Some hedging required in operating businesses.
Buffett thinks about worse case scenarios all the time – more than most. They won’t take risks that threaten the business.
Valuing GEICO is different than valuing Gen Re.
GEICO’s intrinsic value is greater than net worth and float. This is not true for all insurance businesses. GEICO will have growth plus underwriting profits.
Buffett would love to buy operating businesses at 9-10x pre-tax earnings if they had similar characteristics to Berkshire’s operating businesses. He would pay even more for Berkshrie’s businesses since they know the businesses.
Buffett would not buy gold. He prefers productive assets.
Buffett bought JP Morgan for his personal account. He could not buy Wells Fargo in is personal account so he bought JP Morgan. His best ideas are in Berkshire.
Munger likes focused, long-term investing. Munger thinks investors should be thinking about the 98 1/2 percent of things that drive results, not the 1 1/2 percent.
If Buffett was not running Berkshire, he would own a lot of WFC in his personal account.
Acquisitions and Dividends
Buffett would use Berkshire’s stock in acquisitions, if it sold for intrinsic value. Buffett does not want to pay a dividend. It does not make sense to payout 100% when it is worth 110% in Berkshire.
They once were the primary source of information. Now there are other means which are more timely.
The areas where newspapers are the primary source of information has gone way down. They have lost primacy. However, they are still primary in a great many areas, such as local sports, obituaries, marriages, etc.
They are expensive to distribute.
Many newspapers give information away for free which is a poor business model.
There is a future for newspapers in areas where people care about local items. They are not as bullet-proof as they once were.
Berkshire makes reasonable money with the Buffalo News.
Buffett may buy more newspapers in the future. They need strong local interest – a strong sense of community.
Concern about Interent
The Internet is a powerhouse. The Nebraska Furniture Mart is probably OK.
GEICO was affected by the Internet.
Amazon has millions of happy customers. The Internet is really terrible for most retailers.
It took a long time for Berkshire to be top of mind when someone wants to sell a private business. There is generally no #2.
They generally vote yes in proxies of investee companies. They don’t rule out businesses where they don’t see eye to eye.
If they saw a particularly dumb acquisition, they might vote against it.
They would buy a great P&C insurance business, but there are not many.
Berkshire’s willingness to repurchase shares under 1.1x book value has not put a ceiling on the stock. It signals that there is not a lot to lose.
There may be a large fine but the fundamental dynamics of Walmart have not changed.
Buffett does not think the earnings power in 5 years will be affected.
Munger: A company that big will always have someone doing something wrong.
A takeover of Berkshire by a hedge fund is unlikely. Members of the Buffett family will maintain large voting power for many years to come. The size of Berkshire makes a takeover unlikely, and Berkshire is continuing to grow.
Munger: Berkshire’s momentum is in place for the next $200 billion. Berkshire will continue to attract private sellers.
Capital intensive businesses
Buffett thinks the utilities businesses can return 12%.
BNSF’s capex exceeds D&A, but Buffett is confident that Berkshire will be allowed to earn a decent rate of return on these investments.
It is difficult to predict how fast Berkshire’s float will grow. It could shrink.
They are looking for ways to intelligently grow float.
It is best to stay away. The real money is in growing businesses. Buffett doesn’t look for a cigar butt in a declining business.
Avoiding dumb things
The most important thing is to understand the earnings power of a business in 5-10 years plus its competitive position.
Investing in IPO’s is dumb. The seller picks the timing.
It is dumb to invest where the winners can’t be picked.
They have a number of filters. If something does not get through the filters, it is rejected. You don’t have to do a lot of great things to do well.
You can’t have a big disaster.
They avoid investments where someone is earning a large commission.
They look at things that other smart people are buying. If Graham Newman was buying something, Buffett would take a look.