Berkshire Meeting Notes Part IV
Succession, Culture and Takeover
Will anyone come in to change the culture in a post-Buffett world? Virtually no chance, culture is part of the succession plan, it’s embedded and a way of life. You have a situation where many managers at Berkshire enjoy what they do and don’t necessarily have to work. But they love what they do; that’s important to note that part of the culture to which we (and they) constantly refer is creating a place where your people want to be.
Takeover unlikely due to size and ownership for the foreseeable future, the Buffett family will have ten times the voting power over anyone else for the foreseeable future and as the company gets larger it becomes more protected.
Capital Intensive Businesses
The cash they consume earns a reasonable return, that’s what makes those kinds of businesses attractive. You invest a lot of capital into a business expecting a reasonable return over the course of time. Utilities and railroads work well because they serve such vital needs.
How do you value a declining business. Munger says it’s not worth nearly as much as a growing business. Buffett says as a general rule, it’s not so attractive to get in a declining business. There are value propositions in certain situations (one last puff from the cigar butt), but generally looking for the growing businesses with competitive advantages. Irony in starting Berkshire Hathaway as it was a declining business in textiles. Maybe they took this to heart considering the years of success they’ve subsequently seen?
What Do We Avoid Today?
It’s not just businesses that you don’t understand. On some level you can learn and understand anything. Stay away from the businesses that you don’t have a reasonable fix on in regard to earnings power and competitive advantage over the next decade. Price also has to be worthwhile. There are thousands of opportunities at any given time. Then all of a sudden new issues pop up and they immediately create a stir. Buffett would not necessarily be looking at things this way as it’s not reasonable to assume that you can determine these factors (earnings power and competitive advantage over the next decade) without any idea of how the business will perform.
Google and Apple
Both phenomenal companies with tremendous market positions. Wouldn’t be surprised at all to see them worth a lot more money ten years from now; but still not going to have conviction to buy them. They didn’t have the conviction of what Apple was going to do ten years ago, hard to tell what they were going to do and this makes it so hard to value it at all.