Every few years, my family and I will go to Omaha and I’m subject to questions like “What are you doing in the middle of nowhere?” This year was one of those years. Thankfully, I have enough geek friends who understand the allure. Granted, this year, the combination of Omaha & Vegas threw people for an additional loop.
We go to Omaha to attend the shareholders meeting. I go – despite the fact that I’m not in the financial world – because it’s fun inspiring to watch Buffett and Munger doing what they love at their age. They remind me to follow my passion in life or to find it and not let anything get in the way of that. Something I need to hear a lot lately.
They also dispense more than a few memorable quotes and morsels of advice which are applicable outside the investment world. Here are my notes from today’s event. In bold is what the question referred to, directly below are snippets of their responses.
RE: Goldman’s Abacus deal
Buffett: “I was Snow White, but I drifted.” Moral: Better know what you’re doing. “We stayed away from things we didn’t understand – we avoided stupidity.”
Munger: “Standards in business shouldn’t be what’s legal and convenient. And there isn’t an investment bank out there that didn’t take on too many scuzzy investments/securities.”
RE: Financial reform
Munger: “We need a new version of Glass-Steagall. Give humans the flexibility to do anything they damn please and they will go plum crazy. And of course they did.”
“I’m just as good at not knowing as you are.”
RE: Advice on changing the culture of an organization or if you’re building an organization
It’s a lot easier to build a new organization than to change culture of existing. Berkshire is designed to reinforce the culture. If you have any choice the matter, start from scratch.
Buffett: At Salomon, I attempted to change it – I would not grade myself an A+.
Munger: In your position [coming into a company to change culture] my failure rate has been 100 percent.
RE: On educating kids on financial management
Get good financial habits early in life. Teach them in a very enjoyable manner.
Reference to Andy Hayward’s Secret Millionaire’s Club – an organization founded to teach healthy financial habits to kids. Behind the scenes video.
Ben Franklin was teaching that years ago.
McDonald’s succeeds better as a educator than some universities do because they hire people who are quite marginal. These people then go on to higher positions. Their employment culture encourages saving.
RE: Giving away your money
“If you want to give away all your money, it’s a terrific tax dodge.”
RE: Net Jets
Buffett, “We’ll make some mistakes.”
Munger, “The episode ought to be reviewed in context. If we buy 30 businesses .. And it works out 95 percent and one of the businesses fails, etc. …We let managers do their stuff and it’s worked well for us.”
{There’s ongoing commentary about acknowledging that they make mistakes. They recognize that they’re not infallible}
RE: Management with minimal interference from Omaha
Will jump in when there are problems.
We won’t trade reputation for money. That’s why they put the Salomon clip every year.
“If the best reason you’re doing something is because someone else is doing it, that’s not good enough.”
Buffett, “We can cure any problem if we hear about it soon enough. We will have more of that in the future, there’s no getting around that.”
Munger, “The ideal isn’t to make too much money, the ideal is that we celebrate wealth only when it’s been fairly won and widely used.”
RE: Financial consequences of the insurance business
“We are deliberately seeking a method of operation that will give us a few big losses in a single year, most people try to avoid it altogether.” {Note willingness to make mistakes whereas most people fear making mistakes}
Their competitive advantage is the willingness to endure fluctuating results.
RE: Wall St and Derivatives
Quotes John Meynard Keynes, The General Theory of Employment, Interest and Money. Chapter 12.
“Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. The measure of success attained by Wall Street, regarded as an institution of which the proper social purpose is to direct new investment into the most profitable channels in terms of future yield, cannot be claimed as one of the outstanding triumphs of laissez-faire capitalism — which is not surprising, if I am right in thinking that the best brains of Wall Street have been in fact directed towards a different object.”
RE: Advice/Question on being a money manager
“There will always be opportunities if you’re not working with large amounts of money.”
“Opportunities come around, you have to be prepared when they come around.. With moderate amounts of money there will always be opportunities.”
Buffett’s advice to money managers: “Take the high road, it’s far less crowded. Those that take the high road in Washington are seldom crowded with heavy traffic.”
Munger: “We’ve made our share of dumb deals at Berkshire. We expect to do dumb things.”
Munger: “We are stupid in many ways but we have avoided a slight subset of stupidities. And those are very important.”
RE: Changes in integrity of management
“What led to the crisis involved a lack of integrity in management. Integrity is very important. It’s the safest way to make money too.” Munger tells a story about Pope Urban II speaking about Cardinal Richelieu: ‘If there is a God, Cardinal Richelieu has much to answer to and if there is no God, then he’s done very well.’
Buffett talks about the 1993 FASB (accounting board) attempt to change the way companies report options (recommended reporting options as expense instead of income). “The everyone else is doing it is the toughest thing” .. cites 1993 example of accounting board recommendation that options be recorded as expenses. 498 companies chose to do it the non-preferred way (options as income). 2 took the preferred method (options as expense). When he asked the 498 companies why they went against FASB recommendations, “I can’t do it if the other guy isn’t doing it”… “Situational ethics problem is huge.”
You want a structure minimizes the weakness of human behavior.
Munger, “Much of behavior comes from subconscious poor cognition (less so from greed). The best cure is to have a system where people bear the consequences. Mortgage systems are irresponsible systems. And it’s deeply immoral to do so. There are (have been) very few apologies [from mortgage companies].
RE: On Failure
Munger, “I developed more courage after I learned that I could handle failure.”
“Maybe you can learn to get your feet wet with a little more failure.”
I can be optimistic when I’m nearly dead. -Munger
Re: Valuing companies
Buffett: “Know where the perimeter of your circle of competence is. It’s enormously important to recognize your limitations in this business.”
Munger: “Try to go to bed a little wiser than when you got up. Accumulate over time. People who do that almost never fail utterly. (With the right temperament) You may rise slowly but you’re sure to rise.”
Munger never took a business course.
Munger on BYD: “They try harder, they’re more disciplined. It’s a pleasure to work with those people. It’s with those (types of) people who I’ve succeeded with the most.
RE: On advice to young entrepreneurs
“Follow your passion. The common factor in their success [BRK managers] is that they love what they do. You’ve got to find that in life. It was dumb luck that my dad was in the securities business. If you find something that turns you on, you’ll do very well in it. Not many people will run faster than you in the race you elect to get into. If you haven’t found it yet, keep looking.”
Example of Mrs. B who ran NFM. She never went to school, started NFM on $500 capital. She loved what she did. All her life. Think what that produced.
Buffet: “Find your passion and don’t let anything stop you.”
RE: Unifying theory of management and life
Munger, “It’s pragmatism. It suits us, it suits our temperament/natures. It’s just that simple. Have enough good sense that if something is going well, keep doing it. Repeat what works.”
