Warren Buffett and Charlie Munger always do several interviews after the Berkshire meeting is over. But before we get to that, here’s something I saw on Twitter the day of the meeting.
Now, to the interviews. Two stood out (links are below). I’m only going to highlight a few things. Most of it is straightforward, I think, but I added my thoughts to some.
Buffett on speculation (again).
When we buy a business we look at what the business earns and decide how we feel about it in terms of what we paid. But we are buying something that at the end of the period we not only have what we bought in the first place but we have something that the asset produced. And when you buy non-productive assets — all you’re counting on is whether the next person is going to pay you more because they’re even more excited about another next person coming along. But the asset itself is creating nothing.
It’s better if they don’t understand it. That’s the other thing about non-productive — if you don’t understand it you get much more excited than if you understand it. I mean, if you buy a bond that says it’s gonna pay you 4% a year you’re not gonna get any pleasant surprises. It only pay you 4% a year. But if — you can have anything you wanna imagine if you just look at something and say, “That’s magic.” You can do it with sharks teeth or seashells or anything. I mean, people — they like to speculate. They like to gamble.
There’s people who do trade on very crazy things over time. You know, imagine people selling their homes to buy a tulip in Amsterdam.
The added excitement is true for potentially productive assets too. The Dot-Com boom was built on the excitement of the internet’s open-ended possibilities. Whereas the possibilities are extremely limited with a bond paying you 4% — either you get the 4% or nothing. It’s much easier to get enthusiastic about an asset with unlimited possibilities. But the enthusiasm carries a ton of risk.
Buffett on his “test.”
But that’s the test. Would you like to own 100% of a company? If — if you’re gonna buy 5% — we’re not buying a stock when we buy Apple in our minds. We’re buying 5% of a business. We buy 100% of some businesses. And when they’re publicly held, we buy 5%. But we bring the same thinking to it.
Buffett on brand moats.
You’ve gotta have a product that’s strong enough that the realer — retailer has to carry it to some degree and where their private label, even though it’s priced below it, does not draw volume away. And if you take Heinz Ketchup, it’s very, very, very hard to take share away from Heinz Ketchup. It’s hard to take share away from Philadelphia cream cheese, but I could name some other products which are — where it’s easier to take share away. And the consumer is going — the consumer votes every day. And some things are affecting the consumer like the feeling that the other things are healthier or something of the sort. Price affects the consumer. But just the prevalence and strength of the retailer can affect the consumer, too… If you’ve got a brand that’s kind of lost out there or something of the sort, it’s hard to get shelf space. And the retailer is going to stock what will move. And sometimes that involves price. And what you — what you want to have is a product the retailer has to have.
But some products have terrific moats. Probably Elmer’s Glue does. You know, WD-40. I mean, there you go. You can– there’s just certain things that you are not much inclined to be dissatisfied with…
The past argument against this is, unlike a physical store, online shelf space is practically unlimited (only by the size of the warehouse). However, retail is not dead yet, despite the headlines. But the shift to online shopping will continue to grow, especially for more time-consuming shopping activities — like groceries — that don’t have an enjoyment factor or instant gratification built in.
That said, people are habitual by nature. They will continue to buy a specific product or brand if they really like it enough. What’s interesting, Amazon and other online stores are making it easier to buy previously purchased products. Amazon does it with the Buy it Again suggestions, the Subscribe & Save option, and Dash Buttons.
Amazon wants repeat customers but it’s creating product loyalty. The companies that remove the pain point of scrolling through a hundred different versions of laundry detergent, so you can click on the bottle of Tide you always buy, will get your business again. So unlimited online shelf space may not matter as much.
Buffett on opportunities from temporary bad news.
Basically I like…bad news that isn’t going to last… But, I mean, bad headlines don’t bother me. I mean, I had bad headlines when I bought that stock right after two or three months after Pearl Harbor and knew it was going to have bad headlines for a long time. So, I am not worried about — we’ve made the most money when there’s been some temporary bad news. I mean, over time. Now, you got to be sure it isn’t permanent or something of the sort.
Buffett refers to GEICO (messy balance sheet) and American Express (the salad oil scandal) as two examples. Both were beaten down by the bad news. But the underlying business in both was solid.
Munger on being alive.
I’m delighted to be here… I’m delighted to be anywhere!
Buffett and Munger on passing on Costco.
Charlie Munger: I wanted Berkshire to buy the French stake in Costco when the French left.
Becky Quick: What year was that?
Charlie Munger: Oh, that was a long time ago.
Warren Buffett: I was at a bridge — I was playing at a bridge tournament. They actually called me outta this thing — which is very bad etiquette at bridge tournaments. And Charlie is saying — basically saying the French firm, big retailing firm there, had about a 15% block or something like that. Charlie said, “Shut your eyes and buy it.” And —
Charlie Munger: He said, “I’m gonna shut my eyes and say no.”
Warren Buffett: I should’ve bought it.
I hadn’t heard this story before. Munger has consistently said their biggest mistakes are errors of omission.
Munger on being irrational.
There’re a million ways to be irrational. And while we are irrational pretty often, we’re less often irrational than most people. That really helps.
Investing is not about being perfect. Said another way, accepting imperfection is a practical necessity. The goal should be to behave better than the average market participant. Just doing that will add up to better performance over time.
Munger on good investing (via Yahoo!).
You got to remember, that in our way of thinking, all intelligent investment is value investment. Because why would want to buy something which wasn’t worth as much as you were paying for it. And who wouldn’t like buying something for less than it’s worth. So they only difference — when people talk about value investor, you’re always a value investor.
Now, there are various ways to look for value investments, just as there are various places to fish. And the first rule of fishing is to fish where the fish are. The first rule for value investing is to find some place to fish for value investments — where there are a lot of them…I think its a bad use of the language to think there’s a difference between value investing and other good investing. All good investing is value investing, by definition.
People get way too caught up on labels like value, growth, and other things that have been promoted and perpetuated by the fund industry. I think it only adds confusion and acts as a distraction to what’s important. I’m sure others will disagree because fancy labels go a long way when marketing funds.
- Bill Gates – Factfulness by Hans Rosling
- Warren Buffett – Enlightenment Now by Steven Pinker, specifically chapter 4
- Trusting the Process: Michael Mauboussin & Tom Digenan (pdf) – Graham & Doddsville
- Surgical Checklists Save Lives — But Once in a While, They Don’t. Why? – NY Times
- Nobody Planned This, Nobody Expected It – M. Housel
- Explaining the Unexplainable – Nautilus
- Why Winners Keep Winning – Of Dollars and Data
- When Doing Nothing Means Everything – B. Mullooly
- The Costliest Bias of All – Evidence-Based Investor
- Tech’s Two Philosophies – Stratechery
- I Am a Data Factory (And So Are You) – Rough Type
- 7 Surprising Things You’ll Learn on Dollar Street – B. Gates
- The Marathon World Record Holder the World Forgot – Outside
- Who’s Winning the Self-Driving Car Race? – Bloomberg