Stewart Hsu

I received an e-mail from an acquaintance a few months ago asking me if I’d like to attend the Berkshire Hathaway shareholder meeting. The funny thing was I had been wanting to go for a couple years now, I’ve always thought it would be cool, interesting, educational to see Warren Buffett speak live! Some of you can probably tell I am a big fan of Warren (see post The Secret to Success), hence I gratefully accepted the offer to receive a couple passes to the meeting. Special thanks go out to John N. in Dallas, TX for your generosity and kindness.

There were an estimated 31,000 people at the shareholder meeting in Omaha, Nebraska May 3rd, 2008. It was held at the Qwest Center. It was quite the event. Many of the Berkshire Hathaway companies had booths setup in an exhibit hall where they offered shareholder discounts. There were overflow rooms setup as the main stadium was full by 8:45am. Doors opened at 7am. There was a short film (very humorous / tongue-in-cheek) that began at 8:30am – it ran about an hour.

Warren Buffett (age 77) and Charlie Munger (age 84), vice-chairman, held a Q&A session starting at 9:30am and ran until about 3:15pm, including a few breaks. They were candid and complete in their answers. Anyone could ask a question, provided they got there early enough to stand/sit in line. They had 12 areas setup where you could wait in line to ask 1 question. It was noteworthy that Buffett and Munger treated each question with respect and gave each question their full attention and a complete answer. What was perhaps most delightful, was the humor these two interjected in their responses. You truly got the sense these two gentlemen sincerely enjoy what they do and have been doing all these years.

What does any of this have to do with real estate investing you might be asking? Buffett is one of the most successful investors in history (and also soon to be one of the most generous philanthropists) and if I could gleam just one insight from the day it would have made the trip / time worthwhile. Needless to say, I walked away with more than a few key ideas.

Here goes:

1. Passion. Warren used this word at least 3 times in the first 90 minutes of answering questions – as advice for people on what to do with their own lives, how to pick good managers/companies and also how he lives his own life. He said you want to find people who “love their business… you’ve got to see the passion in their eyes.”
2. Focus on the business, not the stock. It’s not about a ticker symbol, it’s about the assets of the business and what are they going to do over time and who is managing those assets. Investing is less about what price you can sell it for in a couple months, more about how does the business make money, how does it create cash and create value. Ask yourself, do you really understand the nature of the business you are in?
3. Reputation. “Never trade reputation for money.” Part of the short film showed real footage of Warren Buffett talking to a Congressional Commitee regarding the Salomon Brothers scandal… he said he told all those employees two things “lose a bit of money for the company and I can be understanding, lose a shred of reputation and I will be ruthless.”
4. Compensation. “There’s a lot to be said for not paying yourself very well,” Warren said. He said he, Charlie and his directors would (and do?) take less money (read: salary) to do the job they are doing. This goes hand-in-hand with the idea of passion; you want people who are doing it because they love it, not simply because of the money. Here’s the test, would you pay to do the job you do?
5. Read. “Read everything in sight”, in other words constantly learn and grow yourself. He’s said it before and he repeated it that day, but your-self, is the most important “thing” can you can invest in. Take care of your body, mind and soul and it will pay the best return.
6. Diversification. This only makes sense if you don’t know what you’re doing. For the professional investor, this is insane.
7. Learn to communicate well. If you can communicate well, you have a tremendous advantage. Warren recounted in his earlier years he attended a Dale Carnegie course to force himself to learn how to speak better in front on groups. Watching him in front of 31,000 people, he’s certainly come a long long way.
8. Markets. He’s aware of what’s going on, but ignores 99% of what he sees happening in the markets, he’s not reactive. He’s looking at the long term bigger picture.
9. Do what you understand. Be consistent at it and enjoy it. He doesn’t invest in start-ups nor technology companies. He looks for family-run companies that have a good track record of earnings growth. He looks for businesses he understands.

Looking back on this list, most of it sounds like common sense, and it is. Still, that fact didn’t make it any less enjoyable, and if anything I found their advice and perspectives refreshing, intelligent, simple and inspiring.

There were some other ideas that may not have an obvious learning point to them, but I thought were interesting just for the heck of it.

1. Berkshire Hathaway Stock Performance. Warren said without a doubt, their future performance will be lower than their past performance. They’ve grown to such a size (approx $200B market cap) there are far fewer opportunities than in the past that can make as large a proportionate difference to the bottom line. He said they would be happy with 7-10% returns in the future and even went as far as saying if you want better returns don’t buy their stock!
2. Berkshire Hathaway future strategy. In answering numerous questions, it seems they were less focused on the quantitative side when deciding which company to acquire and emphasized much more the people side – who are the managers, are they enjoyable to be around? Warren is making an upcoming trip to Europe, and in particular, is targeting well run family-own businesses who may sell in the future – Warren wants Berkshire to be top of mind as a potential buyer if they decide they want to exit in the future.
3. Questions asked. On the whole, it was interesting to me that probably less than half of all questions asked were directly related to the business of Berkshire Hathway – people had come from all over the world and country just to ask “life advice” type questions, i.e.
4. The “nature of things” was a phrase used more than a few times during the day, more by Munger than Buffett, but included these ideas… it is in the nature of things that a) most small businesses will never be big, b) most big business will become mediocre and c) all the players die.
5. Money hasn’t changed Warren. Ask yourself this question, if your net worth grew by $10M, would your behavior change? Admittedly, I think I would probably get a new home and/or at least a new car. I think most of would. It’s amazing to me that Warren lives in the same house in Omaha he bought in 1958 for $31,500. He drives a 2006 Cadillac. For someone ranked #1 richest person in the world in 2008 by Forbes, he could certainly afford more. He embodies frugality to the extreme. His life is both an example and an inspiration.

If you’ve read this far, then something probably resonates positively within you about Warren & Charlie as it does me. Hence, here’s some additional reading you may enjoy:

Berkshire 2008 Shareholders Meeting Transcript

Berkshire Hathaway Annual Reports (this might sound boring, but these are actually a great read!)

To your success!