Review of BRK AGM 2019

Attending the Berkshire Hathaway Annual Shareholder Meeting was a bucket list item of mine. This year, I rented a house on VRBO and then figured out how to get there. What I learned was that waiting in line for two hours was near pointless… I still wound up in the second balcony. I also took away a few key points from the meeting. I’ll share them below. Do with them what you will. They are merely my opinion.

Berkshire Hathaway is built for centralization of capital allocation. When Warren and Charlie pass on to the great marketplace in the sky, the organization will place a single individual at the helm and provide them authority to allocate capital across the company. There will not be bureaucratic decisions… at least for a while. That said, BRK will eventually fade and de-conglomerate. It is not eternal and they admitted so much. Wise words from worldly wise men.

Mob stupidity inspires them. Warren told a story of his honeymoon in which he and his new wife stopped in Las Vegas on their way westward. He watched people play slot machines and said to Suzie, “Honey, we are going to make a lot of money.”

There was an absolute mob of people in Omaha. The weather was beautiful and I was among the gawkers. I believe Morgan Housel said it best, “it’s 40,000 people who all claim to be contrarian investors.” Being there and being shuffled to and fro was something to behold. Knowing it was happening made it all the more amazing.

Charlie has consistently said that occasional, big decisions are where the big money gets made. On the drive back to Lafayette, Indiana we discussed what an elephant gun move might look like for Little Engine Ventures. We came up with a few good ideas. The exercise was helpful for me to vocalize. I think about it often. I’m not sure my teammates do. At present, I’ve made just a handful of moves in my life. Starting LEV and buying Spectrum was an elephant gun move. The rest is a layering on of normal forces.

Berkshire Hathaway shareholders are a diverse group of people from various nationalities and economic status. However, there are some very common themes that were absent. It was plain to see there were very few institutional analysts present. The pretentious skincare and fancy suits were nowhere to be seen. Warren said, “we want shares to be owned by people who trust us. We want stock holders to imagine they are trading their interests with incoming partners just as if we were still in our partnership days. We want people to be comfortable with the majority of their net worth with us.” I believe he could have gone on to say that this is reasonable because they deserve to be trusted. I heard these words and almost cried. I get it. I say it and believe it with my business partners. It’s a thing of beauty really. Good job, Warren and team. Good job.

When Warren writes his annual letter, he imagines he is writing to his sisters. I had heard this before. What I had not heard is that he imagines the three of them each owning a third of a single private company. That’s an inspiring picture. That picture would force him to say what he means in a plain enough manner that the other two thirds know what the hell he is doing with their company.

I cannot recall if it was Warren or Charlie who said, “culture moves slowly, but it moves in the right direction.” These words hit me squarely. I want to send them to one of my managers. He is struggling with grumpy employees. I want to encourage him. I hope he reads this. Thank you. We will get there.

Warren spoke often about the Occidental deal. His primary emphasis was on speed. $10B agreed to on a Saturday and closed by end of the day Monday. Berkshire is built to do this type of deal –and bigger– like no other on the planet. Speed of the deal matters big time. This is why they will give the helm to a single individual. They have to. It would be hurtful to shareholders NOT to.

There are only a handful of operating groups that are important. Insurance is obviously the keystone. Without the low cost of capital the business is doomed. Ajit Jain spoke plainly about where they were strong and where Progressive wins. Charlie spoke plainly about why they will crush them eventually. Warren smoothed it over (but essentially agreed.) On either side of the insurance business are the other building blocks: Utilities (including rail), Manufacturing and Retail. While this encompasses nearly everything in a global economy, there are things that are excluded and/or secondary. I believe the ability for the capital allocator to move between these sectors is important. They built the business for mobility, and will not say no to any industry if they can understand it. They will grow increasingly global. I will not make any predictions but I had an eerie sense that Warren almost closed a massive deal in Asia recently. They will fire the elephant gun again.

But, not everything requires a big investment. Someone asked about See’s Candies and why it isn’t as big as Mars or Snickers. As a manager, I thought this was a bit of jerk question. They handled it with class. They essentially said they have tried a few different ideas. They’ve tried the same ideas with different managers. They’ve tried in different cities and various decades. Ultimately, See’s Candies is a fantastic gift. It’s not a regular convenience purchase. To force it to be something it is not might destroy it. If it doesn’t work, do not force it. If it works, do more of it. They know the economics when it is working and it’s beautiful. Charlie Munger essentially ended the meeting by saying:

“Think of all of the people that tried to take one more step and fell off a cliff.”

However, before his statement there was a period where I swear he fell asleep on stage. His eyes were closed and he was slumped over to his side so far that I worried he might fall off his chair. I thought of my grandpa and how awesome this man is. He is perfectly true to himself… and when waking from a nightmare he says things like, “I don’t like technology!” And, “No, I was talking about WeChat.” Thank goodness my vote stayed with Warren for chairman. Charlie is a great sidekick. He kicks Warren up a notch. But, Warren has the helm still.

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