Tuesday, May 05, 2009

The wisdom of two men

here is my notes from the Berkshire Hathaway meeting. kind of in a rush, but still a lot of interest things. I read the news on WSJ and FT today, and they definitely missed a lot of information(I know editors are tough and spaces are limited). So I hope you can find more things you are personally interested from my personal notes. The numbers are based on the order of questions.

Warren and Charlie are definitely two of the smartest people i've ever seen, and the most modest.

1. Bought two equity options, from 15.14 to 9.94. 4.9 put options, have 15 to 21 years to run. Has to be lowered at that time. Will make time.

2. Financial literacy

3. Wells fargo: doing the best they can (munger: insane accounting)

4. Discount rate. (they got to do sth in b-school_

High IQ tends to fail, should give some points to others

5. Moody’s rating. It is all anticipation on housing price, not primarily payment system. Don’t pay attention to rating.

6. There’s real activities pick up in lower to middle end housing under 750K; right now it is eating up all the inventories(this is the second way, and the first way is to create demand)

7. Four managers 39% plus dividend. Better than average. “they are ready for the job, but should still learn how to build relationships with potential seller, shareholders, and other managers. They have to understand different needs of those managers, and knowledge of individual personalities and meet different demands

8. Teach value investing. 1-how to value a business 2- how to think about market

Invest in things you understand. Try to get rid of beta in the first 10 mins.

Investing is more about stability and inter peace of the decision.

“it’s simple but not easy”

9. Munger-just reduce nonsense. Your emotion is more important than your IQ. There is resistance to a new human kind to new ideas.

10. Authority goes with the individual, not with the position.

11. People’s behavior changed after the crisis. More people came to our website to save money. In the first 4 months, there are 600,000 policy holders.

12. It should be again S&P 500. The intrinsic value of Berkshire should be going up.

13 Wells fargo good business model. Leverage causes me trouble in the world

Control emotion. Don’t let u sell it because of the emotion

If they own a farm, they can’t get a quote everyday. You have to look at the asset itself to see if it is intelligent investment.

14. the government bailout should be used on infrastructure. Intent is the right thing. It will have consequences on its scale. We don’t think it should be a free ride.

M: hugely electricity improvement

15. borrowing cost higher compared with companies with high guarantee. Real problem for us now. We use borrowed money for utilities. 58 billion

16. They cause leverage to run wide. They cause counter partners to sign sth difficult. Move market in different way. Pop up in unpredictable way. After 1920, congress said people can’t borrow a lot of money to go again the securities. Federal reserve introduced swap. Still 50%, but can do 100% now.

Settlement date got pushed down. Hard to find another person on the other side. More dates, more and more default.

“Great crash”

Ben graham would not like this idea. He would be willing to buy and sell mipriced.

M: derivative dealers take two advantages: 1.??? 2. Being in the same line of clients and have better advantages. “it’s a dirty business”. “ we need less in America”

17. Freddie and fannie, preferred stock was gone. No reason to go up equity. There are lots of earning power there.would buy those wealth there. Chrylser: not a sustaible business model. When common equity is wiped out, the business doesn’t worth a lot of money.

18. competitive advantage: unique shareholders, low turnover rate of 20%, deeply embedded culture. You can’t do this elsewhere. Need to add the right ones.

M: a lot of the corporate America are running from headquarter, with profit forecast in different branches. The stupidity of managing practice will give BH comparative advantage.

“what would they do differently if they own the whole place”? usually asking the CEO. That’s the difference with other companies. They know we are not going to leverage it up.

19. When we buy companies, we buy tips. We want our partners to understand. We are reluctant to sell them. We own some stocks for some decades. If we were wrong, we sell. 6.6 billion; sold a couple of million in J&J just because of its cash flow level.

20. I like the personal contact. Different attitude. Webcast will turn into a TV show.

21. Inflation: we are following policies,

2.3 trillion

It’s not the taxpayer who are paying. It is the people who have a lot of purchasing power. Shrinkage of real-value dollar. It may be the Chinese who are paying for it.

(1) Earning power. You will have your share of national economic pie if you are best in your practice.

(2) Best products and wonderful business. Coca-cola. People will pay to buy the products they favorite.

M: invest in coca coal instead of government bonds

Declare ( I got paid)

22. Washington post

We would not buy one third of the newspaper no matter what price is. 1700 newspaper. They don’t have the price power, losing the customer and advertisers. They are not essential for them anymore. Changing everyday.

As long as we don’t think it will not make up a loss, we will stick to it.

Keep looking for a good model.

M: national tragedy They kept government honest. They will not be disireable. This is life.

23. south florida will be a problem for a long long time considering many units there

24. importance of opportunity cost – face problems in Sep and Oct. we love to have money around. $5 billion GS. We were faced with chaotic market for opportunity cost calculation constantly. Have to measure billion from one to another. Big transaction cost. It is a sign of opportunity cost.

25. Nature of advertising. We know half works, but don’t know which half. We will never stop with the advertising. We want every American investors to buy it, probably not China. Will spend more money this year. 800 million this year, compared with 600 million past year. We want Geiko and Coca to be in everyone’s mind. We are getting more than advertising money.

A brand is a promise.

We are a low-cost producer.

26. Irish bank??? Its more about business model. Best bank in the country. should have understood the exposure to development-related loan. “I just wasn’t paying attention”

WAMU-there were a lot of signs. You can get a lot of trouble leveraging.

The figures are there, just people didn’t notice.

Huge differentiation between businesses.

M: allow a conservative bank to show a lot of earning when they made a lot of big loans. If accounting has made a big job, then banks will not do this. I am ashamed.


1. Get uneven

2. M: BYD investment is worth it, feel privileged to be connected to. 17000 engineers, and beat all the JVs with foreign brands. People need batteries. The founder is young.

3. Moody downgrade didn’t affect the borrowing cost. But affect the brand globally

m-“they show considerable independence”

4. “in the end you will find I am right because Munger is smart and I am right” -WB

5. Wind energy “net exporter of energy” love the idea of putting in more in wind. One of the advantages we have is we are a big tax payer. We will do more in utility business. In the pipeline, we did well by not investing in dynergy in 2002.

M-in any utility subsidiary we will be leaders

Fairest opinion based on fairest opinion

6. 4 trillion in money market account, sep meeting in coglone

7. Scale causes lower return, a few percentages in our intrinsic value over S&P 500. It will not be 10 percent any more. Cant happen with big money

8. It’s very hard to imagine we will have nothing to do in China. We want to buy more in BYD, but they didn’t sell it.

9. 1 trillion reserve can’t hold US assets. 250 billion in paper. They have reluctance to put in US government bonds. The purchasing power will be deducted. They are running a trade plus. China has the most successful economic policy in the world. They lost purchasing power a bit, and that’s great policy. US and China should be friendly nation.

10. (admit mistakes)

11. Don’t believe in contracts. It’s about the passion. Will they keep the same passion no matter what will happen. It’s all about mutual trust.

12. we will not spin off any business since we have wonderful business. See’s candies generate a lot of cash flow; if they can’t use it, we will use it somewhere else

13. what people need-water, over populated countries

14. 3 billion swiss francs invested in a swiss securities(12% a year) . get called.

15. Nationalized the annuity business is a good thing. Public got outraged.

16. Keep hedging on euro dollars. Could be a pain in the next year.

17. Honor and system: shareholder is the honor, executive is the system

18. We find people who love their business

19. Interest rate were much higher last sep, so good opportunity to buy into US equity. Corporate bonds is cheaper and disorganized, Mcdonald burger, cheaper, happy since I am going to buy it for the year. Wait for 1973 1974

20. Picking is not the game, but pricing is the game.

21. Household information is important, residential construction.


hwy9nightkid said...

Hey Amy, Erik from Kaching.. great stuff but it's hard to understand your short hand notes..

If you fix it I would love to re-read it then.

Amy G said...

Thanks a lot 4 ur feedback, Erik. I will work on that later.