Meet Warren Buffett
I recently attended the Berkshire Hathaway shareholders’ meeting in Omaha, Nebraska. This was not an exclusive event. Almost 40,000 people attended to learn from Chairman and CEO Warren Buffett (age 86) and his sidekick, Charlie Munger (age 93). It was an interesting and educational experience.
The format of the meeting is simple: Buffett and Munger answer questions from shareholders, journalists, and analysts for a little over five hours. It was amazing that after nearly 55 questions Buffett and Munger were so alert, responsive, and clear-minded. Perhaps this was a function of the Coca-Cola and See’s peanut brittle the two ate incessantly throughout the day.
I am a numbers guy, and the numbers are startling. Berkshire Hathaway earns almost $20 billion per year. The company has about $100 billion in cash on hand. It is sole owner of over 50 businesses, including Burlington Northern Railroad, GEICO, Dairy Queen, Benjamin Moore, and Knoxville-based Clayton Homes. Berkshire also holds large stock positions in a number of familiar companies; for example, $20 billion of Apple and $28 billion of Kraft Heinz.
Clayton Homes made $744 million in 2016. Back in 2003, Berkshire paid $1.6 billion for Clayton. Not a bad investment! On display was a 464 square foot “tiny home” featuring oak hardwood floors, poplar bark siding, a cedar shake roof, and a covered porch. Google “Clayton Tiny Home” and you will be impressed.
I enjoyed the wit and humor exhibited by both Buffett and Munger. A concerned shareholder asked a two-part question inquiring why a company of Berkshire’s stature would allow a subsidiary to produce chicken-processing equipment and where they stand on nuclear proliferation. Munger’s lightning quick response: “We don’t mind killing chickens, but we are against nuclear war.”
Buffett commented that you should not be scared of competition, citing one must “fish where the fish are.” Similarly, you shouldn’t worry about where your friends or colleagues are investing their money. A strategy that works for one person likely will not work for another, because everyone’s goals, personality, and aspirations are unique.
Buffett also spent quite a bit of time explaining his view on interest rates. He proposed, “All expected returns (for stocks and bonds) will depend on interest rates.” He believes bonds are a terrible investment at today’s rates, and advises only holding bond positions sufficient to fund living expenses over the next five or ten years. He says that most folks will be better served by investing the remaining money in a stock index fund (Munger recommended Berkshire stock). This will only work if you have the discipline to not sell next time stocks experience another large decline….the last decline being 40 percent!
We can learn from those who have been successful. The challenge is applying these lessons to comfortably fit your situation. After all, Warren Buffett is not going to be available for consultation when the next crisis in your financial life happens.
An edition of this column was featured in the print version of the June 4 Knoxville News-Sentinel.
Meet the Author
Tom Coulter, CPA
Tom is the President and a founder of Meridian Trust. Tom graduated from The University of Tennessee, Knoxville, in accounting with honors, in 1978. Tom previously worked for the international accounting firm, Deloitte. He later joined the financial medical advising firm, FIS Associates, before founding Meridian Trust in 1997. Tom has worked extensively in retirement planning, taxation, estate and financial planning and investment management. He is a Certified Public Accountant, a member of the American Institute of CPAs (AICPA), and the Tennessee Society of CPAs (TSCPA).
Tom is also credentialed as a Personal Financial Specialist (PFS) by the AICPA.