Warren Buffett: How to Prepare for the Future

Warren Buffett and Charlie Munger address the challenge of change in business and its potential impact on Berkshire Hathaway

Jun 7, 2014 at 12:38PM


Photo: Matt Koppenhoffer, The Motley Fool

Every year, thousands of investors flock to Omaha to hear the wisdom of Warren Buffett and Charlie Munger. For as long as six hours, with only one break for lunch, the two business legends take questions from investors, the press, and analysts. 

Appropriately for a shareholder meeting, the focus is the business of Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B) but it's not the only topic they discuss. This year, Buffett discussed technological disruption in response to a question from financial journalist Becky Quick of CNBC.

Following are my notes on Quicks' question, along with responses from Buffett and Munger.

Becky Quick: Energy Future Holdings is likely going into bankruptcy due to fracking and the low-price of natural gas. What effect do you think technological disruption could have on other companies in your portfolio?

Warren: I would be unwilling to share the credit for my decision to invest in Energy Future Holdings with anyone else. That was just a mistake — a significant mistake. All businesses should be thinking about the risk for their businesses. In Energy Futures' case, the expectation was that energy prices would stay higher. Future prices kept them alive. That was just a basic error.

We look at all our businesses as subject to change. Geico set out in 1936 to pass low costs on to customers. Originally by the U.S. Postal Service, and they had to adapt over the years, first to widening classifications. They went from mail to telephone, and later to Internet, then to social media. They stumbled one time, when they left government employees they almost... they really did go broke.

So there's changes going on with all of our businesses. We want managers to think about change, and what's going to be needed for the future. We know things aren't going to look the same 5-10 years from now. BNSF is now looking at gas for their locomotives.

Our businesses generally deal from strength and are not subject to rapid change, but slow change is harder to perceive and call lull you to sleep. So I would say, I will make mistakes in the future, guaranteed. But, we will not make anything like "bet the company" decisions that will ever cause us real anguish. That just doesn't happen at Berkshire. You're not going to make a lot of decisions without making an occasional mistake.

Charlie and I and Sandy Gottesman bought a department store in the 1960s, one of four in Baltimore in 1966. None of them are there today. Fortunately, Sandy did well in selling it. So the $6 million invested in that department store became about $45 billion in Berkshire stock because we did other things with the money. It's something Charlie and I are going to think about, as well as our managers.

Charlie: Imagine Berkshire a textile business, sure to be put out of business, and that turns into Berkshire of today. Imagine what we would have had if we had a better start!

Warren: The point as driven home by my great-grandfather and grandfather, in a letter. In 1929, he wrote the day of the chain store is over. And that's why we had only one store that went out of business.

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Brendan Mathews owns shares of Berkshire Hathaway. The Motley Fool recommends Berkshire Hathaway. The Motley Fool owns shares of Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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