After the Bell: Buffett and Munger — the would-be heroes of Cape Town
The two key leaders of Berkshire Hathaway, Warren Buffett and Charlie Munger, are more than two examples of great investors; they are also fabulous people — and those two things are not mutually exclusive.
Personally, I’m conceptually and ethically disposed to be suspicious of heroism. For example, my favourite Avenger is Antman because I just can’t help but root for an Ant-y hero. (Ba-da-dum!)
Yet, in one particular case, my innate scepticism is just roundly confounded and it is no accident that I’m in the company of an enormous number of people. I think that the two key leaders of Berkshire Hathaway, Warren Buffett and Charlie Munger, are more than two examples of great investors; they are also fabulous people — and those two things are not mutually exclusive.
Every year, at their annual Berkshire Hathaway investors’ day, the duo comes up with a whole roomful of anecdotes and truisms that are, almost literally, worth their weight in gold. But this year, at the age of 99 in Munger’s case, they were on🔥.
You may have read some or all of these already, but here are the best quotes from the meeting:
On the US banking crisis, Buffett said: “A lit match can turn into a conflagration, or it can be blown out. We want to be there if the banking system, temporarily even, gets stalled in some way. It shouldn’t, I don’t think it will, but I think it could.” Munger added that he thought bankers should be more like engineers; they should be more concerned about avoiding trouble than getting rich.
On Elon Musk, Munger said: “He would not have achieved what he has in life if he hadn’t tried for unreasonably extreme objectives. He likes taking on the impossible job and doing it. We’re different — Warren and I are looking for the easy job. We don’t want that much failure.”
On the dollar (as de-dollarisation is mooted in some quarters of the globe, coupled with underscoring the dangers of excessive government spending), Buffett said, “I see no option for any other currency to be the reserve currency. But we should be very careful. It’s madness to just keep printing money. It’s very hard to see how you recover once you let the genie out of the bottle, and people lose faith in the currency.”
And Munger added, “The man who has jumped off a tall building is all right until he hits the ground.”
On artificial intelligence, Munger said, “I am personally sceptical of some of the hype that’s gone into artificial intelligence. I think old-fashioned intelligence works pretty well.”
Buffett said, “When something can do all kinds of things, I get a little bit worried. We won’t be able to uninvent it. AI can change everything in the world, except how men think and behave.”
On toxic people, Buffett said, it’s so simple: “You spend less than you earn, and invest shrewdly, and avoid toxic people and toxic activities, and try [to] keep learning all your life. If you do all those things you are almost certain to succeed. And if you don’t, you’re going to need a lot of luck and you want to go into a game where you’re very likely to win without having any unusual luck.”
And further, “The toxic people who are trying to fool you or lie to you, or who aren’t reliable meeting their commitments: a great lesson of life is get them the hell out of your life. And do it fast!”
He also pointed out, “I’ve never known anybody that was basically kind that died without friends. And I’ve known plenty of people with money that have died without friends.”
And finally, Buffett’s advice to anyone trying to work out how they should live their lives: “You should write your obituary and try [to] figure out how to live up to it.”
All of this in one meeting! This is really a tour de force; a pleasure to read and hear. But what specifically is it that makes the pair so effective at turning this innate sensibleness into investment strategies? There are probably few more analysed things in the investment business.
The tale of the tape is that Berkshire Hathaway has seen a 19.8% compounded annual gain from 1965 to 2022, compared with 9.9% for the S&P 500 Index. In terms of overall gain, Berkshire saw a 3,787,464% rise during that time period while the S&P rose by 24,708%. But of course, Berkshire hasn’t drubbed the market indicators every year.
In fact, the key to its phenomenal performance is that Berkshire does particularly well in bear markets. Since 1980, Berkshire shares have beaten the broader market over the course of six recessions by a median of 4.41 percentage points. Munger is not making it up when he says the company has been looking for simple solutions.
The famous folksiness of the partners can be deceptive. Lots of analytical chops exist in the background and are methodically exercised. For example, Berkshire was founded on a corporate turnaround and many of the company’s investments are premised on a turnaround strategy vested in cyclical stocks. The portfolio is pretty concentrated, focusing on brand-name, strong, time-tested businesses held over long periods of time. It’s simple, but it’s not.
Interesting this year was the huge move to cash. Berkshire sold shares worth $13.3-billion in the first quarter and bought stocks for a fraction of that figure. And, as so often, it invested hugely in itself, with $4.4-billion towards repurchasing its own stock, as well as $2.9-billion on the shares of other publicly traded businesses.
To me what stands out is a fundamental belief in the innate good sense and primordial utility of capitalism, and more specifically US capitalism. Munger and Buffett are very much American heroes, which is why it is so odd they live in Pasadena and Omaha, respectively.
Why? Because the place where most superheroes live is, of course, Cape Town. (Ba-da-dum!) DM/BM