"We're full! We're full!" yelled the security guard. He was facing toward a group of quickly approaching Berkshire Hathaway (NYSE: BRK-A ) (NYSE: BRK-B ) shareholders, hoping to secure their seats at Berkshire's 2014 Annual Shareholder Conference.
But they had no luck.
With roughly 40,000 people vying for space in Omaha's CenturyLink Center to see Buffett and Munger in person, many of them were forced into the overflow rooms.
Luckily, the fans weren't precluded from gleaning some of Warren and Charlie's wisdom. In case you weren't among the 40,000, here are 10 key takeaways.
1. Smart capital allocation means choosing the best idea.
As Munger put it, the right way to make capital allocation decisions is to look at the opportunity cost. Pick the project that exceeds the expected return from the second-best idea. Further, $1 in retained earnings should create over $1 in market value.
2. Buffett avidly plans for succession.
And he plans not only for his own successor, where he privately shared his suggestions to the board. Berkshire's subsidiary CEOs have written Buffett private letters disclosing their own successor choices, lest something should suddenly happen to one of them.
3. You can't shout every time you disagree.
In Buffett's example, he abstained from a Coca-Cola vote regarding executive compensation, even though he felt that the compensation was a "little excessive." You have to not only choose what you will publicly disagree on, but the best time to disagree. As Buffett put it: "If you keep belching at dinner, you'll eat in the kitchen."
4. Publicly traded companies are more human than you think.
There's great downside to shareholders in companies publishing the top five executives' salaries. According to Buffett, executives at competitor firms will see those freshly inked salaries, but may think that they themselves are more talented and should command higher pay. This of course pushes up salaries across the board. The costs of increased pay are borne by the shareholders, either in the form of greater expenses, diluted shares (via stock options), or both.
5. Trust in Buffett's and Munger's investing prowess remains high.
Investors want Buffett to reinvest retained earnings. In a vote regarding Berkshire issuing a dividend, roughly 98% of shareholders voted that they did not want a dividend. What's more, Buffett intelligently crafted the Class A and Class B shares. In lieu of a dividend, investors can convert a Class A share (which currently trades around $190,000) into 1,500 Class B shares, enabling them to bring in income by selling a portion of the B shares.
6. During the financial crisis, cash was king -- If you used it!
Otherwise, Buffett says it's dumb if you held it. The reason: asset prices have significantly vaulted since that time, while cash has trudged along at a meager return.
7. Have lots of integrity.
Buffett is great to work with. Word gets around that Buffett keeps his promises, such as keeping current management teams in place, creating droves of business owners who one day hope to be acquired by Berkshire Hathaway. Such a reputation allows him to acquire family owned businesses at what might amount to a discount to what private equity suitors might pay. In the end, working for an honest, transparent boss might trump a slightly higher sale price.
Says Munger: "By the standards of the rest of the world, we over-trust. But it -- a culture of deserved trust -- is working."
8. Berkshire's investment in See's Candy led to investing in Coca-Cola.
According to Munger, the See's investment taught Buffett and Munger about branding. Buffett's and Munger's newfound brand experience helped them identify Coke's branding advantage, leading them to purchase shares of Coke. It's now Berkshire's second-largest equity holding at $16.2 billion.
9. GEICO has upside.
It's taken since 1936 for GEICO to become the second-largest auto insurer by market share. (State Farm is first with 19%, GEICO second with 10%, according to Buffett.) However, if Buffett's forecasts turn out, GEICO will be the top insurer by market share before Buffett hits 100, if GEICO: 1) takes care of the customer and 2) continues to appropriately underwrite risks.
10. Berkshire has upside.
Munger was adamant that Berkshire Hathaway has a strong future. He credits his and Buffett's success to their superior ability of "ignorance removal."
And that's lucky for shareholders, Munger says humbly, because "there's lots of ignorance left."
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