Quotes from #BRK2016
· Buffett (on acquisitions) says two things drive mistakes: 1) misunderstanding future economic prospects of a business , 2) a manager who changes behavior after a sale. And Buffett says almost no due diligence(DD) can protect against these two risks., "Negotiations that drag out are more likely to blow up somehow." -- Buffett ; "How many people here who are happily married carefully checked the font on their spouse's birth certificate?"--Munger on DD
· Charlie on needing a sense of humor: "If you see the world accurately, it's bound to be humorous, because it's ridiculous."
· Munger: "Be adverse to the standard stupidities. Keep those out and you don't need to be smart, thank God."
· If you disagree with someone you should be better to state their case better than they can - Munger
· "Aesop lived about 600 BC...though he didn't know it was BC, because you can't know everything." -- Buffett
· "We try to avoid what is always the worst anchoring effect...which is our previous conclusions." -- Munger
· Mr. Buffett fields a question about a catastrophic attack, via chemical, nuclear, biological or cyber attacks. He jokes that he abbreviates this as CNBC - chemical, nuclear, biological, cyber attacks.
· "You don't want to play a stupid game just because it is available" - Buffett re CNBC-like stock investing
· Question about Sequoia Fund and its massive investment in Valeant Pharmaceuticals.Mr. Buffett starts by reminding the room that he is "the father" in a way of the mutual fund, in that he steered his early investors to Ruane, Cunniff & Goldfarb Inc. when he shut down his investment partnership. That firm set up Sequoia to handle their money. He also reminds the room that Sequoia's long term track record is still among the best in mutual-fund history, despite the recent struggles. But he says the "unusually large position" it took in Valeant was a mistake–the result of the fund becoming "overly entranced with the business model" of the pharmaceutical giant. Some management of the fund has been replaced, he said. He's advised people privately to stay with the fund and with Ruane Cunniff, and says the people who remain there are "very smart, decent people." On Valeant, Mr. Buffett says "the business model of Valeant was enormously flawed." He notes that the company was "touted to us," and intermediaries wanted him to meet with the company's chief executive, Michael Pearson. (We referenced that in this item last night: "Ackman to Buffett, Munger: Can't We Get Along.") The company's troubles illustrate a principle passed on to him by a friend. Mr. Buffett says: "If you're looking for a manager, find someone who is intelligent, energetic and has integrity. If he does't have the last, make sure he lacks the first two." He and Mr. Munger have seen "patterns that frequently come to a bad end, but look extremely good in the short run," implying that Valeant falls into that camp. Mr. Munger weighs in to say Sequoia, as "reconstituted," is a reputable investment fund. Then he lands on of the haymakers for which he's famous: "Valeant, of course, was a sewer," Mr. Munger says. "Those who created it deserve all the opprobrium that they got."
· Renewables in Nevada: There's a question about solar power in Nevada, where Berkshire owns utility NV Energy. The issue revolves around the price that people with roof panels were allowed to sell back their excess power for. For awhile, they were allowed to do it at below-market rates. "There's no question" for solar to be competitive, it needs subsidies. Who pays that is a tricky question. Mr. Buffett says Berkshire opposes paying above the market rate, since its excess costs there are passed along to the "99%" of people in the state don't have solar panels. Mr. Buffett loops in Greg Abel, who runs Berkshire's massive energy business.
· On AmEx: There's a question from the analyst panel about American Express, and whether Berkshire should re-evaluate its thesis for owning the stock (it's owned it for decades). Mr. Buffett acknowledges that AmEx's position has been under attack, and that it's too attractive a business not to be under attack. But that even if it's slightly less attractive than it used to be, it's still a good business to own. But he says he and Mr. Munger constantly re-asses their investments. Evaluating threats to businesses is a tough game, he said. "It's not that we're not cognizant of threats but assessing the probability of those threats" being life-changing or not is crucial. @AlliesFin9
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