J Stern & Co chief investment officer and former Wealth Manager cover star Christopher Rossbach flew over to Omaha, Nebraska to attend the annual Berkshire Hathaway investor roadshow.
Here is his report back from the world’s greatest investment jamboree.
The Berkshire Hathaway annual meeting in Omaha, Nebraska is known as the Woodstock of capitalism: having just returned from this year’s gathering, I can confirm 2019 was no exception.
Tens of thousands of people came from all over the world and started queuing at 3am to get the best seats when the doors opened four hours later.
The company has underperformed the S&P 500 over the past five years, its own benchmark and the measure by which Ted Weschler and Todd Comps, the two investment managers investing part of its portfolio, are compensated.
But that has not dimmed the enthusiasm of the huge ― and hugely diverse ― crowd who return year in, year out to hear its leaders speak.
A diverse audience
The beauty of the annual spectacle is that the person next to you can be a retired teacher who has invested in Berkshire all of their lives, a fund manager, or the head of a major business.
One of the most colourful groups this year was the ‘Millennium Mams’, a group of female investors from Kolkata and Bangalore, most of them running their own substantial businesses, dressed in saris and on their first visit to Omaha.
Others are value investors like myself, who come to meet other value investors from all over the world, and who participate in the many investment conferences and sideline discussions.
My employer the Stern family has been invested in Berkshire since the IPO in 1973 and this is the only ‘industry convention’ I attend.
Some of the crowd admittedly may be lured by the 20% discount on the many goods and services Berkshire provides, with an enormous exhibition space next to the auditorium. You cannot walk off with a Burlington Northern train, but you can buy Brooks shoes, Fruit of the Loom shirts, sign up for NetJets or renew your Geico car insurance.
But the rock star reception afforded to chair and chief executive Warren Buffett and vice chair Charlie Munger, simply sitting on a stage answering any question thrown at them, leaves no doubt they are the main attraction.
My main impressions
I returned with three main impressions: the first is that Buffett and Munger are still going strong. It borders on miraculous quite how they can spend six hours (with a short break for lunch) answering questions.
Imagine the CEOs of Nestle, GlaxoSmithKline or United Technologies spending so much time talking to their shareholders about their company and their approach to business and life.
It is not so much about the recall of detailed information about the vast number of companies ― big and small ― that Berkshire owns. Buffett’s answers were far more detailed about [giant US car insurance subsidiary] Geico and the reinsurance business than about other parts of the company.
There were instances where he failed to hit the ball out of the park, for example when he was asked about Berkshire’s approach to ESG issues.
He could have answered that Berkshire is the owner of one of the largest renewable energy portfolios in the US, but the clarity of purpose and of conviction was as compelling as ever.
The second impression is that they are adapting their investments. One of Berkshire’s principles is to keep learning, and Munger has said that he likes to wallow in his mistakes.
At this year’s meeting, Buffett said that success comes from changing your ways and reminded people that Berkshire, with its $600 billion (£461 billion) market cap, has its origins in a doomed textile manufacturer, a doomed department store and a doomed trading card business.
The big news following the recent stretch of underperformance is that Berkshire has finally bought Amazon, with this sitting alongside Apple as a core investment.
The moves make sense: without being invested in digital technology it is hard to see how Berkshire can perform in line or better than the S&P, which after all represents the market cap weighted range of American business.
Berkshire has entered into a joint venture with Amazon and JP Morgan to provide better healthcare to their hundreds of thousands of employees, and taken a small direct ownership stake in the online retail giant.
At the meeting Buffett said he was an idiot for not buying earlier, and Munger said (in their words) that they blew it.
Still, Buffett made it clear that it was not his decision but rather one of the two other investment managers at Berkshire. This is how Buffett works. The first Apple stake was also bought when he had the opportunity and now it is the single largest equity position.
But Apple is not Alphabet or Amazon ― it is a hardware company with a product cycle and not a platform with almost unlimited scale, and it may end up as a value trap by comparison.
Buffett and Munger spent much of the meeting extolling the strength of Alphabet and Amazon, and it would not be surprising to see both becoming core positions in the portfolio.
The third takeaway is that Berkshire is at the end of a long chapter of tremendous growth and wealth creation, and that Buffett and Munger are actively helping to write the next chapter even before they have concluded the last one.
The succession plan
One of Berkshire’s great strengths has been its ability to delegate decisions. The core of its model is to buy great businesses and let their management get on with it. That is also why Berkshire Hathaway investment managers Ted Weschler and Todd Comb have the ability to buy what they want.
To that end, this year it was striking how Buffett and Munger brought in Ajit Jain, the head of the insurance business, and Greg Abel, the head of Berkshire Hathaway Energy into the discussion. Both are already vice chairs of Berkshire Hathaway. It is likely that they will lead the company when it is time for someone to take over.
The discussion between the two veteran investors on the dais and the much younger managers in front of them gave a palpable sense of how decisions are made and how familiar they each are with their businesses and their thought processes.
It also gave comfort to the idea that the succession at Berkshire is well underway and that the company will be in good hands once the leadership changes, as it inevitably will.
As Munger said: ‘It isn’t that easy to be a great investor. We have not had that many.’
At the Berkshire annual meeting, the greatest investors of all time share their lessons, explain their success and their failures, and let us see first hand how they are changing their ways and setting up their company to generate value for the next generation of investors.
It is an inspiration to all of us who are trying to be the best investors we can be.