Charlie began the meeting by saying that he didn’t set out in life to become the assistant leader of a cult.
The body of Charlie’s talk this year focused on the reasons why Buffett and Berkshire Hathaway become such a “lollapalooza” success. He gave several reasons that, working in concert, led to one of the most spectacular investment and business records in the history of capitalism.
Those factors are:
1) Mental Aptitude: Warren Buffett is obviously a very smart man, but Charlie stated he probably overachieved because of his innate mental ability. For example, Buffett could not “beat all corners playing chess blindfolded” like U.S. chess champion Patrick Wolff. (Wolff beats multiple opponents simultaneously while blindfolded at Berkshire Hathaway annual meetings.) Using the dry humor of a ridiculous understatement, Charlie called Wolff’s skill “interesting.”
2) Intense Interest: Charlie noted that Buffett was intensely interested in business and investing from a very young age. “There’s no substitute for a very intense interest.”
3) Early Start: Another factor in the success of Berkshire Hathaway was that Warren got an early start and was able to use his skills to compound capital over many decades.
4) Constant Learning: Charlie stated that Warren is one of the best “learning machines.” The key to success is to continue learning throughout your life with a voracious appetite. Charlie later circled back to this topic when he said the best way to gain wisdom was by “sitting on your (behind) and reading all day.”
5) Concentration: Another factor in Berkshire’s success was that the work was heavily concentrated in Warren’s mind. “It’s hard to think of committees that have been successful.” He suggested that investment committees usually do not come up with great ideas because there’re too many people involved. Charlie used the analogy of John Wooden’s player rotation strategy. The great UCLA basketball coach would only play seven of his 12 players, so as to concentrate the experience of his seven best players. Similarly, most of Berkshire’s work was concentrated in its best mind, Warren Buffett’s.
Then he mentioned the following notes with humor and clarity. Charlie dispenses advice for living a well-balanced life. Here are some nuggets of wisdom.
1) Charlie stated that many smart people handicapped themselves with “nuttiness.” One example is being an “extreme ideologue,” which is the equivalent of “having taken your brain and started pounding it with a hammer.” He then gave Mozart as an example. Mozart was a brilliant composer but did nutty things like spend all of his money. He said it is fun to be rational and fun to be rightfully trusted by others. Berkshire Hathaway was run with trust. They did not need layers of bureaucracy and oversight.
2) Your life must focus on the “maximization of objectivity.”
3) “You must learn the method of learning.”
4) “It’s totally unproductive to think the world has been unfair to you. Every tough stretch is an opportunity.”
5) “You can get away with more than you deserve in life by being slightly more rational.”
6) “I’m not going to complain about my age because without it, I’d be dead.”
One questioner asked about a closed held belief that Charlie had recently overturned. After some thinking, Charlie responded that Berkshire’s recent purchase of railroad stocks marked a 180 degree change in thinking about the industry. According to Charlie, he did not like them because railroads needed large amounts of capital, had tough unions, and stiff competition from the trucking business. He said that their paradigm had shifted and that they were two years too late in making his investment. He used an old quote and said that man is too old too soon and too smart too late. Now the railroad industry has a competitive advantage over trucking because of innovations such as double-stacked cars and computer modeling of routes. With the imports from China, the U.S. has a huge amount of freight being sent across the country. Charlie said that Bill Gates made an investment in a Canadian rail company and made “multiples of his money.” He quipped that maybe Gates should be managing Berkshire.
Then he touched on the hot topic of global warming which was raised. Charlie thinks it’s not as big a deal as everyone says it is. He says that it is very difficult to change the path that we are on and we have no influence over emerging countries. He went on to say that global warming changes take place over a very long period of time and used as an example one hundred years. He said we can adjust over long periods of time. If Florida is flooded because it is a low elevation, people will have time to move.
Charlie gave two book recommendations. The Martian of Science: Five Physicians Who Changed the Twentieth Century by Istvan Hargittai and Einstein; His Life and Universe by Walter Isaacson. Charlie said he had read every Einstein biography, and this new one by Isaacson is the best.
He said there are two kinds of inefficient markets: one that are small and neglected and one where people do crazy things. The latter happens from time to time.