencies will also be doing the same, so it is a matter of which one is going to decline at a faster rate.

On Keeping Cash

All Berkshire’s spare cash are parked in US treasuries. Warren does not invest them into money market instruments or commercial papers in order to earn a few more basis points. What is more important to him is the liquidity of the money. Sometimes, he might need to put together a deal that requires cash at only a day or two’s notice. Without cash on hand, the opportunity might be gone.

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4 comments
Norman Tsai says 7 years ago

Hi Lion,

Just to share an alternate piece on Buffett from The Daily Bell titled “Warren Buffett Does a Disservice”:

“It is really too bad that Buffett chooses to continue to disparage gold as an investment as it only encourages financial illiteracy (another foot soldier perhaps?) and an acceptance of central banking mercantilism, which is the plague of the modern age.

Beyond that, it is a sign of the times that the “greatest investor in the world” can make such remarks without much pushback. There is a good deal of irony that a man who has made so much money for himself and others cannot be bothered to tell the truth about the world’s economy.”

Source: http://www.thedailybell.com/2216/Warren-Buffett-Does-a-Disservice.html

Ponder about the alternate amidst interesting times.

Cheers.

Reply
    lioninvestor says 7 years ago

    I think it’s alright for Warren Buffett to stay away from gold if he doesn’t want to. It is something personal and he is merely staying inside his circle of competence. And he has always been an advocate for certain changes in the system, eg higher taxes for the rich.

    Reply
      Norman Tsai says 7 years ago

      I believe you have missed the big picture.

      I humbly suggest reading the article again and into the links incorporated within as well. Try it on for size and see the world from a non-fiat USD reserve currency angle/perspective. Hopefully questions arise which can lead to awakenings.

      Sincerely.

      Reply
sender says 7 years ago

Martin,
Great stuffs! thanks.

Reply
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