Here is an interesting summary from a person i know who recently attended Warren Buffet's Berkshire Hathaway annual meeting (pilgrimage). Interesting points on the state of housing, but even more interesting is his view that he (Buffet) expects the economy to bottom in the next 3-5 Years!! It is refreshing to listen to Buffet's honesty rather than the standard BS you get from the wall st mobs.
This would suggest to me that our friend Warren is a little sceptical of all of the green shoots talk at present, and that this market is very unlikely to bounce out of this recession as it did the last earlier this decade (no credit steriods this time). Also reinforces the view that this is a traders market and TA will win the day over the next few years. Look forward to more from all of you in picking the turns.
Good afternoon,
After 3 very hectic days on the ASX, we finally have an opportunity to review our recent trip to the US. At the Berkshire Hathaway AGM we attended in Omaha, Nebraska, Warren Buffet and his deputy Charlie Munger spoke for nearly 6 hours (not a bad effort at ages 78 and 85 respectively!). Our team came away much wiser for the experience, and it is not possible to capture all of their collective wisdom. However I have attempted to pull out the 'top points' and we hope that they are of some value to you:
Current Market Insights
In the US, there are ~80m houses; 25m have no mortgage; 5-6m 'in trouble' ; but excess supply (ie vacant homes) is down to only a total of ~1.5m homes. New demand is 1.3m pa and current construction is ~500t pa = ~800t pa being soaked up each year. At this rate, the surplus homes will be removed from the market within ~2 years. Expects US consumer sentiment 'to be damaged for quite some time to come'. Separately we heard 2nd hand that he is of the view that the US Economy will bottom in the next '3-5 years'. This is perhaps the most contentious point of the entire trip. Remains negative on the $US : 'I guarantee you that the dollar will buy less in 5, 10, 20 years than it does today'. He added also however that the majority of the other major currencies such as the Euro and Pound Sterling also have major issues, so it is difficult to know by how much the $US will depreciate. Inflation: 'You can bet on inflation'. 'Post mortems are obligatory' : it is essential to dissect bad investment decisions. Expects 6%+ pa returns from here; reflective of this view, he also indicated that 'we will do a lot more in utilities in time'. Stocks were cheaper in 1974 on a PER basis, but not on a comparative basis vs. the (high) interest rates that prevailed at that time. '1974 was the best value ever'. Timeless Investing Principles
Precise spreadsheets are a 'waste of time' and in fact dangerous as they lead to a false sense of security; forecasting earnings is difficult as there are too many variables that can and will change; best to look for companies that are so undervalued that the 'numbers scream value' . High IQ in business 'is dangerous', but emotional stability is the most essential requirement for successful investing. Investing should be 'simple but not easy'; 2 ingredients: Understand how to value a business Understand how to analyse markets Mr Buffet continually reiterated key qualities he looks for: 'Wonderful', enthusiastic, skilled management Sustainable competitive advantage (ie large 'moat') Value Basic, understandable commodities that are essential to everyday life - eg bricks, soft drink, insurance etc Investors need to understand that seeing the share price everyday is 'an asset not a liability'. We respond emotionally to share price movements. An investor should look at the business to decide if 'we got it right', not the share price. 'Picking bottoms is impossible but picking value is not that hard'. 'Not buying something that is good value because you think it will get cheaper is just plain silly!' Key Take Away
Perhaps the point that surprised me the most, was just how emphatic Warren Buffet was on the importance of good management. In books I have read about his investing style, this aspect has consistently been downplayed. However after listening to him for 6 hours, I am of the view that above all else, Buffet looks for skilful, passionate, committed management with a demonstrable track record.
(20min delay)