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 Berkshire's investments during the the financial crisis in response to a question from shareholder and fund manager from Philadelphia.
Following are my notes on the shareholder's question, along with responses from Buffett and Munger.
Shareholder: Can you expand on how you and Charlie think about investment opportunities? In the past, you haven't hesitated to make a single company a large position in your portfolio? Did you think about buying more Coca-Cola or Moody's (NYSE: MCO) in 2008 or 2009? Would Berkshire be better off with a more focused portfolio of your favorite name?
Warren: It depends which favorite name you'd have chosen in 2008 or 2009. I spent a considerable part of our cash reserves too early, looking back, in the 2008 and 2009 panic. The bottom was in March 2009, and quite a bit lower than September and October of 2008, when we spent $15 billion. We were committed to the Mars payment, so there wasn't much we could do about the timing of that.
But we did fine on the expenditures we made during that period. But not remotely as well as keeping all the powder dry and spending all at once at the bottom. But we never figured out how to do that and won't be able to going forward.
On the other hand, as late as October 2009, when the economy was still in the dumps, we were able to buy BNSF, which will be an enormous part of our future. Looking back, the most money would have been made buying the stock. But that's always going to be the case [that hindsight is 20/20].
Overall, we would love the idea, what we really want to do at our present size and scope and current objectives, is to buy big businesses with good management at reasonable prices and then build them over time.
We started 2014 with a great group of businesses, some of them pretty big. We're going to do well with them. It's not a complicated process. Looking back, we'll always be able to do better than we did it. But, I feel the game is still a viable one and still has some juice in it, though it won't go on forever.
Charlie: What's happening is that the owned businesses are becoming a bigger and bigger percent of Berkshire. Earlier we had a bigger percent ownership of common stocks. Now the private companies are worth way more than the stocks. And I would guess that will continue.
Warren: It'll continue, and the difference is when we're right about stocks, it shows up in market value. When we're right about businesses, it shows up in future earning power, which doesn't jump out at you. One is easier to see, but the other is more enduring. And they are both fine, but we have moved into phase two — wouldn't you say that's fair, Charlie?
Charlie: No significant volume of shares can be bought at the very bottom at those prices. When we buy these businesses, you put a lot to work. If you were investing in Moody's at those prices, you couldn't have bought anywhere near that much. We're suffering from our own past success. I love buying transmission lines in Alberta, who else is doing that?
Warren: We bought a fair amount of Wells Fargo over the last few years, and because the economy came back, really the most money would have come from buying the banks of low quality, they were kind of like a margin loan to a copper producer, if you make a loan to the worst it works better because they come back the strongest. To some extent that's been true with banks. But, we felt 100% comfortable buying Wells Fargo, and 50% comfortable buying the others. The ones that had fallen the furthest had the greatest recovery potential.