Boring Portfolio Notes From the Berkshire Hathaway Annual Meeting
Part 2

By Whitney Tilson
May 1, 2000

Coca Cola and Gillette
"[Our disappointing performance in 1999] was partly because Coca Cola (NYSE: KO) and Gillette (NYSE: G) had bad years. But I would still call Coke's soft drink business and Gillette's razor blade business inevitable. Gillette has 70% (by value) of the world's razor blade business. Through its ownership in Gillette, Berkshire Hathaway has 6% of the world's razor blade business. The statistics for Coke are similar. But while these companies' businesses may be inevitable, the companies are not. Look at Gillette's diversification into inferior product lines. I don't worry about these businesses over time, however."

American Express
"American Express (NYSE: AXP) has a strong share of mind for financial stability. We think in terms of share of mind, not share of market. If you have share of mind, share of market will follow. American Express is not inevitable, but its name has huge value and the company, with proper nourishment, will likely do well." Munger added, "It would be easier to screw up American Express than Coke or Gillette, but it's an immensely strong business."

MidAmerican Energy
"MidAmerican is relatively well-positioned as a generator. We don't expect to make extraordinary profits, but we think it's a very good business. We're very likely to get a decent return. It's conceivable that we could make a very big acquisition in this space -- in the range of $5 billion. We have the right management to do it." (For more on this, see "A Look at Berkshire's MidAmerican Energy Acquisition.")

Disney
"We still own some Disney (NYSE: DIS). It's a terrific business and Eisner's done a terrific job."

The Government's Lawsuit Against Microsoft
Munger said, "Every business tries to turn this year's success into next year's greater success. It's hard for me to see why Microsoft (Nasdaq: MSFT) is sinful to do this. If it's a sin, then I hope all of Berkshire Hathaway's subsidiaries are sinners."

Buffett chimed in, saying that, "Twenty years ago, as a nation, we were depressed because other countries were eating our lunch in steels, autos, electronics, and other industries. But when the information age arrived, U.S. companies such as Microsoft swept the world aside. We've got something that works very well and it probably doesn't make a lot of sense to tinker with it. I would not go in with a meat ax into something that is pulling the country along in a huge way."

Munger had the final word, asking incredulously: "Someone whose salary is paid by U.S. taxpayers is happy to dramatically weaken the one place where we're winning big?!"

Costco
Buffett commented on one of the Boring Port's holdings: "Costco (Nasdaq: COST) is an absolutely fabulous organization. We should have bought a lot. Charlie was for it, but I blew it."

Exchange Rates, Interest Rates, and Other Macro Factors
"I'm no good on these macro predictions. The good thing about my economic predictions is that I pay no attention to them whatsoever. We focus on what's important and knowable. Exchange rates and interest rates are not predictable. The way we pick our investments, macro conclusions never enter the discussion."

Dividends
"There is no logic to regularly paying out 10% or 20% of earnings as dividends."

Future Stock Market Returns
"We don't think the general ownership of equities is likely to be very exciting over the next 10 years." Munger added, "I recommend reading Warren's Fortune article two or three times. We're in for reduced expectations from investing in stocks." (I wrote two articles last year on this article, which you can read by clicking here and here.)

Stern Stewart and EVA
Munger: "I think there's an awful lot of twaddle and bull$%#* on EVA. The whole game is to turn retained earnings into more earnings. EVA has ideas about cost of capital that make no sense. Of course, if a company generates high returns on capital and can maintain this over time, it will do well. But the mental system as a whole does not work."

Julian Robertson's Tiger Fund and George Soros' Quantum Fund
"We don't consider ourselves in remotely the same business as Tiger and Quantum [both of which recently announced that they are closing down]. They are mostly buying and selling securities. We're structured poorly from a tax standpoint to own securities." (Corporations like Berkshire Hathaway pay a 35% tax rate on capital gains compared to 20% on long-term gains realized by private investment partnerships like Tiger and Quantum.) Munger added, "Soros couldn't bear to see others make money in the technology sector without him, and he got killed. It doesn't bother us at all [that others are making money in the tech sector]."

Book Recommendations
"Philip Fisher's books are classics. I'm a huge admirer of his." (My favorite of Fisher's is Common Stocks and Uncommon Profits. Though written in 1958, its lessons are timeless.) Munger, who is a prolific reader, said he couldn't recommend a single book he'd read in the past year. He said books like Guns, Germs, and Steel, which he recommended at each of the past two annual meetings, don't come along very often.

-- Whitney Tilson

Whitney Tilson is Managing Partner of Tilson Capital Partners, LLC, a New York City-based money management firm. Mr. Tilson appreciates your feedback at Tilson@Tilsonfunds.com. To read his previous guest columns in the Boring Port and other writings, click here.

Boring Portfolio


11/20/00 as of ~5:30:00 PM EST

Ticker Company Price
Change
Daily Price
% Change
Price
APCCAMER POWER CONVERSION(0.44)(3.37%)12.56
BRK.BBERKSHIRE HATHAWAY'B'(19.00)(0.90%)2099.00
COSTCOSTCO WHOLESALE CORP(1.13)(3.12%)34.94
CSLCARLISLE COS(1.13)(2.62%)41.88
GTWGATEWAY INC(3.53)(8.88%)36.20

  Day Week Month Year
To Date
Since
10/1/1998
Annualized
Boring(2.42%)(2.42%)(5.30%)(15.05%)20.29%9.01%
S&P 500(1.84%)(1.84%)(6.07%)(8.62%)32.01%13.85%
S&P 500 (DA)(1.81%)(1.81%)(6.00%)(8.52%)33.72%14.54%
NASDAQ(5.01%)(5.01%)(14.66%)(29.33%)69.77%28.04%

Trade Date # Shares Ticker Cost/Share Price Total % Ret
8/13/96200CSL26.3241.8859.07%
9/13/99220COST34.5534.941.12%
2/9/99200GTW36.2836.20(0.21%)
12/31/9812BRK.B2,278.332099.00(7.87%)
4/20/99460APCC14.4812.56(13.22%)

Trade Date # Shares Ticker Total Cost Current Value Total Gain
8/13/96200CSL5,264.998,375.003,110.01
9/13/99220COST7,601.147,686.2585.11
2/9/99200GTW7,255.507,240.00(15.50)
4/20/99460APCC6,659.255,778.75(880.50)
12/31/9812BRK.B27,340.0025,188.00(2,152.00)
 
Cash: 
Total: 
10,490.51
64,758.51
 

Key
• S&P 500 (DA) = dividend adjusted. Dividends have been added to the total return of the index.