Value Investing

PM 2014 Berkshire Hathaway Annual Meeting With Warren Buffett, Charlie Munger – Full Q&A

Full Q&A afternoon session from the 2014 Berkshire Hathaway Annual Meeting with the world’s richest man and most successful investor, Warren Buffett and his partner, Charlie Munger.

Get The Full Warren Buffett Series in PDF

Get the entire 10-part series on Warren Buffett in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues

Q2 hedge fund letters, conference, scoops etc

2014 Berkshire Hathaway Annual Meeting

PM 2014 Berkshire Hathaway Annual Meeting With Warren Buffett, Charlie Munger - Full Q&A

Transcript

OK let's get ready to proceed. And I we never get any precise figures because people come and go from the meeting. But I did know that we sent out about 11000 more tickets this year than any other year. And and we did. We had all the overall overflow rooms filled we were using space in a room over it and everything so clearly this year we have substantial more attendance than any year in the past and I hope the spending patterns reflect that. So with that we'll go to Becky so she's here. OK. This is a question that comes and I hope I pronounce your name correctly. Michael it's Michael Michael Luczak. And he says Energy Future Holdings likely bankruptcy as a consequence of unexpected and dramatic decline in prices of natural gas prices caused by a revolution in drilling technology. To what extent do you believe other assets held in Berkshire's portfolio debt equity etc. may be subject to disruptive technological or other changes that arose business models and barriers to entry. For example changes in consumer behavior and regulation could affect Coca-Cola revolution in payment systems could affect American Express ever increasing rate of change in technology and competitive landscape could affect IBM wireless delivery of media content and urbanization can be disruptive to DirecTV. Could you also comment on whether participation of some sponsors of Energy Future Holdings which include the very best of private equity contributed to your decision to invest. Was it a degree of crowd mentality at play and what lessons are to be learned from the experience. Well I know I would.

I would I would be unwilling to share the credit for my decision to invest in Energy Future Holdings with anybody else. I think that's very unfair of anyone to insinuate that they had anything to do with that decision. That was just a mistake on my part. It was a significant mistake and we will make mistakes in the future. All businesses should constantly be thinking about what can mess up their business model and with Energy Future Holdings that was a fairly simple assumption that was made there just turned out to be wrong. I mean the assumption there was that gas prices would stay roughly as high as they were or go higher. And so they went a whole lot lower. And at that point the whole place toppled to have a lot of reserve holdings and they had some futures positions which kept them alive for a while but that was a basic care. We look at all of our businesses as subject to change. A classic case would be Geico. I mean Geico set out in 1936 to operate at low cost and pass on those low cost to the customer through lower prices for something that was a necessity auto insurance. And they originally did it by by mail offerings U.S. postal service to people who are government employees. As for the name comes from Geico government employees insurance company and they had to adapt over the years and they adapted first to widening classifications. But they went from from the the US mail primarily to the telephone and later went to the Internet and on the social media.

But in there they stumbled one time to if they want to adapt and they when they left the government employs classification at one point they became too aggressive about expanding and they almost they really did go broke. So there's changes going on all the time and it's going on with all of our businesses and we want managers that are thinking about about change and what can or can change and what's going to be needed for their business model of the future. And we know we know they're not going to look the same five or 10 years from now. I mean BNSF something as basic as railroads is looking back at LNG for its locomotives everything is going to change. Our businesses generally deal from strength and they're generally not subject to rapid change but they're all subject to change and of course slow change can be much harder to perceive and can lead you to sleep easier sometimes the more rapid changes the stress is clearly inside. So I would say in answer to that question a I will make mistakes in the future. I mean that's guaranteed. We do not make anything like the company decisions that will ever cause us real anguish. That just doesn't happen at Berkshire. But you're not going to make a lot of decisions without making some significant mistakes. Occasionally they work out very well. Charlie and I and Sandy got Essman in 1966 bought it department store in Baltimore. Now there's probably nothing dumber than buying a department store in the mid 1960s. There were four department stores on the corner of Howard and Lexington Street in Baltimore in 1966 and none of them are there. And the number one store hustlers went broke a little later than our store went broke.

But fortunately Sandy did a great job of selling it. So the six million dollars invested in that department store became worth about 45 billion in Berkshire Hathaway stock as we did other things with the money as we went along. So you do have to be you have to be very alert to what is going on in your businesses and we want our market managers to do that. But actually it's something that Charlie and I and our directors are going to think about as well as our managers. TURLEY Yeah I spoke earlier about the desirability of removing your ignorance piece by piece. There's another trick just scrambling out of your mistakes and we've been quite good at both and it's enormously useful magine Bircher a textile mill sure to go broke because power costs and New England are about twice as high as they were DVA Comfrey of Scheurer fail to department store and a trading stamped shirt to be forced out of business by a change in mode. Out of that comes Berkshire Hathaway. Talk about scrambling out of mistakes I think we might have done if we had a better start. Yeah the point was driven home to me by my great grandfather started at your door here and Armont 1869 and my grandfather was running it in 1929 and he wrote My uncle who was going to be running it with him. And the letter started out as a 1929 the day of the change store is over.