This past weekend, 38 000 people from around the world flocked to Omaha, Nebraska just to listen to a couple of old guys answer questions in an auditorium. However these were not just any old gents spinning a yarn, the occasion was the famed Berkshire Hathaway Annual General Meeting and the pair of elderly folk were none other than; Warren Buffett and Charlie Munger.
Every year at this time starting at the crack of dawn, the world’s financial elite, business media and ordinary shareholders scrum and fight their way for a seat to the annual ‘Woodstock for Capitalists‘. You went to AfrikaBurn – rich people go to this. Bershire Hathaway showcase the products produced by the various businesses that are owned and the pair simply answer questions for five hours in front of an entranced crowd.
Call us finance nerds if you must, but we find this thing of thing fascinating. It’s a unique occasion to listen / follow to two of the world’s wisest managers of capital, who simply have a unique ability to cut out the emotion and noise surrounding business investment and just share their wisdom on how this game is really played successfully. There’s a lot of noise and excitement that gets created by business journalists, so it’s refreshing to get the take of sane people for a change.
Over a period of five decades they have proven that creating wealth is one of the easiest, and yet hardest things to do. Easy because the rules are simple, hard because being human gets in the way of following those simple rules.
So while their words are still fresh in our minds, here is our snapshot of just some of the wisdom of Warren Buffett:
Don’t take yourself too seriously
Even though these two guys command an investment portfolio that is valued far beyond what the human mind can usefully comprehend, they are genuinely passionate about what they do and are not afraid to clown around a bit in front of thousands of people who’s money they are looking after. The meeting venue not only hosts the Q and A session, but also an expo featuring all of the products that the Berkshire Hathaway group produces. Guests are invited to take selfies with the pair, throw newspapers in a ritualistic fashion and buy Warren and Charlie versions of ketchup, along with hugely popular Warren and Charlie ‘duckies’ too. Perhaps confidence spurs playfulness, but it’s unusual to see that money managers can have a personality too.
Admit your mistakes
If you read through the transcripts of the marathon question and answer session you’ll realise that both Warren and Charlie are very open to admitting to their mistakes and taking ownership of their short comings. People are not perfect obviously and even the world’s greatest investor makes mistakes. But what is inspirational is that they go out of their way to keep their feet on the ground and highlight the instances where they stuffed up. Ownership of errors can be better assets than being lauded for success sometimes.
Slow and steady beats fast and flashy
Warren Buffett famously does not like to invest in technology stocks. Part of the reason for that is that their success is often far too related to emotion and market sentiment rather than the fundamental earnings performance of the companies they represent. It’s very much a case of the tortoise and the hare analogy that we all know so well. In a world increasingly besotted with fast and flashy, it’s still very much a case of the slow and steady being a surer investment in the long term. Warren’s greatest virtue is patience and a confidence to know that it beats haste every time.
Innovation is seldom a wise investment
Innovation is critical for the advancement of humankind, but is seldom a great investment. Just like a shooting star streaking across the night sky, a business trading on the hook of innovation is very likely to burn bright and spectacularly for a while, but all too often it fizzles out and disappears.
It not that there isn’t the potential to generate huge profits from an innovative venture, but when it comes to managing risk there are just better long term options that are a little more predictable.
Stick to what you know
In investment terms at least, stick to what you understand. If you don’t know the meaning of all the jargon that gets thrown around, don’t commit money to any decision that accompanies that jargon. Unless you fully understand what you are investing in and the process of how that works, rather hire somebody that does and that you trust to assist you. Nearly all the mistakes that Warren has made, have been as a result of him not fully understanding the business that he was investing in.
People will forever be people
Humans love strong brands and history will always repeat itself. People will always be greedy, will always try to take a short cut, will always need energy, food, snacks, news, money, cigarettes, beer, credit and transport. People’s wants and needs do not change. Making money is not difficult, all you need to do is offer something that satisfies humanities’ wants and needs in an efficient way and you have a way of making money. Great businesses are those that do that while building strong brands and efficiently managing capital.
Stocks will always out perform gold, property, bonds and art because of the cumulative earnings that a well managed company produces.
It is better to buy a great company at a fair price, than a fair company at a great price. And unless something radically changes, once you have bought a good company, you keep it. Over the long term, trading in and out of rising stars seldom yields results anywhere near where a long term holding of a good investment does.
That all being said, this does not preclude Buffett and Munger from criticism however. The vast wealth that they have accumulated over the years largely aided by a neo classical economic model that has been responsible for massive inequalities, should (even by Buffett’s own admission) be more heavily taxed. But as businessmen who have played within the rules laid out by a democratically elected government and prospered unbelievably from it, it is our responsibility to learn from history and the great personalities that have formed it. Warren Buffett and his Bershire Hathaway partner Charlie Munger are living legends of our recent economic past and it is at our peril to ignore their lessons. As money managers they have built up a reputation of trust that is unparalleled in a financial world that is increasingly criticized for its dodgy, flashy dealings. Their’s is an old-school style of business that has long since gone out of fashion, but to the world’s detriment.
Above all you could say that Warren Buffett and his partner Charlie Munger are just passionately curious about business and that is the secret to their success.
Additional reading: Buffett’s annual letter: What you can learn from my real estate investments – Forbes