Warren Buffett Speaks: The 5 Key Takeaways From the Woodstock for Capitalists

It's unlikely that you will ever hear this spoken: "I bought shares of this stock just so I could go to the annual meeting." Unlikely, that is, unless you're talking about Berkshire Hathaway (NYSE: BRK-A  ) (NYSE: BRK-B  ) , the giant conglomerate run by Warren Buffett.

Once a year, shareholders flock by the thousands to Berkshire's Omaha home base. This year, as my taxi drive informed me, there were nearly 50,000 visitors expected for the weekend to hear Buffett and Berkshire Vice-Chairman Charlie Munger speak on Berkshire, investing, life, and whatever else happens to come up.

And speak they did. After a short video -- which included an animated Buffett and Munger dancing to "Gangnam Style" and Bryan Cranston getting bullied by Buffett over peanut brittle -- the duo spent the next six or so hours responding to questions from media, shareholders, analysts, and even a Berkshire bear.

Below are five key highlights from the meeting that you shouldn't miss.

1. Back to the basics.
If there's magic to Buffett and Munger, it may be that there's no magic to Buffett and Munger. While there's a lot that goes into the outsized success that the two have seen over the years, much of it may come from their stubborn adherence to the tried-and-true basics.

Here's a sampling of some great reminders from this year's meeting:

"[We're] not looking at the aspects of the stock, we're looking at the aspects of the business... we always look at them as businesses whether we're buying the whole thing or 100 shares."

"There some parts of the game that we don't understand so we don't play with them."

(On feeling comfortable lending to Harley-Davidson (NYSE: HOG  ) during the financial crisis and the importance of customer loyalty): "Any company that gets its customers to tattoo ads on its chest can't be all bad."

"We've always tried to stay sane when other people go crazy."

"If [investors] try to time their purchases they will do very well for their broker and not very well for themselves."

2. Too big to succeed? Or big enough to dominate?
Some Berkshire shareholders worry that the company is getting too big to deliver attractive returns. While there's merit to that concern, one theme in this year's meeting was the competitive advantage that Berkshire's size offers the company.

Buffett quipped that "Berkshire is the 800 number when there's panic in the markets and for one reason or another people need extra capital." That was the case for Goldman Sachs, General Electric, and Bank of America (NYSE: BAC  ) , all of which turned to Buffett during or following the financial crisis in search of the one-two combo of cash and the Berkshire stamp of approval.

For its part in these transactions, Berkshire received extraordinary deals that "normal" investors couldn't dream of getting. In Goldman's case, Berkshire received preferred stock shares paying a monster 10% dividend and warrants to buy $5 billion of the stock at $115 per share. It was similar for Bank of America, with Berkshire walking away with preferred shares yielding 6% and a truckload of warrants.

There are few, if any, other companies out there that have the capital and reputation to score these kinds of deals. As Munger put it, Buffett has "found a place where there's less competition." And that's a good place to be.

3. Berkshire's next big opportunity.
Berkshire made waves in the insurance industry late last month when it announced that it'd hired four top executives from AIG (NYSE: AIG  ) . The execs will become part of Berkshire's commercial insurance business -- a business that Berkshire is focused on growing significantly.

Buffett expanded on this during the meeting, highlighting that the commercial insurance "could be a business that reaches into the billions, and could be in the fair number of billions over time." This, however, won't be an overnight process. Berkshire is excruciatingly careful about its underwriting and always prefers underwriting profit over premium volume.

Buffett also isn't keen on acquiring its way to a bigger commercial insurance presence. He noted that "it's better to build than to buy if you can find the right people." That seems to be the case at Berkshire. At the very top of the insurance unit is Ajit Jain -- one of the best operators in the business. And it sounds like there's strong interest for other insurance operators to join Berkshire. Buffett pointed out that the company "had a number of people reach out since the [AIG] announcement was made."

4. Uncharted territory.
If you're scratching your head over how the Federal Reserve's quantitative easing efforts are going to work out over the long term, consider yourself in good company. When asked about the eventual impact of QE, Munger responded: "The basic answer is, I don't know." Buffett added that "it's really uncharted territory. It's a lot easier to buy things sometimes than it is to sell them."

Both Buffett and Munger did, however, seem to agree that the course taken was better than the alternative. Buffett said that he has "a lot of faith in [Fed Chairman Ben] Bernanke." As for the threat of inflation, while Buffett said that "it certainly has the potential for being very inflationary," Munger warned "I worry about things more than inflation."

Of course, it's easier when you have the long term focus that Buffett and Munger have. In terms of dealing with the low-rate environment, Buffett emphasized that they "never stretch for yield." It can be a costly policy in the short term, but one that protects the company over the longer term from the eventual change in the rate environment. And when that change comes? For Berkshire's fixed-income portfolio "that would be a couple billion dollars in annual earnings that we don't have now."

5. Be a lifetime learner.
This last point was a very small moment in the meeting, but one that shouldn't be overlooked. When the duo was asked by a shareholder for a list of the 10 books that influenced them the most that weren't written by Ben Graham or Phil Fisher, Munger responded:

I can't name 10 books that I regarded that much better than the next 10, my mind is a blend of so many books that I can't even sort it out anymore. [emphasis mine]

This is such a great line because it conveys the idea that there isn't one, two, or 10 books that are suddenly going to turn someone into a brilliant investor. Instead of burning cycles trying to find the "secret book" that will suddenly turn them into the next Buffett, investors should instead focus on being lifetime learners that are constantly learning, reading, and experiencing new things.

For the Fool's full coverage of the Berkshire Hathaway shareholder meeting, simply click here.

Time to buy Berkshire?
Under Buffett, Berkshire Hathaway's book value per share has grown a mind-blowing 586,817% over the past 48 years. But with Buffett aging and Berkshire rapidly evolving, is this insurance conglomerate still a buy today? In The Motley Fool's premium report on the company, Berkshire expert Joe Magyer provides investors with key reasons to buy as well as important risks to watch out for. Click here now for instant access to Joe's take on Berkshire!


Read/Post Comments (25) | Recommend This Article (74)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 06, 2013, at 3:40 PM, whereaminow wrote:

    How does Warren Buffet explain holding the following two beliefs simultaneously:

    1. He has said on many occasions that high leverage was the biggest problem in the financial markets.

    2. Yet the entity that is designed to create this leverage, the Federal Reserve, is doing the right thing by creating more leverage than any other time in history.

    I think Warren is a sharp investor (and successful crony capitalist). But he is an economic buffoon.

    His father must be rolling in his grave.

    David in Liberty

  • Report this Comment On May 06, 2013, at 5:52 PM, Seanickson wrote:

    David,

    Mr. Buffett has said several times that he is concerned about the action by the fed. What else is Buffett supposed to do?

  • Report this Comment On May 06, 2013, at 6:07 PM, boone1112 wrote:

    Both Buffet and Munger stated that Corporations pay taxes. As the Motley Fool should know, Corporations do not pay taxes, they simply collect taxes from the consumer. Raising or lowering Corporate Taxes is simply a method for the government to hide how much they really are collecting in taxes. Both of them should have know better.

  • Report this Comment On May 06, 2013, at 6:40 PM, driller101 wrote:

    Which consumer is being taxed by the corporate tax on Goldman Sachs? Are the depositors of BOA being taxed? Are you saying that the big international companies that enjoy the benefit of US presences around the world should pay no tax?

  • Report this Comment On May 06, 2013, at 7:18 PM, KBOKSOFT wrote:

    For the Motley Fool's sake, I hope Buffett never says "jump off a bridge".

    (He is a highly successful investor indeed, with numerous wins [and losses], but the Buffett chauvinism here gets a bit thick.)

    I mean quoting lines like this as wisdom:

    "Any company that gets its customers to tattoo ads on its chest can't be all bad."

    ...Warren had better not go to a strip club, or he'll be loaning money to glitter factories.

    How about:

    "We've always tried to stay sane when other people go crazy."

    ...Really? That's BRK's secret ingredient? Good to know insanity isn't a super investment strategy...

    Or:

    "If [investors] try to time their purchases they will do very well for their broker and not very well for themselves."

    ...True, true. Of course, it depends on what "time their purchases" means, whether this applies to only "purchases" and not "sales", whether the investor is buying shares of a brokerage, and what "well" and "not very well" mean. Maybe this is one of those things we are just supposed to ponder, like the sound of one hand clapping.

    I guess if you're the wealthiest investor in the world, all your thoughts are wisdom.

  • Report this Comment On May 06, 2013, at 7:20 PM, Seanickson wrote:

    I assume what he means by timing purchases, is trying to guess times to move in and out of the market.

  • Report this Comment On May 06, 2013, at 7:28 PM, KBOKSOFT wrote:

    ...or maybe it means you should buy a "great" company at any price? (Rather than waiting for a better price?)

    ...or maybe it means "don't day trade"

    ...or maybe it somehow doesn't mean "I wish I had bought Walmart, but it never got cheap enough" (which I believe I remember reading as more-or-less a Buffett quote.)

    ...or maybe it means take all your money and buy stocks with it RIGHT NOW.

    ...or maybe it means "Be greedy when others are fearful, and fearful when others are greedy" -- except without the "when" part -- because that would be timing.

  • Report this Comment On May 06, 2013, at 9:00 PM, JadedFoolalex wrote:

    Nice to see all you investment hawks are so diligently pooh-poohing the ramblings of two old guys.... Buffett is nearing 85 while Munger is pushing 90!!! I'd like to see how coherent all you investment GODS are when you get to their age!! Oh, and by the way, when you amass 46 billion in your own personal fortune, then maybe, I'll listen to you crabs, otherwise, go take a long walk off a short pier!

  • Report this Comment On May 06, 2013, at 9:07 PM, dsciola wrote:

    Nice write up, curuious about 1 statement per above...

    " Berkshire is excruciatingly careful about its underwriting and always prefers underwriting profit over premium volume."

    For the ignorant fools like me out there, can someone explain what this means? Not very privy to how insurance firms operate...

    Does strike me as verrry odd that exec's from the same firm that nearly bk'd the nation in 08 can be in the same paragraph as Berkshire and cautious...ludicrous CDO underwriting didnt exactly turn out as planned for AIG.

    Dom

  • Report this Comment On May 06, 2013, at 9:07 PM, dsciola wrote:

    Nice write up, curuious about 1 statement per above...

    " Berkshire is excruciatingly careful about its underwriting and always prefers underwriting profit over premium volume."

    For the ignorant fools like me out there, can someone explain what this means? Not very privy to how insurance firms operate...

    Does strike me as verrry odd that exec's from the same firm that nearly bk'd the nation in 08 can be in the same paragraph as Berkshire and cautious...ludicrous CDO underwriting didnt exactly turn out as planned for AIG.

    Dom

  • Report this Comment On May 06, 2013, at 9:08 PM, dsciola wrote:

    Nice write up, curuious about 1 statement per above...

    " Berkshire is excruciatingly careful about its underwriting and always prefers underwriting profit over premium volume."

    For the ignorant fools like me out there, can someone explain what this means? Not very privy to how insurance firms operate...

    Does strike me as verrry odd that exec's from the same firm that nearly bk'd the nation in 08 can be in the same paragraph as Berkshire and cautious...ludicrous CDO and CDS underwriting didnt exactly turn out as planned for AIG.

    Dom

  • Report this Comment On May 06, 2013, at 10:11 PM, davidac123 wrote:

    Dom,

    I am no expert but I think that means they want to make each policy they write as profitable as possible and opposed to writing as many policies as possible.

    David

  • Report this Comment On May 06, 2013, at 11:57 PM, DaiEvans1955 wrote:

    David in Liberty is obviously a lot smarter than WB (You must think you're smarter than someone to call them an "economic buffoon") so how does he explain why 50,000 flock to listed to Buffett, whereas he barely gets a hearing.

    Oh - that reminds me - I need to stop - he might count me as a fan.

  • Report this Comment On May 07, 2013, at 12:43 AM, pro505050 wrote:

    The wealthiest investor in the world, Wise and choose "all" your thoughts....make sure your...decisions are wisdom. TAX...the short sellers an extra 25%. I agree that "a house hold name is solid" Love the statement about tattoos. I do not like them at all.

    But, I love his indirect comment that is a Huge "name"

  • Report this Comment On May 07, 2013, at 2:44 AM, whereaminow wrote:

    DaiEvans1955,

    I've never claimed to be smarter than Warren Buffet.

    What I do know is that you attacked my intelligence because you cannot answer my question either.

    Economics is a different circle of knowledge than investing. As IBM founder Tom Watson said, "I'm not a genius, but I'm smart in circles. I just stay in those circles."

    There is plenty of evidence that Buffet is an economic buffoon. The problem is that he thinks its one of his circles. It's not.

    David in Liberty

  • Report this Comment On May 07, 2013, at 11:15 AM, KBOKSOFT wrote:

    If I criticize a lottery winner for saying something silly like "Never buy a ticket on a Tuesday when you can buy on a Wednesday" or "Buy your ticket where you can see Twinkies on the rack and Slushies in the back", will someone counter by asking me if I will have won the lottery when I am old?

    My point is, Buffett IS very good. But not every one-liner out of his mouth is a zen koan -- or even worth publishing.

    And I agree that being a successful investor does not make you a brilliant economist -- like being a popular actor doesn't make you an expert on world politics.

  • Report this Comment On May 09, 2013, at 4:06 PM, earlyseller wrote:

    I liked Ben Franklin; Go Fly a Kite in a Thunderstorm and discover electricity for Tom Edison.

  • Report this Comment On May 10, 2013, at 8:11 AM, marks64 wrote:

    I thought Buffett paid just over $6 for BAC and not long after I paid just $4s if my memory is right so ordinary people beat him to the lows of BAC or at least one did. I knew only a fool would think BAC was not going back to $50 in a few years and I saw those $4s and loaded the truck

    Now that coal was smashed a couple years or so I'm loading the boats up on ANR and ACI but already have both at the lows and just waiting for any more drops before like Morgan Stanley has said, coal is about to turn around. BTW, with scientists stating we are back in global cooling that should help in the States but the big bucks in coal will be in China, India and other nations where they will continue to use coal the rest of this century. See everyone at $50 on ANR before end of winter to come and 300% up on ACI and 100% up or more in BAC within next 8-12 months

    JMO

    JMO

  • Report this Comment On May 10, 2013, at 11:41 PM, JCoeur wrote:

    Good pump, marks64. Too bad it has nothing to do with the article.

  • Report this Comment On May 11, 2013, at 11:09 PM, DaiEvans1955 wrote:

    David in Liberty -

    I didn't answer your question, because I didn't see one ... I was looking for the tell-tale clue of a "?"

    As for "attacking your intelligence" - i think you might heed the advice about staying out of the kitchen ... anyhow, let others tell us your intelligent - didn't your Mom teach you anything about humility?

    Based on your writing skill displayed here you must be some sort of buffoon - I'll leave you to tell us exactly what sort you are ... If you're as smart as you claim to be, surely you'll know your weaknesses? (yep - clue there - we all have many including you)

  • Report this Comment On May 13, 2013, at 12:38 AM, traumascaers wrote:

    David in Liberty -

    Rather than engage with the points made in the Article, it seems you saw the word "Warren Buffett" and decided to spout hateful vitriol that has nothing to do with the Article. Presumably everyone who disagrees with you on the economy or politics is also an economic buffoon.

    When people think this is an appropriate way to act, no wonder the US political system is in such a mess. The fact that someone holds a different opinion to you does not mean they are not smart and talented.

  • Report this Comment On May 13, 2013, at 12:41 AM, traumascaers wrote:

    "Corporations do not pay taxes, they simply collect taxes from the consumer"

    To a certain extent this is true, but to say it is wholly true is nonsense. Of course, corporation taxes hit dividends and the level of reinvested profits as well as consumer prices (the extent to which each is affected depends on the responsiveness of prices to demand)

    It also has absolutely nothing to do with the Article. Simply because an article is written about Berkshire or Warrenn Buffet, and you disagree with them politically, that does not justify you to make irrelevant unjustifiable comments.

  • Report this Comment On May 13, 2013, at 1:59 AM, whereaminow wrote:

    I love it when I strike a nerve. I think Buffetism is replacing Statism as my favorite religion to criticize.

    My first comment, at the top, starts with the word "How". Granted I was too lazy to add the question mark at the end, but it should clearly be considered a question. It remains unanswered. Just insults directed towards me for taking down the deity a peg.

    David in Liberty

  • Report this Comment On May 20, 2013, at 2:05 PM, spugnik wrote:

    Yeah^^^^^^guess you told him!

    Guess Buffet didn't answer you scared to face your superior intellect!

  • Report this Comment On June 11, 2013, at 3:37 PM, thidmark wrote:

    You don't have to know a damn thing about economics to be a successful investor.

Add your comment.

DocumentId: 2408987, ~/Articles/ArticleHandler.aspx, 4/16/2014 1:10:01 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement