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Berkshire Buffett and Munger 2019 Lessons Part 1

Berkshire, Buffett and Munger 2019 Lessons – Part 1

Another year, another Berkshire Hathaway Shareholder Meeting. And along with it valuable lessons by two of the most brilliant investors in the US: Warren Buffett and Charlie Munger.

If you’re a frequent reader of this blog, you probably know by now that these are two of my favorite sources of financial wisdom and experience in the world. This year they’re back and with more lessons. I’ll highlight the more important ones in the following lines. I hope you enjoy, contribute and share if you like.

Read more: 48 Lessons From Warren Buffett and Charlie Munger (+1500 Views)

Buybacks

Buffett bought around 1 billion of shares. ($1.7 billion worth of shares during the first quarter of 2019 — that’s more than it repurchased in the second half of 2018)
“We are going to buy stock when its selling below a conservative intrinsic value (…) It’s not a specific point…it’s more range”

Buffett is against repurchased programs with fixed amounts of dollars. He says it doesn’t make sense.

Munger added: “I predict we’ll get a little more liberal in repurchasing shares,”

“When it gets really obvious, we’ll be really good at it.”.

Wells Fargo

Buffett says that in big companies there’s probably someone somewhere not following the rules. And when the leader hears about it, he should act. “The problem is … when you find a problem, you have to do something about it … and I think that’s where they made a mistake at Wells Fargo,” said Buffett.

“I don’t think people ought to go to jail for honest errors in judgement,” said Munger, while Buffett argued that the bank gave incentives for “the wrong behavior.”

It’s all about the incentives.

Fun Investments

“One time I bought one share of stock in the Atled Corp,” he said. “Atled had 98 shares outstanding and I bought one — not what you’d call a liquid security.” The company apparently discovered oil. Thus the increase in value that came after.

The shares had gone from $100 to $29,000 per share in just a few years, when Buffett bought.

Atled ultimately sold out to an oil company. “If they kept it that stock might’ve been worth $2 or $3 million a share,” Buffett said. 

Politics and Socialism

Warren Buffett: “I’m a card-carrying capitalist,” Buffett said. “And I believe we wouldn’t be sitting here, except for the market system and the rule of law and some of the things that are embodied in this country.”

Charlie Munger: “I think we’re all in favor of some kind of government social safety net in a country as prosperous as ours,” vice chairman Charlie Munger added, saying his greatest objection to social programs was the “enormous stupidity” with which some of them are managed. “I also think it might be better if we did it [expanded the safety net] more liberally,” he added.

Kraft Deal

Berkshire payed too much for Kraft, says Buffett. Paying too much money for a business could turn that deal into a bad deal. A business will earn based on its fundamentals, and doesn’t care if you pay too much for it in the first place, said Buffett.

“You can turn any investment into a bad deal by paying too much,” he said, while adding it was “not inconceivable” Berkshire could partner with 3G again on a transaction.

Private Alternative Investments

“We have seen a number of proposals from private equity funds where the returns are really not calculated in a manner that I would regard as honest,” Buffett said. “If I were running a pension fund, I would be very careful about what was being offered to me.”

He also gives the example of the hometown Omaha Public Schools’ pension fund as a case study.

Leverage

Buffett cited the 1998 collapse of hedge fund Long-Term Capital Management as an example of the downside. “Really smart people, investing their own money, with years and years of experience” and it didn’t end up well.

Amazon

Is it a value investing option? Is Berkshire distancing from that strategy? Buffett disagrees, and considers the manager that did that investment a value investor. And says that value investing isn’t directly related to book value or other metrics.

Google

And how they miss that opportunity big time. They were using, through Geico, the advertisement services from Google, and “(…) paying 10$ for something that Google had a cost of (near) zero.” They understand that the business was wonderful, but didn’t invest.

Insurance Business

Warren defends that Berkshire is the ideal company for insurance, because it has a lot of assets that are uncorrelated with natural disasters. And it allocates the capital very efficiently.

He notes that the biggest 3 reinsurance companies in the last years were at some point near to bankruptcy. And none of them because of a natural disaster.

Delayed gratification

Munger no longer believes it’s possible to teach delayed gratification. A person either emerges from the womb with it, or they never have it.

Buffett: “I don’t necessarily think that for all families in all circumstances, that saving money is necessarily the best thing to do,” he told. “I think there’s a lot to be said for doing things that bring you and your family enjoyment.”

“I always believe in spending two or three cents out of every dollar I earn [on fun].”

Succession Planning

Longtime Berkshire executives Greg Abel and Ajit Jain gives Buffett safety, and will probably be present in future presentations and meetings of Berkshire. Munger says that Berkshire is different and does things different, and people would have to endure them (two) for more time.

Bitcoin

Buffett remembers 1952 honeymoon, “I looked around and saw all of these well-dressed people… they came to to do something that every damn one of them knew was mathematically dumb…”

Munger: “I’ve been invited during this gathering to go to a happy hour put on by the bitcoin people. And I tried to figure out what the bitcoin people do in their happy hour and I finally figured it out: They celebrate the life and work of Judas Iscariot.”

Conclusion (to sum up…)

  • Buybacks only if the price is cheap
  • Good incentives promote good behavior
  • Fun investments are the (really) profitable ones
  • Safety social net is very important for the population
  • Paying too much for a business could turn it into a bad deal. Additionally, you can’t turn a bad investment into a good one, by paying little
  • If you’re managing a pension fund, you should be careful with the investments alternatives that are being offered
  • Private alternative investments and leverage are not an option
  • Amazon is a value investment
  • Google had great margins and was easy to see that
  • Money gives you more security. Not necessarily more happiness after some point of accumulated money.
  • Bitcoin doesn’t make sense

About GTRetire

GTRetire is the founder of GrowtoRetire, a blog about financial independence and early retirement. Click here to learn more about starting a blog! Also, this post may contain affiliate links, please read the disclaimer for more info.

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