The Oracle of Omaha and Pearl Jam go together
OOH …Here’s One Thing
How’s that for a wake up call? I mean who doesn’t like some of the classic Pearl Jam stuff? And aren’t the long days of summer some of the best days to do some self reflection on self improvement. Johnsen, please not another dribbling lecture on self improvement.
Surprise. No lecture at all. Just some “Pearls” of wisdom from 2 of the smartest guys on the planet, aka Warren Buffett (92) and Charlie Munger (99). In the interest of getting you off this little blog entry and back to work ASAP, I have distilled down an already distilled version of part of the Berkshire Hathaway annual meeting (which I understand is Burning Man for middle age capitalists like myself). Since I have got the mic (I mean keyboard) I have curated the quotes that I like best. If you want the whole thing, feel free to dig in here: ↓↓
Question 1. Becky Quick: If Silicon Valley Bank’s deposits had not been fully covered, what do you think the economic consequences would have been to the nation?
Buffett: It would have been catastrophic. That’s why they were covered. It was inevitable. Similarly, the U.S. would not let the debt ceiling to cause the world to go into turmoil. Charlie, do you have anything?
Munger: No, I have nothing to add.
Q2. Audience: Mr. Buffett, Mr. Munger, do you ever make bad decisions because of your emotions?
Buffett: We make bad decisions all the time, but we do not make emotional decisions.
Q4. Audience: What are positive and negative impacts of AI and robotics?
Munger: BYD’s factories in China have robotics at an unbelievable rate. We are going to see a lot more robotics. I am skeptical of some of the hype that has gone into artificial intelligence. I think old-fashioned intelligence works pretty well.
Buffett: ….When something can do all kinds of things, I get a little bit worried because we won’t be able to un-invent it. AI can change everything in the world except how men think and behave.
Q5. Quick: What is the outlook for commercial real estate and its impact on banks, and is Berkshire active in this area?
Munger: Berkshire has never been active in commercial real estate. The hollowing out of downtowns in the U.S. and elsewhere in the world is going to be quite significant and quite unpleasant. I think the country will get through it all right, but it will often involve a different set of owners.
Buffett: The lenders are the ones that get the property. And, of course they don’t want the property, usually, so the real estate operator counts on negotiating with them, and the banks tend to, you know, extend and pretend. But it all has consequences.
Q6. Audience: How can investors succeed with disruptive technologies and AI?
Buffett: … There are going to be plenty of opportunities. What gives you opportunities is other people doing dumb things. …
Munger: There is so much money now in the hands of so many smart people, all trying to outsmart one another and are short term oriented.
Q8. Audience: How do you prepare the next generation for the inheritance of a family business coming their way?
Buffett: Discuss your will with your children.
Q12. Audience: What are some of the most important things for the U.S. to remain strong?
Buffett: The U.S. is capable of doing remarkable things.
Munger: I’m slightly less optimistic than Warren is. We have too many young and brilliant people going into wealth management.
Q16: Audience: What advice can you give CEOs about the tradeoff between short term and long term profits?
Buffett: We feel no pressure from Wall Street. We don’t make promises. We are working for our shareholders. We are interested in owning a wonderful business forever. We learn as we go along. We know what the right price is, and we know what we think we can project out in terms of consumer behavior and threats to a business.
Munger: Tell them about the Japanese companies….
Q17. Quick: Professor Damodaran (NYU) is not comfortable with positions becoming a large part of his portfolio, Since Apple is now over 35% of Berkshire’s portfolio, is that a problem?
Munger: I think he is out of his mind….
Q20. Audience: A shareholder quotes Ben Graham and asks what is your 100-year vision of Berkshire?
Buffett: The willingness to act when you need to act and the willingness to ignore every salesman in the world – and it’s imperative to ignore them, and it’s one or two things that make the right decision. If you make the right decision on a spouse, you have won the game. The thing to do is just keep trying to think things through and not do too many stupid things. And sooner or later you have a “lollapalooza” as Charlie would say.
Q24. Audience: Charlie, do you still think people who refused the Covid vaccine were “really massively stupid”?
Q26. Audience: What is the outlook on the banking industry?
Buffett: Fear is contagious always. Historically, sometimes the fear was justified, and sometimes it wasn’t. My dad lost his job in 1931 because of a bank run. If you saw people lining up at a bank, the proper response was to get into the line. We did something enormously sensible when we set up the FDIC (1934). As many as 2,000 banks had failed in one year after World War I. Although there is a debt ceiling, it’s going to get changed. Although there is a $250,000 limit on FDIC, the U.S. government and the American public have no interest in having a bank fail and have deposits actually lost by people. No one wants to take up my $1 million bet on whether the public will lose money if they have a demand deposit at a bank, no matter the size. We keep our money in cash and Treasury Bills at Berkshire because we keep $128 billion (at the end of Q1). Today, if you press a button you don’t have to get in line and wait for days and have the teller counting our money slowly. You are going to have a run in a few seconds. First Republic was offering non-government guaranteed mortgages in jumbo amounts at fixed rates sometimes for 10 years before they changed to floating. The CEO gets the bank in trouble. Both the CEO and the directors should suffer. The stockholders of the future should not suffer. They didn’t do anything.
Q28. Audience: (13 year old) Are we likely to face a time in the future when the U.S. dollar is no longer the global reserve currency? How is Berkshire prepared for this possibility? What can American citizens do to shelter ourselves from the beginning of de-dollarization?
Buffett: We are the reserve currency. I see no option for any other currency. Nobody understands the situation better than Jay Powell. But nobody knows how far you can go with a currency before it gets out of control. Your best defense is your own earning power. The best investment is always yourself.
Q30. Audience: (15 year old) What major mistakes we should avoid in both investing and in life?
Buffett: You just want to make sure you don’t make any mistakes that take you out of the game. You should never have a night when you are worried about investing. You should just spend a little less than you earn. You can spend a little more than you earn and then you have debt and the chances are you will never get out of debt….I’ve never known anybody who was basically kind that died without friends. You should write your obituary and then try to live up to it.
Munger: Spend less than you earn, invest shrewdly, and avoid toxic people and toxic activities . Keep learning all of your life. Do a lot of deferred gratification.
Q36. Audience: Does Elon Musk overestimate himself?
Munger: Yes. But he is very talented.
Buffett: Elon is brilliant and may have an IQ greater than 170.
Munger: He would not have achieved what he has in life if he hadn’t tried for unreasonably extreme objectives.
Q39. Quick: Question about the new 15% corporate minimum tax rate.
Buffett: The 15% tax doesn’t bother me in the least. We were paying 52% tax as federal income taxes when I bought control in the partnership of Berkshire Hathaway. The tax rate has come down dramatically. We do not think corporations are overtaxed in the U.S. We will figure out a way to pay 15% every year, which generally, we’ve been paying anyway. If there were 1000 corporations in the U.S. that paid what Berkshire has been paying, nobody else in the U.S., no individual, no corporation, would ever pay any income tax, social security tax, gift tax, estate tax, anything else. A thousand like Berkshire would produce the revenue that’s being derived under the present tax code from everybody in the U.S.
Q40. Audience: What is the hardest part of your business?
Buffett: We don’t have a hard business. We love our business. I work with the greatest group of people you can imagine. We like each other. Nobody is after anybody else’s job. It’s 5 minutes from my home.
Q42. Audience: How does Berkshire incentivize owners of its subsidiaries to give up their independence?
Buffett: We hope to find managers who love their business but don’t like a lot of what comes with a public company. There’s nothing like working for yourself. If you can’t own a big company, working at Berkshire running a company is the closest thing you will get. You don’t have to spend time courting analysts who you will probably have contempt for in many cases. You don’t have to spend time with banks getting money and particularly in terrible times. Maybe you have siblings who want out. You may not be able to achieve that unless you sell to Berkshire.
Q45. Quick: Does the current size of the Federal Reserve balance sheet concern you?
Munger: If you are going to just keep printing money and spending it, I think it eventually causes bad trouble.
Q46: Audience: Should companies move production away from Asia where supply chain shortages occurred during the pandemic?
Buffett: The U.S. is 25% of world GDP starting with ½% of the population and did it in a few centuries. The system worked pretty well.
Q47. Audience: Can Mr. Buffett elaborate on why he views mark-to-market accounting differently for banks in comparison to Berkshire.
…I thought EBITDA was about as bad as you could get. But they kept going. You know Earnings Before Everything, EBE. We want owners who understand what they own.
Q48. Audience: How do you transfer your wisdom to your grandchildren and heirs?
Munger: I just live my life my own way and they can observe it as an example if they want to. And if they don’t, they can try some other way. And I have to pretend I like some of the boyfriends and girlfriends I don’t like. Usually, I just bite my tongue and keep silent.
There you have it folks. Almost as good as Ben Franklin, and who knew that the Oracle of Omaha and Pearl Jam go together like cherry coke and a steak. Wishing y’all a good week.
Securities transacted through StillPoint Capital Member firm FINRA/SiPC
Johnsen, Fretty and Co. is an advertiser with OOH Today