Thoughts from Berkshire weekend 2023

I attended more events this year than ever. As an empty nester I don’t have ball games to go to, and while I miss the ERM Symposium its timing was sometimes a downer for me. I don’t tend to quote the speakers – what they say triggers a thought that may be similar or something completely off the wall.

Thursday

While the annual meeting is Saturday (May 6, 2023), events started Thursday with John Rogers of Ariel Investments speaking at the CFA Nebraska Value Investing Dinner. This event is sponsored locally so I know more people who attend this one. Here are some thoughts I had

·????????Active patience – this is a new term for me. I interpret it as thinking with a long time horizon, so patient for opportunities, but constantly looking and preparing for the day when the time is right to act. I saw that last year as I waited for stocks to fall further when iBonds, money market funds and T-Bills started to have strong returns. By buying these investments and building a ladder it will allow me to have cash released regularly over the next couple of years without having to accept much credit risk. This of course assumes the US does not default on its debt to gain political points.

·????????ESG investing is another tool to use when thinking about investing with a long time horizon. If I care about long term success then I need to consider each of the 3 constraints (environmental, social, governance).

Friday

Friday, I attended 2 events. The first was the Gabelli Investors Conference. The highlight was the opening panel of Adam Mead, Chris Bloomstran and Prof. Todd Finkle that talked about Berkshire and Buffett. Mead may be the nicest guy in finance. I am working through his book (slowly, 1985 so far in a chronological history of the company) and recommend it. Bloomstran does the most detailed analysis of BRK and the stock that I see (for free at Semper Augustus). He rattles off details that are material in a way that someone with expertise can easily follow. Finkle is an entrepreneurship prof at Gonzaga but grew up in Omaha and knew some of the Buffett kids. He released a book but it was not on the Bookworm’s list of books for sale. I’m not sure if that was an error as he said he interviewed Susie. He was not as knowledgeable about the company financials and seemed more interested in asking the other presenters questions rather than sharing info I didn’t already know. I may have to pick up his book to decide for myself.

The other sessions were interesting. They had panels with a couple of local companies, Lindsay and Valmont, that I have researched previously and sandwiched them around a Gabelli talk that defined financial engineering in a different way than I think of it. I think collateralized and he was talking about spinoffs and share repurchases.

The final panel was Mario Gabelli himself along with John Rogers (the Thursday night speaker). I really like to listen to Rogers. I think Gabelli is probably really smart but he pushes his investment book more than I am comfortable seeing. It finished off an interesting morning. By then the shopping had opened up for BRK subs in the exhibit hall and I spent a couple of hours wandering around to see what was new or interesting among the booths. Alleghany brought with it some companies (apparently some were sold immediately) but that was the main new thing to check out. Now I know what a Squishmallow is (maybe) but resisted the urge to buy one.

Next up was Creighton’s annual Value Investing Panel, highlighted by a question about why there are few women in the investing field. I was interested to see that the student practicum class had purchased McKesson, Aon, Nutrien, Kroger and Crocs this year.

Saturday – the main event

The newly coined Coachella for Capitalists event itself is always fun, this year with a segment in the movie where Buffett tries to convince Jamie Lee Curtis to be the brand ambassador for Ginsu knives. The highlight for me is always at the end when they play the Salomon Congressional testimony. I posted a link for my ethics students as it captures what good governance should be – principles based.

At one point four teenagers asked questions in a row – the first, with a question about de-dollarization, was excellent and it went downhill after that. There are lots of people giving highlights so I don’t plan to be complete. Here are a couple things I picked up on

·????????Buffett recommended a Bill Maher interview of Elon Musk – this seemed to be an effort to be nice as I later watched and very easy questions were tossed Elon’s way. He is very smart but reminds me of someone who uses leverage – you only have to go bust once.

·????????After Munger said that value investors should get used to earning less, Buffett said that What gives you opportunities is other people doing big dumb things. This is an extension of the greedy/fearful saying, but is easier to remember. Be rational and take advantage of the irrational behavior of others.

·????????Munger At some point printing money to buy votes will become counterproductive. This has been a theme in my writing for years but Charlie put it very succinctly.

·????????Berkshire is overweighted toward exposures in Florida. I wonder if their super-cat pricing considers the potential impact of an el Nino event like we expect this year.

·????????Overall, I felt that both Warren and Charlie were on top of their mental game but physically they are slowing down. If you watch the CNBC coverage right before the meeting starts, security walks right behind Warren to make sure he doesn’t fall backwards. His legs were stiff. How they sit there for 5 hours is beyond me. I couldn’t do it and they are both in their 90s.

Sunday

Last year at the Gabelli conference I randomly sat next to Tom Gayner’s wife, who encouraged me to join them at the Markel brunch in the future. This year I bought a few shares and signed up. Value investors who become popular through their speaking abilities are interesting; everyone from Howard Marks and Whitney Tilson to Gayner. I find that I agree with what they say, usually, but that when I look at their investments, I rarely would buy the same positions. I will follow Markel more closely now that I have shares so don’t want to say too much this year, but noticed that they brought about 25 of their leadership team to Omaha and all but a couple were white men, with no actuaries among them. Those are both red flags for me (this has been true of Berkshire in the past, especially with old white men on their board, but it is getting better). It was very well attended and I hope to attend in future years. Here are a couple specific notes

·????????Gayner is worried about 2 sided flation – in- for things you are buying and de- for things you already own.

·????????Rather than try to hit home runs when the future is uncertain, use the silver medal strategy by buying the second best in each environment. This sounds like satisficing.

·????????Sitting by myself at these types of events is useful. People expect an insurer to benefit from the law of large numbers, not to take bets. The recent push to reach for yield and ALM mismatch extremes, along with leverage, add risk to the policyholder without their knowledge. The regulator needs to push hard on their behalf.

Sunday evening, I enjoyed the hospitality of The Investors Podcast. I recorded episode 193 with Clay Finck a couple of years ago and had a chance to chat with him for a few minutes. There were several others that I spoke to from around the country. I enjoyed that but had hoped to meet some local investors.

Final comment

One topic that bubbled up for me throughout the weekend was the role of accountants. Several investors expressed concern to me if the big 4 were reduced to a smaller number through a merger. I kept thinking back to Enron and Arthur Andersen. AA had just spun off Accenture when their crisis hit and they were dissolved. This started a push for regulation that led to a regulatory full employment act for accountants. Now it seems like auditing work is a loss leader so they can do consulting work. The recent attempt by EY to split these groups shows the difference in profitability. I thought this was made illegal 20 years ago, but clearly I am wrong. Today’s incentives for accounting firms seems to leave ethics behind.