5 Ideas of the Berkshire Hathaway Annual Meeting in 2019

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Warren Buffett and Charlie Munger provided plenty of information when they answered questions for nearly 6 hours last Saturday at the annual Berkshire Hathaway meeting in 2019. The following 5 themes emerged as the most important for investors :

1. Meaning of value invest

Warren Buffett: The decision to buy Amazon shares was as much based on value investing principles as the decision to buy statistically inexpensive shares. Value investing involves estimating and measuring future cash flows, not determining the low level of a price / book value / price / earnings ratio for a stock.

Warren Buffett: You can pay too much for a great company. There is a price we could have paid too much for See's Candies and it would not have worked as an investment. You can turn any investment into a bad deal by paying too much. What you can not do is turn any investment into a good deal by paying a cheap price.

Warren Buffett: We are comfortable with keeping a lot of money because we assume that we will have the opportunity to deploy it at very attractive rates.

Charlie MungerOur problem in finding investments is that people are willing to pay higher prices than us. & Nbsp;

Warren Buffett: We could invest $ 100 billion over the next year, but not at the prices we like. It is not in the shareholders' interest that we begin to behave like everyone else.

& nbsp;Buffett's revelation that one of his two investor lieutenants would have bought Amazon shares in his share of Berkshire Hathaway's portfolio shortly before the annual meeting was perhaps the most important piece of information. However, judging by Buffett's answers, he did not choose to do the same with the much larger capital he manages for Berkshire.

The investment community has been leading this debate for some time – to evolve, should we start investing in high-growth stocks of high-quality, fast-growing companies? Or does it mean sticking to the proven approach of waiting for investments where the expectations of the price are very pessimistic?

Buffett rightly points out that value of investment is defined by estimating the intrinsic value of a business based on its assets and future cash flow and to buy it with a large safety margin relative to this value. This means that investing in a stock with a high price / earnings ratio can be fully consistent with the principles of value investing if you think the value is much higher.

however, the higher the expectations, the more you have to be confident about the distant future of a company. Few companies possess such predictability and few investors are good enough to have such a long-term view of long-term business results. Buffett also reminded us that, no matter what the quality of a company, there is a price at which it will make a bad investment. It seems to be a forgotten fact, as more and more investors succumb to Fear Of Missing Out (Fear Of Missing Out) and imagine themselves so well placed that they consider the price paid for their investments than secondary.

Keep in mind that we are deeply in a bull market, with high valuations and little good deals. Perhaps you are one of the few privileged to be able to pay high valuations while generating good returns based on your excellent professional judgment. However, they are far more likely to think that they can do it than they really can. Those who are not sufficiently aware of themselves to stay in their circle of competence are required to lose a lot of money.

To our knowledge, Buffett and Munger have not changed direction – they keep a lot of money on the sidelines and choose to wait for good deals. The agreement recently announced by Berkshire to finance the acquisition of Occidental Petroleum by buying 8% preferred shares and a warrant allowing Berkshire to participate in the increase suggests that Buffett is much more in a hurry to High performance for teens to imagine able to determine the future of Amazon in 20 years.

& nbsp;

Charlie Munger: You do not need a portfolio of 50 shares if you know what you are doing.

Charlie Munger: If I took the 30 largest transactions in Berkshire [in the past] 60 years old, what would Berkshire be? Not much. I mean we would not be poor, but we would not be rich either. Maybe once every two years we had a major opportunity. Not very many. (2)

Warren Buffett: We have no formula that calculates the risk. We calculate the risk / return ratio for each investment. … We do not think that the results would be favorably modified by a large number of committees and spreadsheets. … The first question we ask is: "Are we reasonably sure we know what we are doing?"

& nbsp;There are two important and related ideas here: you need to be very sure of what you are investing well in and that you do not need to have several good investments to succeed. Most of the investment management industry is too diversified, not because of a wealth of ideas, but because they do not have enough confidence in their knowledge and want to protect their risk of exposure. 'business.

Do not mix up conventional with Tory – Investing cautiously means having a high degree of confidence in your estimate of business value, then waiting for a very big difference between price and value in order to obtain a sufficient margin of safety. Almost by definition, you are not going to find too much investment that meets these criteria most of the time, you need to make sure that those you find count. You can also do what many others invest in investing: give your portfolio a very "safe" look by charging so many big, well-known companies, whatever their price, that your returns can almost mathematically be Away from the market. . (Tip: for those considering the last approach, save yourself the trouble and consider a broad, low-cost index fund instead).

2. Nature of the quality of the company

Charlie Munger: If you take the hundred largest companies in the United States in 1900, for example, there is exactly one left alive [among the list of today’s 100 biggest]. & nbsp; But this [turnover on the list] it did not happen because everything became weak. It happened because the competition and the change became so strong. (2)

Warren Buffett: IIt is possible that companies in the new technology platform are proving to have long-lasting gaps, but we have struggled to think about their future economic data. We can understand their business now, but less how they will evolve. We have tried to alleviate this problem by hiring people who better understand these business models, such as Ted and Todd, and trying to expand our circle of skills. However, we are perfectly comfortable with missing out on big returns as long as we have a good batting average for the investments we make.

Warren Buffett: BTraders and retailers have always struggled for who has the upper hand. Recently, power has moved in the direction of retailers like Amazon and Walmart.

Few companies remain forever dominant. You can rethink at almost all periods of history and find formerly dominant businesses that have declined significantly over time. Kodak. Dell. Yahoo. Sears. General Electric. What is interesting is that few people would have been able to say exactly what would make these companies less relevant in advance. At the time, it often seems that some of these companies are unstoppable.

And yet, most companies have been arrested or at least severely challenged. You must consider unknown unknowns, whether it is technological change, regulation or changing consumer preferences. Studying the history of a business is only the first step analysis and valuation of the company – then you have to think about how things can change and what factors have already started to move away from the past.

Over the past two decades, the pace of change has accelerated and the sustainability of the competitive advantages of businesses has diminished. So you must be careful not to pay too much for seemingly ingrained companies and look for investment opportunities that provide a sufficient margin of safety for the future and allow you to generate an attractive return on your investment. .

3. Rationality vs behavioral bias

Charlie Munger: It's hard to be reasonable. There are a million tricks that the human spirit plays to its owner. That's what causes stupidity. Think about how many times you thought, "why the hell did I do that?" (2)

Charlie Munger: People who say that they are rational [should] know how things work, what works and what does not, and why. It's rationality. It will not help if you simply know what has worked before, because if you know why, then you will be better at it. (2)

Charlie Munger: Warren and I feel that our moral duty is to be as rational as possible. Many people who are brilliant in some ways tend to make these totally Asian decisions in other respects. We both tend to bring the world's best friends together in a sort of checklist. And we try to avoid everything on the checklist. & Nbsp; (2)

Three ideas to consider to make better decisions:

1. We are all biased, but we can be more rational if we systematically defend against behavioral biases
2. Having a high IQ is not enough to be a good investor, and this can be particularly dangerous if it leads to overconfidence (for example, long-term capital management)
3. You can and should use checklists to improve your decision-making process. Focus on the tasks that went wrong and avoid doing them.

4. Investment Management Activity

Warren Buffett: You should only invest the money of others if you can have the kind of investor who will stay with you for the long term, without panicking and withdrawing funds during difficult market times.

Charlie Munger: People come out of the womb with delayed gratification skill – we can not teach it, we choose the people who have it.

Warren Buffett: You can invest small amounts at much higher rates of return than small amounts.

Charlie Munger: I saw genius after engineering with a good record, and soon they have 30B under management and 2 floors of young men working for them. And it goes the right way.

& nbsp;You can not invest for the long term if your investors have a short-term time horizon. So, if you do not know who your investors are and sell your services based on short-term performance, guess what? You can talk about long term investor whatever you want, but in practice you will not really be able to invest for the long term if you find yourself in a difficult situation, which most investors will do.

The investment management activity is the ultimate activity in terms of balance. Costs are largely fixed and profitability is skyrocketing as assets under management increase. I have met very few investors willing to limit the size of their assets in order to optimize the results for their investors rather than for themselves.

For some, it is blatant greed that does not take into account the results of their customers. However, I believe that many professional investors are concerned, but are convinced however that they are immune to the gravity that absorbs excess returns when assets become too large to affect their peers. They may be saying that they have hired some new analysts, which will offset the burden of the larger asset base. Or maybe they have found a new strategy to launch alongside the original. Make no mistake – for most investment approaches, and especially for equity investments, managing billions of dollars is not in the best interest of your original clients.

5. How to learn and evolve

Warren Buffett: You should expand your circle of skills if you can. I've expanded mine a bit over time. But you should be careful enough.

Warren Buffett: If you want to develop your skills circle, you want to read a lot and study a lot of companies. It is more competitive now than when we started investing, but if you build your circle and have the discipline to stay patient and you do not do much time, you can still do well.

Charlie Munger: It's amazing how much we've learned over the years. If we had not had the results, they would not have been so good. We needed to improve every step of the way to a new level.

Buffett is the most successful investor in the world largely because he was able to to evolve its investment process where most others would have rested on their laurels and stagnated. It's incredibly humbling to see how these two people, the youngest of whom is 80 years old, challenge themselves to learn and evolve even today. It is this unquenchable thirst to learn and extend their circle of competence This makes Warren Buffett and Charlie Munger so incredible. Although there are many things about them that many of us will not be able to reproduce, how to become the best investor you can be is something we can and should all strive for.

If you want to know more about the investment process at Silver Ring Value Partners, you can & nbsp;ask for an owner's manual here.

If you want to watch& nbsp;educational videos that can help you & nbsp;make better investment decisions using the principles of value investing and behavioral finance,& nbsp;Discover my new YouTube channel& nbsp;where I will post new content regularly.

Disclaimer: The above is my personal opinion and does not constitute investment advice.

Note (1): All comments attributed to Warren Buffett and Charlie Munger in this article are based on my notes and my best memory after listening to the annual Berkshire Hathaway 2019 meeting and are not necessarily accurate quotes.

Note (2): According to the interview with Charlie Munger by Jason Zweig published in the Wall Street Journal (https://www.wsj.com/articles/charlie-munger-unplugged-11556935195).

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Warren Buffett and Charlie Munger provided plenty of information when they answered questions for nearly 6 hours last Saturday at the annual Berkshire Hathaway meeting in 2019. The following 5 themes emerged as the most important for investors :

1. Meaning of value invest

Warren Buffett: The decision to buy Amazon shares was as much based on value investing principles as the decision to buy statistically inexpensive shares. Value investing involves estimating and measuring future cash flows, not determining the low level of a price / book value / price / earnings ratio for a stock.

Warren Buffett: You can pay too much for a great company. There is a price we could have paid too much for See's Candies and it would not have worked as an investment. You can turn any investment into a bad deal by paying too much. What you can not do is turn any investment into a good deal by paying a cheap price.

Warren Buffett: We are comfortable with keeping a lot of money because we assume that we will have the opportunity to deploy it at very attractive rates.

Charlie Munger: Our problem with finding investments is that people are willing to pay higher prices than us.

Warren Buffett: We could invest $ 100 billion over the next year, but not at the prices we like. It is not in the shareholders' interest that we begin to behave like everyone else.

Buffett's revelation that one of his two investor lieutenants would have bought Amazon shares in his share of Berkshire Hathaway's portfolio shortly before the annual meeting was perhaps the most important piece of information. However, judging by Buffett's answers, he did not choose to do the same with the much larger capital he manages for Berkshire.

The investment community has been leading this debate for some time – to evolve, should we start investing in high-growth stocks of high-quality, fast-growing companies? Or does it mean sticking to the proven approach of waiting for investments where the expectations of the price are very pessimistic?

Buffett rightly points out that investment in value is defined by estimating the intrinsic value of a business based on its assets and future cash flow and to buy it with a large safety margin relative to this value. This means that investing in a stock with a high price / earnings ratio can be fully consistent with the principles of value investing if you think the value is much higher.

however, the higher the expectations, the more you have to be confident about the distant future of a company. Few companies possess such predictability and few investors are good enough to have such a long-term view of long-term business results. Buffett also reminded us that, no matter what the quality of a company, there is a price at which it will make a bad investment. It seems to be a forgotten fact, as more and more investors succumb to Fear Of Missing Out (Fear Of Missing Out) and imagine themselves so well placed that they consider the price paid for their investments than secondary.

Keep in mind that we are deeply in a bull market, with high valuations and little good deals. Perhaps you are one of the few privileged to be able to pay high valuations while generating good returns based on your excellent professional judgment. However, they are far more likely to think that they can do it than they really can. Those who are not self conscious enough to stay in their skill circle are likely to lose a lot of money.

As far as we know, Buffett and Munger have not changed their behavior – they keep a lot of money on the sidelines and choose to wait for real offers. The agreement recently announced by Berkshire to finance the acquisition of Occidental Petroleum by buying 8% preferred shares and a warrant allowing Berkshire to participate in the increase suggests that Buffett is much more in a hurry to High performance for teens to imagine able to determine the future of Amazon in 20 years.

Charlie Munger: You do not need a portfolio of 50 shares if you know what you are doing.

Charlie Munger: If I took the 30 largest transactions in Berkshire [in the past] 60 years old, what would Berkshire be? Not much. I mean we would not be poor, but we would not be rich either. Maybe once every two years we had a major opportunity. Not very many. (2)

Warren Buffett: We have no formula that calculates the risk. We calculate the risk / return ratio for each investment. … We do not think that the results would be favorably modified by a large number of committees and spreadsheets. … The first question we ask is: "Are we reasonably sure we know what we are doing?"

There are two important and related ideas here: you need to be very sure of what you are investing well in and that you do not need to have several good investments to succeed. Most of the investment management industry is too diversified, not because of a wealth of ideas, but because they do not have enough confidence in their knowledge and want to protect their risk of exposure. 'business.

Do not mix up conventional with Tory – Investing cautiously means having a high degree of confidence in your estimate of business value, then waiting for a very big difference between price and value in order to obtain a sufficient margin of safety. Almost by definition, you will not find too much investment meeting these criteria most of the time, so you need to make sure that those you find count. You can also do what many others invest in investing: give your portfolio a very "safe" look by charging so many big, well-known companies, whatever their price, that your returns can almost mathematically be Away from the market. . (Tip: for those considering the last approach, avoid trouble and consider a low-cost index fund instead).

2. Nature of the quality of the company

Charlie Munger: If you take the hundred largest companies in the United States in 1900, for example, there is exactly one left alive [among the list of today’s 100 biggest]. But this [turnover on the list] it did not happen because everything became weak. It happened because the competition and the change became so strong. (2)

Warren Buffett: IIt is possible that companies in the new technology platform are proving to have long-lasting gaps, but we have struggled to think about their future economic data. We can understand their business now, but less how they will evolve. We have tried to alleviate this problem by hiring people who better understand these business models, such as Ted and Todd, and trying to expand our circle of skills. However, we are perfectly comfortable with missing out on big returns as long as we have a good batting average for the investments we make.

Warren Buffett: BTraders and retailers have always struggled for who has the upper hand. Recently, power has moved in the direction of retailers like Amazon and Walmart.

Few companies remain forever dominant. You can rethink at almost all periods of history and find formerly dominant businesses that have declined significantly over time. Kodak. Dell. Yahoo. Sears. General Electric. What is interesting is that few people would have been able to say exactly what would make these companies less relevant in advance. At the time, it often seems that some of these companies are unstoppable.

And yet, most companies have been arrested or at least severely challenged. You must consider unknown unknowns, whether it is technological change, regulation or changing consumer preferences. The study of a company's history is only the first step in its analysis and valuation. You must then think about how things can change and what factors have already begun to deviate from the past.

Over the past two decades, the pace of change has accelerated and the sustainability of the competitive advantages of businesses has diminished. So you must be careful not to pay too much for seemingly ingrained companies and look for investment opportunities that provide a sufficient margin of safety for the future and allow you to generate an attractive return on your investment. .

3. Rationality vs behavioral bias

Charlie Munger: It's hard to be reasonable. There are a million tricks that the human spirit plays to its owner. That's what causes stupidity. Think about how many times you thought, "why the hell did I do that?" (2)

Charlie Munger: People who say that they are rational [should] know how things work, what works and what does not, and why. It's rationality. It will not help if you simply know what has worked before, because if you know why, then you will be better at it. (2)

Charlie Munger: Warren and I feel that our moral duty is to be as rational as possible. Many people who are brilliant in some ways tend to make these totally Asian decisions in other respects. We both tend to bring the world's best friends together in a sort of checklist. And we try to avoid everything on the checklist. (2)

Three ideas to consider to make better decisions:

1. We are all skewed, but we can be more rational if we systematically defend behavioral biases.
2. Having a high IQ is not enough to be a good investor, and this can be particularly dangerous if it leads to overconfidence (for example, long-term capital management)
3. You can and should use checklists to improve your decision-making process. Focus on the tasks that went wrong and avoid doing them.

4. Investment Management Activity

Warren Buffett: You should only invest the money of others if you can have the kind of investor who will stay with you for the long term, without panicking and withdrawing funds during difficult market times.

Charlie Munger: People come out of the womb with delayed gratification skill – we can not teach it, we choose the people who have it.

Warren Buffett: You can invest small amounts at much higher rates of return than small amounts.

Charlie Munger: I saw genius after engineering with a good record, and soon they have 30B under management and 2 floors of young men working for them. And it goes the right way.

You can not invest for the long term if your investors have a short-term time horizon. So, if you do not know who your investors are and sell your services based on short-term performance, guess what? You can talk about long term investor whatever you want, but in practice you will not really be able to invest for the long term if you find yourself in a difficult situation, which most investors will do.

The investment management activity is the ultimate activity in terms of balance. Costs are largely fixed and profitability is skyrocketing as assets under management increase. I have met very few investors willing to limit the size of their assets in order to optimize the results for their investors rather than for themselves.

For some, it is blatant greed that does not take into account the results of their customers. Cependant, je crois que de nombreux investisseurs professionnels sont concernés, mais se convaincent toutefois qu’ils sont à l’abri de la pesanteur qui absorbe les rendements excédentaires lorsque les actifs deviennent trop importants pour affecter leurs pairs. Ils se disent peut-être qu&#39;ils ont embauché quelques nouveaux analystes, ce qui compensera le fardeau de la base d&#39;actifs plus importante. Ou peut-être ont-ils trouvé une nouvelle stratégie à lancer parallèlement à l&#39;originale. Ne vous y trompez pas – pour la plupart des approches d’investissement, et en particulier pour les investissements en actions, la gestion de plusieurs milliards de dollars n’est pas dans le meilleur intérêt de vos clients d’origine.

5. Comment apprendre et évoluer

Warren Buffett: Vous devriez élargir votre cercle de compétences si vous le pouvez. J&#39;ai élargi le mien un peu au fil du temps. Mais vous devriez être assez prudent.

Warren Buffett: Si vous voulez développer votre cercle de compétences, vous voulez lire beaucoup et étudier beaucoup d’entreprises. Il est plus compétitif maintenant que lorsque nous avons commencé à investir, mais si vous construisez votre cercle et avez la discipline pour rester patient et que vous ne faites rien beaucoup de temps, vous pouvez quand même bien faire.

Charlie Munger: C&#39;est incroyable à quel point nous avons appris au fil des ans. Si nous n&#39;avions pas eu les résultats, ils n&#39;auraient pas été aussi bons. Nous devions nous améliorer à chaque étape pour passer à un nouveau niveau.

Buffett est l’investisseur le plus prospère au monde en grande partie parce qu’il a pu faire évoluer son processus d’investissement, là où la plupart des autres se seraient reposés sur leurs lauriers et auraient stagné. C&#39;est incroyablement humiliant de voir comment ces deux personnes, dont le plus jeune a bien 80 ans, se mettent au défi d&#39;apprendre et d&#39;évoluer, même aujourd&#39;hui. C&#39;est cette soif inextinguible d&#39;apprendre et d&#39;élargir leur cercle de compétences qui rend Warren Buffett et Charlie Munger si étonnants. Bien que nombre d’entre eux ne puissent pas être reproduits à leur sujet, apprendre à devenir le meilleur investisseur possible est un objectif que nous pouvons et devons tous viser.

Si vous souhaitez en savoir plus sur le processus d’investissement chez Silver Ring Value Partners, vous pouvez demander un manuel du propriétaire ici.

Si tu veux regarder vidéos éducatives qui peuvent vous aider prendre de meilleures décisions d&#39;investissement en utilisant les principes d&#39;investissement de valeur et de finance comportementale, Découvrez ma nouvelle chaîne YouTube où je posterai régulièrement du nouveau contenu.

Déni de responsabilité: Ce qui précède est mon opinion personnelle et ne constitue pas un conseil en investissement.

Note (1): Tous les commentaires attribués à Warren Buffett et Charlie Munger dans cet article sont basés sur mes notes et sur mon meilleur souvenir après avoir écouté la réunion annuelle de Berkshire Hathaway 2019 et ne sont pas nécessairement des citations exactes.

Note (2): D&#39;après l&#39;entretien avec Charlie Munger par Jason Zweig publié dans le Wall Street Journal (https://www.wsj.com/articles/charlie-munger-unplugged-11556935195).