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Berkshire Hathaway

What Warren Buffett said about Chinese stocks, buying IBM, not buying Amazon, life and eating junk food

A few comments from Warren Buffett, the ‘Oracle of Omaha’, on a wide range of topics

PUBLISHED : Sunday, 07 May, 2017, 12:04pm
UPDATED : Monday, 08 May, 2017, 9:30am

Billionaire investor Warren Buffett and Berkshire Hathaway Vice Chairman Charlie Munger answered five hours of questions from shareholders, journalists and analysts at Berkshire’s 52nd annual meeting in Omaha, Nebraska.

The weekend known as “Woodstock for Capitalists” is unique in corporate America, a celebration of the billionaire’s image and success at a conglomerate whose businesses range from Geico insurance to the BNSF railroad to See’s candies to Ginsu knives.

Chinese stocks

“Early on in the development of markets there’s probably some tendency for them I think to be more speculative than markets that have been around for a couple hundred years. Markets have a casino characteristic that has a lot of appeal to people, particularly when they see people getting rich around them.

“And those who haven’t been through cycles before are more prone to speculate than people who have experienced the outcome of wild speculation.”

Berkshire’s durability

“I can’t think of anything that can harm Berkshire in a material, permanent way except weapons of mass destruction.

“If that ever happens, there’ll be more to worry about than the price of Berkshire.”

Not buying Amazon

“I was too dumb to realize what was going to happen.

“I did not think (Jeff Bezos) could succeed on the scale that he has ... I underestimated the brilliance of the execution. It takes a lot of ability.

“It always looked expensive ... and I never thought he would be where he is today.

“We miss a lot of things.”

Watch: Warren Buffett is the ‘face’ of Cherry Coke in China

Berkshire’s break-up value

“If I die tonight, the stock would go up tomorrow. There’d be speculation about breakups. Some of the parts might (temporarily) sell for more than the whole.”

International trade

“Trade is beneficial to society but the people who see the benefits ... are getting small benefits, invisible benefits. The guy who’s getting hurt by it ... is feeling it very specifically.”

Stock buybacks

“When the time comes, and it could come reasonably soon ... we have to re-examine what to do with funds that (can’t) be deployed well. It could be repurchases, it could be dividends.

“At the moment, we’re still optimistic enough about deploying the capital ... There will be markets where we can do (interesting) things on a big scale.”

US jobs

“Our kids will live better than we do because America does get more productive ... It’s essential to America that we become more productive.”

His longevity

“We’ve been very, very lucky in life and so far our luck seems to be holding.”

His legacy

“I really like teaching. If somebody thought I’d done a decent job of teaching, I’d feel pretty good about that.”

Understanding tech investments

“I make no pretense whatsoever of being on the same level as some 15-year-old (who has) an interest in tech.

“I’ve gained no real knowledge on tech, well, since I was born, actually.”

Future acquisitions

“We could do a very large deal if we thought it was sufficiently attractive ... We spent $16 billion back when we were much smaller ... in the fall of 2008. It never (created) a problem for me sleeping at night.

“Charlie and I really do not discuss sectors much ... we’re really opportunistic. We’re looking at all kinds of businesses all of the time. We’re hoping, we get a call ... and we know in the first five minutes whether (a deal) has a reasonable chance of happening.

“We (like) companies where consumer behaviour can be (predicted) further off.

“We don’t really say we’ll go after companies in this field or that field.

“If you’re (primarily) interested in getting the highest price for your business, we’re not a good call (to make).”

Boards’ stock holdings

“I looked at a company the other day and seven of the directors had never bought a share of stock ... They’ve been given a lot of stock.

“What you want is a system that works well in spite of human nature.

“American business overall has done very well for Americans.”

Berkshire CEO’s skills

“You need a sensible capital allocator in the job of being CEO of Berkshire. And we will have one.

“Capital allocation probably should be close to their main talent.

“Berkshire would not do well if someone was put in with skills in other areas but didn’t have the ability for capital allocation.

“We certainly don’t want somebody if they lack a ‘money mind.’”

Pay consultants

“If the board hires a compensation consultant after I go, I will come back.”

Hedge funds

“We’ve got two guys in the office managing ($20 billion) ... we pay them $1 million a year plus (more based on) the amount by which they beat the S&P. ... How many hedge funds managers say, I only want to get paid if I do something for you? ... It just doesn’t happen.”

Coal

“Over time, coal is essentially certain to decline as a percentage of the revenue of the (BNSF) railroad. We are looking for other sources of growth (besides) coal.

“In my mind, we’re going to be shipping less coal 10 or 20 years from now. The coal aspect (of the business) is going to diminish.”

Eating junk food

“I don’t mind having 500-600 calories for dessert. I’ll let someone else have the broccoli.”

Running a hands-off conglomerate

“I think our hands-off style actually can add significant value to many companies. We free up at least 20 per cent of the time for a CEO (compared to running) a public company.

“I think we bring something to the party.”

IBM and Apple

“When I bought IBM six years ago, I thought it would do better in the six years ... than it has. Apple is much more of a consumer products business. In terms of analysing moats around it, consumer behavior ... they are two different types of decisions. I was wrong on the first one, and we’ll find out whether I was right on the second.

“I could be making two mistakes on IBM. It’s harder to predict in my view ... how much price competition will enter in something like cloud services.”

“We missed (Amazon.com) entirely. We’ve never owned a share.”

Airlines

“It’s a fiercely competitive industry. The question is if it’s a suicidally competitive industry. It has been operating at 80 per cent or better of capacity for some time. ... It’s fair to say they will operate at higher degrees of capacity over the next five or 10 years than at historical rates. They actually at present are earning quite high returns on invested capital, I think higher than FedEx or UPS.

“It is no cinch that the industry will have more pricing sensibility in the next 10 years, but the conditions have improved for that.”

Interest rates

“I do not think it’s easy to predict the (course) of interest rates at all.”

Volatility

“It is the nature of market systems to occasionally go haywire in one direction or another.

“When the rest of the world is fearful, we know America is going to come out fine.”

Wells Fargo, which Berkshire owns $27.8 billion stake

“At Wells Fargo, there were three significant mistakes, but one dwarfs all of the others. ... You have to be careful what you incentivise. There was an incentive system built around cross-selling. ... That was incentivising the wrong kind of behaviour.

“The main problem was they didn’t act when they learned about it.”

Berkshire’s earnings report

“The realised investment gains or losses in any period really mean nothing ... We don’t really think about the timing of what we do. We do not make earnings forecasts.

“I feel very good about the first quarter even though our operating earnings were down a little bit.”

Autonomous vehicles

“Driverless trucks are a lot more of a threat than an opportunity to Burlington Northern.

“Autonomous vehicles, widespread, would hurt us if they spread to trucks, and they would hurt our auto insurance business. They may be a long way off. That will depend on experience in the first early months of the introduction. If they make the world safer, it will be a very good thing but it won’t be a good thing for auto insurers.”