The following is the first part of my notes from the 2012 Berkshire Hathaway shareholder meeting. I have tried to be accurate, but I make no guaranty that I have been so. The notes are not complete, but rather the thoughts I wrote down during the meeting. I hope they are useful. Please take them with a grain of salt and cross check them against other sources.
Buffett’s successor must be the chief risk officer.
Insurance divisions are already overseeing their own risk. Leverage will be avoided in the future.
Berkshire may not have access to all the deals they could do with Buffett, but there will be opportunities. They will do some things better after Buffett.
The special side deals such as the warrants have not been material.
Berkshire has a strong board with deep experience managing risk.
Repurchase of Berkshire shares
Berkshire has always tried to have an attitude of partnership towards shareholders. When Berkshire issued B shares, Buffett said in the proxy that he would not buy them at the offering price.
Buffett stated that Berkshire’s intrinsic value is significantly higher than 110% of book value. Buffett feels very comfortable with 1.1x book. Significantly (dramatically) undervalued.
Some of Berkshire’s businesses are undervalued; some are fairly valued.
Buffett would love to buy “tens of billions” at 1.1x book. The value of each shares goes up if shares are repurchased at 110% of book. It’s obvious.
He won’t go below cash buffer of $20 billion.
Many companies repurchase their stock at overvalued prices.
American banks are in a better position than European banks. American banks have taken large losses already have large liquidity. The system is in fine shape.
Euro is gasping for air. $1 trillion Euros just pumped into the system. European banks rely more on wholesale funding.
Munger – Having a union in the U.S. is a big structural plus. 17 countries make it a lot tougher.
MidAmerican will pass on cost savings on coal.
KW hours down 4.7% (last year?).
The ratio of gas to oil is not 50:1 vs. the longterm average of 6:1.
Buffett stated that nothing is being done at GEICO to introduce telematics. He does not yet think that it is a factor. They are watching it and he is open to it.
GEICO is worth 15 billion more than book value. Even that price would not tempt him to sell it.
MBA’s have been taught a lot of nonsense about investing.
If Buffett were teaching about investing, he would teach two courses:
- How to value a business
- How to think about market prices
Ray Kroc did not think about options; he thought about how to sell more hamburgers.
You must know the difference between which businesses can be valued and which cannot. Buying cheap businesses works.
Rates in Thailand have gone higher as a result of flooding and Berkshire is selling more insurance. Losses in New Zealand have been huge on a per capita basis.
Berkshire has proposals out for $10 billion in business.
Market for insurance is significantly better in parts of the world.
There is a $.022 per KWH subsidy from federal government for the next ten years. Solar and wind would not work without subsidies. Wind does not work as base power generation (storing issue).
Berkshire can use tax breaks in energy companies in full because it pays so much in taxes. Up to 80% of other companies cannot use these tax credits. This gives MidAmerican a significant advantage.
Buffett would do an acquisition greater than $20 billion. He just considered a $22 billion acquisition.
Buffett won’t use stock in the future, not even for 30-40% of a deal.
He wants $20 billion in cash to be on hand. He would not do a $40 billion deal because he does not want the company to be susceptible to a shock. Money is building up month by month.
Berkshire invested $8.8 billion in U.S. last year.
Buffett is feeling good. Munger won’t allow himself to be tested for prostate cancer. Munger views Buffett’s cancer as a non-event given his highly positive prospects.
Buffett would buy insurance run-off operations at the right price.
Advice on starting out
Buffett would do the same thing again. He would aggregate investment funds earlier. He would develop an audited record as early as possible. He would try to get to the stage of buying entire businesses ASAP.
Berkshire’s stock price
The stocks price has been cut in half four or five times. Cap Cities once sold for 1/3 of the prices that its assets could be sold for.
Read chapters 8 and 20 of The Intelligent investor. Mr. Market makes lots of mistakes.
High to low prices for Berkshire stock is less than that of other stocks.
Make decisions based on what a business is worth.
The stock market is the most obliging way to make money. There is lots of information. This isn’t available with farms. The rules are in your favor if you take advantage of it.
Munger: Get yourself into a position to buy businesses.
Buffett never let macro events affect a buying decision. There will always be good and bad news out there. Buffett bought his first stock in 1942.
Look to valuation, not headlines.
He keeps liquid reserves because he does not want to go broke. The 1st rule is to always play for tomorrow.
BNSF has dramatically improved its position. It is an extremely efficient way to move things. Could not be duplicated for 5x or 6x (what Berkshire paid?).
GEICO is much better than its was 5 years ago. It is approaching 10% of the market.
MidAmerican and ISCAR have both done well.
Mistakes have been made when they misjudged the competitive position of the business.
Munger: good fortune will continue after Buffett’s death.