2016 Berkshire Hathaway Meeting Notes: Q&A w/ Charlie Munger [FULL TRANSCRIPT]
Transcribed, abridged and edited for clarity by Jesse Koltes at The Charlieton – reposted with permission and special thanks for the incredible work done by Jesse for the benefit of the masses.
On April 30, 2016, Warren Buffett and Charlie Munger hosted the 2016 annual meeting of Berkshire Hathaway in Omaha, Nebraska. Mr. Buffett and Mr. Munger responded to a wide array of questions for over six hours without the use of notes. Though Mr. Buffett generally answered the questions himself before soliciting Mr. Munger’s opinions, Mr. Munger’s answers were often both complete and incredibly concise.
The following transcript has been edited and abridged to focus exclusively on the comments of Mr. Munger. A video recording of the entire proceedings can be found here.
CAROL LOOMIS: Good morning. I’ll make my very short little speech about the fact that the journalists, and the analysts too, have given Charlie and Warren no hint about what they’re going to ask. So they will be learning for the first time what that’s going to be also.
This question comes from Eli Moises. In your 1987 letter to shareholders, you commented on the kind of companies Berkshire liked to buy: those that required only small amounts of capital. You said quote; “Because so little capital is required to run these businesses, they can grow while concurrently making almost all of their earnings available for deployment in new opportunities.”
Today the company has changed its strategy. It now invests in companies that need tons of capital expenditures, are over regulated, and earn lower returns on equity capital. Why did this happen?
CHARLIE MUNGER: Well, when circumstances changed, we changed our minds.
In the early days quite a few times, we bought a business that was soon producing 100 percent per annum on what we paid for it and didn’t require much reinvestment. If we’d been able to continue doing that, we would have loved to do it. But when we couldn’t do it we went to Plan B. Plan B’s working very well and in many ways, I’ve gotten to where I sort of prefer it.
JONATHAN BRANDT: Thanks for having me again. My first question is about Precision Castparts. Besides your confidence in its talented CEO Mark Donegan, what in particular do you like about their business that gave you the confidence to pay a historically high multiple? Are their ways Precision can be even more successful as an essentially private company? For instance are their long term investments to support client programs or acquisitions that Precision can make now that it couldn’t realistically have done as a publically traded entity?
CHARLIE MUNGER: Well, in the early days, we used to make wiseass remarks. Warren would say, “We buy a business that an idiot could manage because sooner or later, an idiot will.” We did buy some businesses like that in the early days and they were widely available. Of course, we preferred to do that but the world has gotten harder and we had to learn new and more powerful ways of operating.
A business like Precision Castparts requires a very superior management that’s going to stay superior for a long time. And we gradually have done more and more of that and it’s simply amazing how well it works. I think that to some extent, we’ve gotten almost as good at picking the superior managers as we were in the old days, at picking the no-brainer businesses.
STATION 1 QUESTION: Good morning, my name is Gaspar. I am Spanish and I come from London. I admire you both in many ways. But I would like to know When looking backwards, what would you have done differently in life in your search for happiness?
CHARLIE MUNGER: Well, looking back, I don’t regret that I didn’t make more money or become better known, or any of those things. I do regret that I didn’t wise up as fast as I could have — but there’s a blessing in that, too. Now that I’m 92, I still have a lot of ignorance left to work on.
I don’t regret that I didn’t make more money or become better known, or any of those things. I do regret that I didn’t wise up as fast as I could have — but there’s a blessing in that, too. Now that I’m 92, I still have a lot of ignorance left to work on.
BECKY QUICK: This question comes from Salomon Ackerman who’s in Frankfurt, Germany. He wants to know why Berkshire has significantly sold down their holdings in Munich Re, which is the world biggest reinsurance company based in Germany while sticking with their reinsurance operations within Berkshire, like Berkshire Hathaway Reinsurance, and General Re? Would you reduce exposure to Berkshire Hathaway Reinsurance and General Re if they were listed companies? And he’s hoping that this can bring out some of your insights as to what’s happening in the reinsurance business right now.
CHARLIE MUNGER: There’s a lot of new capacity in reinsurance and there’s a lot of very heavy competition. A lot of people from finance have come over into reinsurance and all the old competitors remain, too. That’s different from Precision Castparts where most of the customers would be totally crazy to hire some other supplier because Precision Castparts is so much more reliable and so much better.Of course, we like the place with more competitive advantage. We’re learning.
Of course, we like the place with more competitive advantage. We’re learning.
CLIFF GALLANT: Thank you. In terms of growth and profitability GEICO really got whooped by Progressive Direct over the last year. In 2015, Progressive Direct grew its policy count by 9.1%, GEICO only 5.4%, and in terms of profitability the combined ratio at Progressive was a 95.1%, and GEICO’s was a 98.0%. Is this a evidence that Progressive’s investments in technology like Snapshot, investments that GEICO has spurned, is making it difficult at a time of difficult loss trends? Why is GEICO suddenly losing to Progressive Direct?
CHARLIE MUNGER: Well, I don’t think it’s a tragedy that some companies had a little better ratio from one period. GEICO has quadrupled….alright quintupled its market share since we bought all of it. I don’t think we should worry about the fact somebody else had a good quarter.
I don’t think we should worry about the fact somebody else had a good quarter.
NORMAN VENNTRUP: Greetings to all of you from the Midwest of Europe. I am Norman Venntrup from Bonn, Germany, a shareholder since 1992. My question is about the future of salesmanship in our companies. Warren, you have always demonstrated a heart for direct selling. When we met you in the midst of a tornado warning in a barbershop, you immediately offered to write insurance for us.
We see with the rise of Amazon.com and others a shift from push marketing to pull marketing, from millions of catalogues being sent out in the past, to now consumers searching on what they are looking for. What is your take on how this shift from push to