Berkshire Hathaway annual meeting was today – below is the full video of the conference as well as the Q1 shareholder letter and an informal transcript of a segment on Executive comp-and on everyone’s favorite topic Bitcoin and other cryptocurrencies we will have more soon
PS if you want the full transcript we are weighing whether to produce one – if you are interested in one which we can probably get done tonight let us know by email, in comments or on social
Michael Mauboussin: Challenges and Opportunities in Active Management And Using BAIT #MICUS
Michael Mauboussin's notes from his presentation at the 2020 Morningstar Investment Conference, held on September 16th and 17th. Q2 2020 hedge fund letters, conferences and more Michael Mauboussin: Challenges and Opportunities in Active Management Michael Mauboussin is Head of Consilient Research at Counterpoint Global in New York. Previously, he was Director of Research BlueMountain Capital, Read More
Also see BRK meeting highlights
Full video here
In the past you have touched on certain compensation arrangements with key executives. Could you please provide some specific examples of compensation arrangements within Berkshire that speak to incentivizing good behavior while not penalizing the manager for size or the relative ease or difficulty of the business or industry. Thank you. Well that is a very very good question and a very very tough question because some of you really doesn't want to answer some of our managers. Now some of our some of our managers are in businesses that are just much easier. I mean we bought into a variety of businesses. People are obviously influenced by what pay arrangements are elsewhere.
It wouldn't be human if they weren't. And trying to trying to come to the right answer when you have different degrees of capital intensity different degrees very different degrees of a basic profitability and how much you scale up based on size because there is an incentive to grow businesses usually businesses get much larger everybody from the CEO down expects to earn more money for something that they really bring the same amount of amount of intensity and work Mbuli to it.
It is really a tough question. I think that that if you engage compensation consultants public companies which they all do they're going to they're going to recommend things that cause them to have CEOs recommend them to other companies. It's just you you're working against human nature when you have an arrangement like that. I would say that we have obviously kept a very very very high percentage of the managers that we hope to have stay was in fact just about 100 percent.
And I think people do like they do like to make their own decisions. They do like recognition. And they they most people respond they like doing a good job and they like the fact that we understand it and compensation is part of that but it's not the whole thing. And I wish I could give you some precise formulas but I really don't want them. It's an advantage at Berkshire to keep large individual deals private. There would be no advantage. Just pug publishing. No we're not going to do that. No of course not. So what were they. He makes all those decisions personally. He's got every formula in the book and he keeps them all private. That's our system. Well we we we do. We publish what the directors are paid for but we have to have.
Buffett and Munger warn again on dangers of Bitcoin and other crypto currencies
Capitalization of crypto currencies approach that of Berkshire and Apple last year. And clearly the idea behind Crypto will affect conventional banking groups where Berkshire is a shareholder. You always say you didn't go into too much detail to obtain an understanding on crypto currencies. So what factors caused you to say that it's a bubble. Well generally non-productive assets remain. If you had bought gold at the time of Christ and you figure the compound rate on it it may be a couple of tenths of one percent. The it's essentially is not going to libber anything other than supposing scarcity because only you can only mine so many but so what. I mean what is what does it produces solve. You know the check is a wonderful idea. Just imagine what it will be without being able to write checks or have wire transfer funds but it doesn't make the check intrinsically itself worth a lot of money.
And if you said you can use something called check with a little piece of paper you do something else to transfer money. I think that any time you buy a non-productive asset you are counting on somebody else later on to buy a non-productive asset because they think they can sell it to somebody for more money. And it's been tried with tulips and it's been it's been tried with various things over time and it does come to a bad ending. I mean having you have a hard time you can you can think of the good Rawle and I mean the Louisiana Purchase was say 15 million dollars for eight hundred thousand or so square miles of lighting them back.
You're sitting on land that came with the Louisiana Purchase. And and so what we pay we paid 20 bucks a square mile and you know six hundred forty acres in a square mile and you're down to three cents or something. So that was a pretty good purchase of what was then a non-productive property but it did depend. But it's very hard. You can buy stamps. Bill Gross got the wonderful stamp collection and sold for more money in the end. But it's depended on somebody else wanting to buy hoping they will sell it for more money and so on and in the end you make your money out of productive assets if you buy a farm you. You try to estimate what the crops what amount per acre of soybeans or corn or whatever may be raised and how much you have to pay the farmer that farms it for you and what your taxes will be and various things and you make a conclusion based on what the asset itself will produce over time. And that's an investment when you buy something because you're hoping tomorrow morning you're going to wake up you know the price will be higher going to be you know you need more people coming in with interleaving and and they and you can get that and that will feed off for a while and sometimes for a long while I was too extraordinary numbers. But in the end they come to bad endings and crypto currencies will come the bad endings along with the fact that there nothing being produced in the way of value from the asset.
You also have the problem that it draws in a lot of charlatans and that sort of thing who are trying to create various sorts of exchanges or whatever it may be it you know it's something where we're people who are of less than stellar character see an opportunity to clip people who are trying to get rich because their neighbors are getting rich buying this stuff and neither one of them understands. It will come to a bad ending Charlie. Well I like her broker. Currencies a lot less than you do. And so to me it's just dementia. And I think if people were professional traders they'd go into trading crypto currencies. It's it's just disgusting. It's like somebody else is trading turds and you decide I can't be left out. To the extent that this writing were being webcast around the world I hope some of our stuff doesn't translate very well.