Tips from Warren Buffet and Company

Tong Teh & I attended the Berkshire Hathaway annual shareholder meeting. Here is a summary of what was shared by Warren Buffet, Charlie Munger and Company: unnamed

  • Hedge fund vs. Low cost index fund? Hedge fund can’t beat a low-cost index fund. In 2014, hedge funds returned 5.6% after fees whereas S&P 500 returned 13.6%. Cumulative result: Hedge fund up 19.6%, S&P up more than 63%. The takeaway is to invest passively in the S&P 500 rather than not investing or paying high management fees.
  • Companies that do well in inflationary period? Business that you buy once and no longer require further capital investment, e.g. real estate. Also, the value of brand increases when inflation kicks in.
  • Model for young person? Hardly anything is more important than behaving well as you go through life. When you get old, you’ll get the reputation you deserve. It takes years to build a good reputation and minutes to ruin one.
  • How to get people to like and work with you? Learn from teachers in life and act in a similar way to those you admire. Try to change yourself instead of changing your partner.
  • Income inequality? Not opposed to increase in minimum wage, but it would have to rise by a large amount to make a meaningful impact, yet it could bring unwanted consequences to economy. The likely result is fewer jobs will be created.
  • Prospect of reinsurance? Reinsurance has become a fashionable asset class for people seeking non-correlated investments. However, the real motivation is to run a hedge-fund-like structure on a tax-advantage basis. Buffett thinks the prospects for reinsurance business will not be as good as they were in the past. Margins have decreased.
  • Prospect of Euro? The concept of a shared currency is fine, but including countries that shouldn’t be included are straining the Euro. “You can’t form a business partnership with your drunken brother-in-law”.
  • Prospect of China? China found a way to unlock its potential. China and US will be the two super powers going forward. The rise of China can be a good thing for the US if managed properly.
  • People should not be concerned with stock price declines in companies they own as long as they are optimistic about the long term fundamentals of the company. If you are committed to a company, you likely will want to buy more shares. If the price has decreased, this gives an opportunity to buy shares at a lower price.
  • Culture is everything at a company. People who work at Berskshire care more about the company than they do about being recognized or their personal gains. Culture must come from the top. Punished when not followed and rewarded when followed.
  • Learning is the key to growing. As I watch Warren and Charlie share how they continue to learn, it is a model for me if I happen to live in my 80’s and 90’s.
  • Stock valuation is highly dependent on future interest rates. If rates increase faster than expected, today’s valuations will be overpriced. However, if rates remain low, current valuations will be cheap.
  • It’s important to identify the correct # of people working for the company. Too many produces inefficiencies. Too few misses opportunities.
  • In jest, they stated if a company hires an economist, they have hired too many. The point is that Berkshire does not try to “predict economic waves, but rather ride them”. Investing requires a long term perspective.
  • Brands must be protected and nurtured. It’s important to fulfill promises customers perceive have been made.
  • Developing savings habits is critical. It is optimal to develop good habits early. However, investing just to benefit yourself is not a noble pursuit. Investing for others and sharing is a more noble objective.