My first Berkshire Hathaway Annual Meeting was in 2002. I was travelling to Omaha with the Fidelity team of 20+ investors. The new analysts had an important job – get up super early to get a spot in line. That way the Portfolio Managers and Senior Analysts could sleep in, and still get a spot upfront. I thought I was ready. I was not.
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The meeting was smaller back then, and it was at an older venue, not the sparkling CHI Health Center where it has been held in recent history. I got to the location at around 6am. I thought that was plenty early to get a spot near the front of the line. It was.
The crowd skewed older, with most people 50 plus. There were plenty of old ladies and elderly gentlemen, patiently waiting and engaging in dignified conversation to pass the time. Finally, around 8am, the doors were about to open. Waiting in the cold paid off. I was about to get the team front row seats to the Woodstock of Capitalism. Or so I thought.
The line to get in was almost a mile long at this point, curving around the venue. The security guards finally opened the doors. I expected this dignified crowd of current and wannabe millionaires to gracefully walk through the doors in an orderly fashion.
Not a chance. The line collapsed into a mob, surging for the doors. Old ladies were pushing past me left and right. Unprepared, and not willing to engage in physical violence against senior citizens to fulfill my mission, I took some time getting to the auditorium. To my horror, the seats upfront were all taken. I still remember the dirty looks I got from the Fidelity Portfolio Managers who had to suffer the indignity of listening to Warren Buffett from several rows back.
If you follow what Buffett says and writes over the years, you might notice that as time went on, he has given less and less specific detailed investment insights. Back during the Buffett Partnership days, he used to describe his investment theses in great detail. That makes sense – he was raising assets and had much to prove.
It is understandable that having become one of the wealthiest people in the world and not needing anything from anyone, he no longer feels the need to be as detailed in what he is willing to share. Instead, as the years have gone on Buffet has branched out to talking about things such as society and politics and keeps his investment commentary at a mostly general level. Nonetheless, his army of admirers has deservedly grown with his success, and many like to quote the folksy Midwestern investing vignettes for which he is famous.
At almost every annual meeting, a few people, clearly having missed the memo, press Warren for specifics. After all, they think they are there to be told exactly how to do what he did, except in their situation and in the current environment. While Buffett clearly enjoys the adoring crowds, he isn’t there to give out specific how-tos. With his aw-shucks charm, he usually deflects to some general statement that for a moment makes the questioner feel like they got what they wanted, only to later realize that they still have to figure out for themselves what they were hoping Buffett would spoon-feed to them.
So here are three questions that it would be fascinating to have Warren Buffett answer fully, but odds are he won’t at the 2022 Berkshire Hathaway Annual Meeting:
1. “Warren, many people quote you as saying that it’s better to buy a wonderful business at a fair price than a fair business at a wonderful price. You say that, but it seems like that is not what you actually do. After all, you have been sitting on over $100B in cash for years. Surely you know a number of wonderful businesses. At least some of them are probably within your circle of competence. And yet you haven’t bought them. How come?”
Don’t be silly. Of course Buffett doesn’t want to pay a fair price for any investment. At least not if “fair” is meant to reflect the intrinsic value of the business.
Think about it. When someone sells a business to Berkshire, it is left largely unchanged, frequently with the same management. So the internal rate of return (IRR) that Berkshire receives from the purchase is the same IRR that the seller gives up. So if Buffett wants double-digit IRRs, and he does, the seller has to give those up. What’s fair got to do with any of this?
So why does he say that? There is certainly truth to it being worthwhile to pay up for quality businesses and management teams. At the extreme, if you find an amazing Philip Fisher-style compounder early on the exact valuation won’t matter much to your long-term returns.
However, Buffett might have a second reason for saying that. He wants business owners to sell to him at a low price. His offer? He won’t fire their employees and will preserve their life’s work. No auctions please, Buffett doesn’t do those. They raise the price. So if you want a higher price, go find a PE firm. But if you want what Berkshire and Buffett have to offer, you are going to have to accept a haircut on the selling price for the privilege.
That’s the likely reality. Why doesn’t he say that? No need to insult the sellers and rub it in their faces that he is getting a good bargain and that they are leaving money on the table. Better to smile and talk about a fair price for a wonderful business.
2. “You have said that if you were managing a small pool of capital, that you could compound it at 50% per year. Please tell us, specifically, how do you think you would be able to do that? Better yet, which investments would you be buying now?”
Buffett has talked about this for years, tantalizing aspiring and current fund managers and making them doubt their own abilities. What are they missing? What would the great Buffett do?
A couple of years ago, when pressed for what must have been the 10th time on this topic, he divulged that the 50% number applied to only about a $1M-sized portfolio, and that if the size went up even to $10M, the returns would be much lower. The money managers in the audience breathed a collective sigh of relief.
What returns would Buffett generate if he had his current knowledge and experience combined with the zeal of a 40-year old and a $100M portfolio? Nobody knows. I admit, I am curious too, along with what he would do differently in that scenario from what he is doing now at Berkshire Hathaway. Unfortunately I am quite sure that Buffett will not be shedding much light on this topic. That’s not why he is there, and the next generations will have to figure it out for themselves.
3. “You have held a number of investments at very high valuations over the years. This is the case even without the benefit of hindsight – some of these, such as Coca-Cola in 1999, you said were very expensive at the time. Certainly you have continued to own a number of public market securities far above where you would buy them. Would you do the same if you wanted to maximize Berkshire Hathaway’s returns, or is this just a trade-off for you getting the mental comfort from owning high quality businesses managed by people you like, even if you know the returns will not be particularly high going forward?”
Buffett has been honest that he is willing to sacrifice returns for his mental comfort. As an extremely wealthy man, he is very much entitled to that. That’s not the question.
Periodically, and usually coincident with rising market euphoria, there is a growing clamor among investors that we should hold good businesses regardless of price. They point to Buffett doing so. They sometimes throw in the old chestnut from Question 1 about wonderful businesses at a fair price. I am very curious if Buffett would be doing this if he were a hungry 40-year old trying to maximize returns, or if this is an artifact of him making a lifestyle/personal preference trade-off. I suspect we will never know and he won’t tell us.
The main reason to listen to Warren Buffett is that he is the paragon of rational investing. He reminds us of how we should think – as business analysts valuing cash flow streams, not as speculators trying to guess where markets will price securities tomorrow. It is that sense of rejuvenation that is the greatest benefit of listening to him at the Berkshire Hathaway Annual Meeting. Not the expectation that he will teach you specifics for how you can invest your money in this stock or that. You will have to figure that out yourself.
