Omaha Trip Report

Last weekend I went to Omaha for the Berkshire Hathaway (A, B) annual meeting, there were many highlights.

Around 30,000 people showed up to hear Warren Buffett and Charlie Munger hold court. I had read the meeting notes from the previous few years and was excited to hear what they had to say. Buffett could not have been more gracious, patient host (he revealed that he had been too shy to do public speaking when he was younger, he signed up for a Dale Carnegie speaking course, gave them a check for $100, went back to his apt and then stopped payment on the check, the next time he signed up he paid the $100 in cash) and Munger was very witty and insightful. Oh and Bill Gates was there, but I did not get a chance to ask him any WS-* questions.

I also got to briefly meet Bill Mann, who is one of my favorite analysts at the Motley Fool where he runs the Global Gains service (I wanted to meet Alex Dumortier but missed him, but running into one person in 30,000 was pretty good), I got to thank Bill for picking a couple of nice stocks. If you like learning about Argentinian land companies one month, Macau casinos the next, and Irish banks the following as much as I do then this service is for you. Bill took notes of his favorite quotes

Munger on investment banks

CM: It is crazy to allow things to get too big to fail, run with knavery. As an industry, there is a crazy culture of greed and overreaching and overconfidence trading algorithms. It is demented to allow derivative trading such that clearance risks are embedded in system. Assets are all “good until reached for” on balance sheets. We had $400m of that at general re, “good until reached for”. In drug business you must prove it is good. It is a crazy culture, and to some extent an evil culture. Accounting people really failed us. Accounting standards ought to be dealt with like engineering standards.

Munger on risk(!) - double layering of risk protection. These guys view risk so much differently from the herd, it is refreshing. Its about avoiding permanent capital loss. Its the assets stupid.

CM: You can see how risk averse Berkshire is. We try to behave in a way so that no rational person will worry about our credit. We also try to behave in a way that if people don’t like our credit we wouldn’t notice for months. That double layering of protection against risk is like breathing. The alternative culture is you call a man a Chief Risk Officer, but often he is man who makes you feel good while you do dumb things. Like the Delphic oracle, a dumb soothsayer, and how can he do dumb things if he has a PHD and can do all the advanced math! You crave a system such that you torture reality to fit a structure that doesn’t match with extreme situations in reality, you feel confident because you compute the risks, but you haven’t -- you have just clobbered up your own head.

Munger on nuclear war (heads up survivability people)

CM: Mexico had a 95% mortality rate from European settlers, the pathogens and such. So I think the species will survive. I hope that cheers you up.

On subprime

How do we better measure leverage and accounting of assets, integrity?

WB: It is a very tough thing. I still lean strongly towards fair value accounting – it is hard to use, but should we use cost? I think there are more troubles when you start openly valuing things at prices that don’t matter instead of best estimates even if inaccurate. I would stick with financials reporting assets at fair value. When you get into CDOsquared, the documentation is enormous. If you read a standard residential security – it consists of thousands of mortgages, then different tranches. Then take CDO and take junior tranches on a whole bunch of juniors – put them together and diversified in theory – a big error to start with. That was nuttiness squared. You had to read 15,000 pages to get a CDO, then 750k pages to evaluate one security in a CDOsquared. To let people use 100cents they paid vs. the 10cents it trades at in market is an abomination. Fair value discipline, mild as it may be, may keep managements from doing some stupid things. I lean toward the market value approach. When you get towards complex instruments, I don’t know how you value it. Charlie, back at Salomon I think you found one mismarked by $20m, right?

CM: A lot goes on in bowels of American industry which is not pretty. A lot of people got overdosed on Ayn Rand. They would hold that even if an axe murderer in a free market is a wise development. I think Alan Greenspan did a good job on average, but he overdosed on Ayn Rand that whatever happens in free market is going to be alright. We should prohibit some things. If we had banned the phrase, “this is a financial innovation which will diversify risk”, we would have been far better off.

They had all the Berkshire family companies represented and we walked the floor - Johns Manville, Shaw Carpet, DQ, the works and even Mars was there even though they had only joined the Berkshire family the week before

jOHN Steven demonstrated how a firewall works, crunchy on the outside smooth and creamy on the inside, at least until the whole thing melts

Finally, we went out to the airport to check out the Netjets planes

Long drive back to MN, due to Ned's Treo-ing we found an outstanding German restaurant outside Ames, IA just off the highway - The Old Hamburg. No Dunkels for me, because I was driving, but everything else was awesome. I worked off and on in germany for a number of years, and never had anything this good.

I have learned more about security from Buffett and Munger than reading anyone in information security, and it was a pleasure to see them hold court in person. I hope to attend many more.

Comments

[Steve]

Good wrap-up. What did the Oracle say about energy?

[SteveB]

How to Get Good Seats & Parking @ Annual Meeting
The meat @ the annual meeting is listening to open discussions w/ Charlie and Warren. This starts about 2 hrs after the start of the meeting, however, and these two first hours are propaganda (such as Geico or other commercials) or annual mtg. formalities (not of interest). Most Buffet-heads seem only to want to see the propaganda footage that's played on big screens the first hour or so of the meeting, then they go out to the exhibits, leaving primo seats wide open. To get good seats and parking for these first 2 hours of not-very-stimulating-content,you must show up very very early, 5AM? 4? I'm not sure as I've never done it. Too early for me. I have, however, sauntered in @ 745 AM (15 min before meeting start), and had to park seemingly a mile away and, if get seats at all, they are horrible. Better: at about 8:00, go to one of the many breakfast cafes outside of of Omaha, such as the leavenworth cafe. Enjoy a nice, leisurely breakfast. Read the paper, write down some thoughts. Leave such that you'll arrive @ Quest Center for 10:00. Perhaps pick up a cheese runza along the way, for lunch. When you get to the Quest Center, you can saunter into a front row parking spot (a few will have left by then even). There are no crowds because they're all in the auditorium. It's like a ghost town. Go to the auditorium with a big pad of paper. Go right down to the main floor. If nobody's abandoned their main floor seat @ 10 or so (right when the open q/a is starting), they will within the next 30 min, and there will be excellent seats in the lower level perimeter available. Take good notes for 6 hrs or so, then out. No traffic, no fighting crowds. Just condensed wisdom and intellectual candy.