Berkshire Meeting Notes Part III
Berkshire’s Stock Price
Why is the stock being held back? There have been several times where it was significantly undervalued. They’ve seen the price cut in half at least four times over the years. Any business is going to see this over long periods of time. Enter Mr. Market as your partner. Good old Graham…take advantage of Mr. Market’s psychoses and mistakes. There are all sorts of reasons for these; that’s the nature of the system as a whole. Berkshire stock stays within range more than most stocks; that is it’s less volatile. The important thing is you make your decisions based on what you think the businesses are worth. It all changes every day and that’s where you need to be able to make your hay. The rules are stacked in your favor. Just don’t turn them around so that they are against you.
Burlington Northern has performed very admirably; it’s a much better business than it was even five years ago.
Geico conversely has slowed down a bit, partly because it’s closing in on 10% of the overall market now. So as it gets larger in a competitive market it is a tougher bar to clear.
MidAmerican is also performing admirably; continues to dish out services that people simply need.
Who will run these weapons of mass destruction when you are gone? Buffett says that for some things, utilities for example, more or less require them for hedging. Some fit and some don’t, but it’s never going to be a huge factor at Berkshire. The positions that they own today are a bit different and as rules change, Buffett would never put Berkshire in a financially precarious position. As such it this will be expected of future leadership. The requirement to collateralize something can put you in a position of needing to come up with cash tomorrow and you never really know what tomorrow will bring. This must always be considered.
"EBE - Earnings Before Everything." You can tell Buffett gets annoyed to a point with all the different metric talk.
Gold – Buffett’s Take
Such an awesome take on gold. You own an ounce of gold today and hold it and love it, caress it. In 100 years you’ll own an ounce of gold. You own 100 acres of farmland today and in 100 years you’ll own 100 acres of farmland. You’ll also have the time to produce crops to grow more to buy more farmland and whatever else you want. There’s a tremendous cycle of production there. Gold is more or less an unproductive asset.
What’s his the take on the business today? Why buy the Omaha World Herald? Self-indulgence? The problems with newspapers are that they are no longer a primary source, we can get much of our info from anywhere on a cost-free basis today (though there are still local exceptions); they’re expensive to distribute; there are around 1,700 newspapers today and they are now on the Internet for free. So there are problems. But there is still interest in the local institutions such as the Omaha World Herald. And this is where Buffett sees the need for newspapers. Places where there’s a strong sense of community and people there want to know what is going on there. But no question it is a quickly-changing landscape with a tremendous emphasis on localization.
It’s a powerhouse. It will affect many big box retail operations and is doing so now. It should not affect Nebraska Furniture Mart Buffett doesn’t believe. Sales are still strong and customers shopping there are there for a reason. Not necessarily looking for the lowest price. Very hard to find people who do business with Amazon who are on the whole unhappy about it.
Tilson Buyback Question
Whitney Tilson asked about flexibility on buy backs? Or is the 1.1 times book value a hard and fast rule? It seems like it could place a ceiling on the stock price and keep it artificially low. Buffett doesn’t see it putting a ceiling on the price, and maybe there is a circumstance where this could happen (buying back at higher multiples than the stated 1.1), but he doesn’t see it likely. Setting the 1.1 target may imply that people don’t have anything to lose in buying the stock, but he doesn’t think it limits expectations either.
WalMart and Mexico
Always another side to the story, but it certainly looks like mistakes were made in this case. But it would not detract him from the fundamental stability of the business. The business is still the same behemoth. There will be prices paid, fines, what not and probably jobs lost, but this doesn’t affect the long-term (5 years and out) earnings power of the company.