With Love from Warren & Charlie

Published on 05/05/21 | Saurav Sen | 1,239 Words

The BuyGist:

  • We’ve split up the meeting into topics to organize them better.
  • Some of the quotes are paraphrased to give context.
  • We’ve applied some of the nuggets of wisdom of Warren Buffett and Charlie Munger to our investment decisions.

On the Art of Investing

  1. Buffett showed us a chart listing the top companies in the world by market capitalization in 1989 and 2020. In 1989, only 6 out of the top 30 companies were American. Most were Japanese. In 2020, most companies were American, including 5 out of the top 6. 
    • Subtext: Disruption is the norm.
    • Subtext: Entire industries go in and out of favor, BUT…
  2. There’s a lot more picking stocks than just picking the “hot industry”. 
    • Buylyst Note: This is why we spend so much time on valuation – we try very hard to not overpay for an asset.
  3. “…maybe we shouldn’t have sold any Apple…” – WB
    • At present, “…10-year rates imply that big tech is cheap!” – WB
    • Buylyst Note: This is why we’re reticent to ever sell what we call Global Dominators.
  4. “We’ve bought stocks we didn’t know much about…”
    • When pressed by Becky Quick to name some, Buffett declined.
    • Buylyst Note: We know that we can’t possibly know everything about a stock or the underlying company. But we’ve learned to be “satisficed” with the information we can get. At some point, it’s a calculated risk.
  5. On OPM (Other Peoples' Money) – OPM changes the nature of buy decisions. BRK buys with their own shareholders’ money – that’s a different ball game because it really makes you think before overpaying.
    • Subtext: Many asset managers are playing with OPM, with no real negative consequences. So, they don’t need to deliberate over long-term buys. In many cases, they overpay, lose money (underperform their benchmark), and still get a (albeit lower) bonus.
    • Buylyst Note: Most of our personal net worth is invested in The Buylyst Portfolio. We don’t just ruminate and analyze. We have skin in the game.
  6. “We’ve known for a long time that the best kind of business is where you don’t have to put up a lot of capital…” – WB
    • Like Software and SaaS.
    • Buylyst Note: We’ve renamed “operating leverage” as “scalability”. We love businesses with scalability. In fact, it’s an important pillar in our Watch List rankings.
  7. On Quants:
    • Works in the short-term [for trading in and out of stocks]; not in the long-term – CM
    • “…we’re not in the business of trading stocks…” – WB
    • Buylyst Note: We’re not smart enough to turn a complex-adaptive system like the markets into a repeatable algorithm. We’ll stick to fundamentals like durable competitive advantage and management quality when we make an investment decision.

On Management Quality

  1. Tim Cook has long been an underappreciated manager.
  2. The “biggest risk factor [to an investment thesis] is bad management” – WB
  3. Decentralization at Berkshire works because of the culture, which centers on “not getting rich in the next 5 years…”
  4. Greg Abel will Berkshire culture alive after Warren and Charlie are gone.

On the Economy and Public Policy

  1. 85% of the economy is super-hot right now.
  2. The Fed acted decisively and with speed – a lesson learned from the 2008-09 crises.
  3. “Interest Rates are to asset values what gravity is to matter…” – WB
  4. At present, “…10-year rates imply that big tech is cheap!” – WB
    • Subtext: There was no talk of “cost of equity”.
  5. MMT (Modern Monetary Enthusiasts) are “more confident than they ought to be…” – Charlie Munger
  6. On Taxes: 
    • The US Govt. is like a “class AAA” stock – they get a part of the earnings without actually owning the asset.
    • “California is being stupid; Florida is being shrewd.” – Charlie
  7. On Healthcare: 
    • Berkshire learned a lot from the (now disbanded) JV with Amazon and JP Morgan – the gist of it was that it’s too complicated to change.
  8. On Inflation:
    • “We’re seeing very substantial inflation [in our companies]...” – WB
    • “Commodity costs are going up…” – WB

On Cryptos, SPACs and Gambling

  1. SPACs are a “killer”:
    • They must spend their money in 2 years.
    • They have to “put money to work”, which is a handicap that the money management industry has to work with anyway.
    • Subtext: Berkshire is sitting on more than $100 billion in cash on the balance sheet, ready to be “put to work” but Buffett and Munger are in no such hurry; they’re not.
  2. Charlie Munger was less diplomatic: 
    • “greatest increase in the number of gamblers…” over the last year.
    • derivatives and SPACs have been “pushed to excesses”
    • “shameful what’s going on…”
  3. Charlie Munger didn’t hold back on Cryptos: 
    • “I hate the Bitcoin success…”
    • “The whole damn development is disgusting and contrary to the interest of civilization…”
    • “I don’t welcome a currency that’s useful to kidnappers and extortionists…”
  4. On Robinhood:
    • “…significant reason why a huge ‘casino group’ has joined the stock market…I hope we don’t have more of it…” – WB
    • “I think it’s god-awful…deeply wrong…what’s wrong is that it’s becoming ‘decent’ to do it…” – CM

On ESG

  1. “I don’t like making moral judgements for businesses…if you expect perfection in your businesses or your spouse, you’re not going to find it….” – WB
  2. “Our Coal Plan units will be retired over time…” – WB
  3. The transition will be straight from Coal to Renewables (paraphrased) – Greg Abel
  4. Berkshire is heavily invested in High Voltage Transmission – a basic infrastructure needed to transport renewable energy to population centers.
  5. Berkshire Hathaway declined to provide additional ESG disclosures for all its holdings despite a motion put forward by some BRK.A shareholders.

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