NO CRYING IN CONTRACTS JOURNAL #3

Thoughts on the 2022 Berkshire Hathaway Annual Meeting

This is No Crying In Contracts, a newsletter about what I'm working on and thinking about. You can subscribe to access past newsletters on Substack, or check out other essays on my website.

Hi Everyone,

I just got back from my fifth Berkshire Hathaway (“BRK” for short) shareholder meeting. Warren Buffet and Charlie Munger, the founders and directors of the company, have hosted their shareholders at an annual meeting every year since 1973, starting in an employee cafeteria and working up to the 17,000-person arena of today.¹ It’s surprisingly easy to attend (scroll down for a how-to guide), and I highly recommend it to anyone who’s ever considered it.  

It’s difficult to distill all the thoughtful observations that a 91-year old and 98-year have about American business across the last seventy years. These are just a few of my takeaways from this year’s meeting.

Warren, Charlie and Past Mistakes

Warren and Charlie rambled and wandered off into their own stories in some of their answers. In these ramblings they kept returning to the same theme: the number of big mistakes they made in the first half of their lives. They wanted everyone to understand just how much of their success was not guaranteed. It was the product of trying the best approaches they knew, paying attention for errors in their judgment, and learning from mistakes.

One example of a big mistake was purchasing the controlling interest in Berkshire Hathaway in 1965, when its primary business was a New England textile mill.² Charlie explained that textile mills in the southern US could buy electricity for almost half the price that the Berkshire mills had to pay for electricity. No amount of efficiency in the New England mills could overcome that disadvantage. Charlie concluded: “It was an absolutely hopeless hand, and [Warren] had the good sense to fold it.” Warren responded: “25 years later!” (This particular part of their conversation was both insightful and entertaining. Here’s a link to that part.)

Consider this timeline: Warren bought Berkshire Hathaway in 1965, when he was 34 years old. He closed down the textile operations and shifted to more profitable industries in 1985, at the age of 54.³ Warren poured two decades of his professional prime into a textile mill that was a bad bet. He spent the next four decades applying the lessons from those struggle-filled years.

The single biggest lesson was that, if they patiently identified more profitable industries for their investments, they could make more money while doing less work. Their wisdom and patience paid off. At the end of 1985, the price for one “A” share of BRK stock was $2,470, and the price as of last Friday was $480,307. In that same period, the Dow Jones Industrial Average went from $1,477 to $32,977. That’s a 19,346% increase in BRK stock, compared to a 2,133% increase in the Dow.⁴   

Despite these exceptional results, Warren and Charlie don’t claim to have had exceptional intelligence or vision. They trumpeted their failures to make the point that trying things, paying attention and learning from mistakes are more important than being right. That studious approach repeated and compounded a million times over a lifetime is what has made Warren and Charlie so successful.

Warren and Charlie vs. Instagram Culture

I admire Warren and Charlie because of their ability to focus on simple goals, with consistency, over many decades. I am the opposite. Despite efforts to resist, I buy into the social media zeitgeist that I can become very productive quickly if I make a few surgical tweaks to my routine. With the right shoes, fitness watch, credit card and influencer-guru, I can realize my full potential in just a few dedicated weeks. Then I can shift my life into cruise control and wait for a better job, money and recognition to fall into my lap.

I aspire to be more like Warren and Charlie. They are the ultimate examples of how slow and steady progress can compound into great success over a lifetime. Literally a lifetime. They’ve kept learning and improving in small steps for nearly a hundred years.

The Bottom Line

Like so many of Warren’s and Charlie’s lessons, the bottom line is absurdly simple: Find something you are both good at and interested in. Do it, even if you don’t have a perfect plan. Pay attention for when you are making mistakes and correct them. Do this for the next fifty years and you’ll end up ok.  

Why Such A Big Shareholder Meeting?

Walking around Omaha on the weekend of the annual meeting, it is easy to understand one of the reasons Warren and Charlie like to get everyone together. It’s as much fun for them as it is for everyone else. There is also a practical reason. It reinforces the bonds with their individual shareholders, which in turn enables them to manage Berkshire with more independence. 

Consider this: 55% of IBM stock is owned by institutions and 73% of Cisco stock is held by institutions.⁵ This means that large institutions like Fidelity and Vanguard own the stock through index and mutual funds. Because Fidelity owns the stock on behalf of individual investors, the ultimate job of the CEO is to keep a handful of Fidelity managers happy. 

In the case of Berkshire, individual investors collectively own about 35%⁶ of the shares and institutions only own 43%⁷. I am one of the many thousands of everyday people who will own Berkshire stock until I die, because I want to be a business partner of Warren and Charlie. Even when they are gone, I want to be a partner of the types of people they selected to take their place. 

This rock-solid investor base has given Warren and Charlie the priceless freedom to invest with their guts. They don’t need to wine and dine Fidelity managers. They can ignore whatever investment fads people are screaming about on CNBC. Most importantly, they can make mistakes and we will stand by them. We all understand that mistakes are part of the process. 

Berkshire’s success is as much about the individual shareholders as it is about Warren and Charlie. The annual meeting has been – and will continue to be – an essential way of reaffirming this unique culture. 

How to Attend the BRK Shareholder Meeting

Despite what you may have seen on Netflix’s Inventing Anna⁸, the BRK annual meeting is not exclusive. Here is all you need to attend:

1.       Shareholder Passes. One BRK-B share (currently around $316) gets you four passes. Bring the kids!

2.       Plane Ticket. I usually book a Southwest flight as soon as flights are available. According to my Southwest app, they start selling flights six months in advance. Prices are reasonable when purchased in advance, and you can cancel if necessary.

3.       Hotel or AirBnB. This is difficult but not impossible. You do have to book the hotel room far in advance if you want to pay a normal price for a place that is walking distance to the meeting. The closest hotels are sold out a year in advance. AirBnB opens up many more options.

4.       Rental Car or Uber/Lyft. Again, book way in advance for a normal rental car price. Uber and Lyft work just as well. Everything in Omaha is a 15-minute drive away.

As you can see, this meeting is limited to Warren, Charlie, and seventeen thousand of their closest friends. There are spillover rooms for when the arena fills up. 

If you plan it right, the BRK meeting can be like any random weekend getaway to Omaha. Anyone that tells you Omaha is not a nice place to spend a weekend has never been there.

The 2023 shareholder meeting is on May 5th – 6th. I hope to see you there!

All For Now

I love hearing feedback about any part of the newsletter that you found interesting. If you think someone else might enjoy reading this, I’d appreciate you sharing it!  

Acknowledgments

If you enjoyed this edition, much of the credit goes to Promeet Mansata, Charlie Becker, Sandra Sanchez, Chris Wong, Mike Woitach and Karena de Souza. Thank you all for taking the time to edit and comment on early drafts!

1.  For more history of the meeting, check out this page.

2. You read that right. This isn’t your high school history chapter on the Industrial Revolution. Textile mills in New England were still a thing in 1965.

3. I know. From 1965-1985 is 20 years, not 25 years as Warren claimed. I could reverse-engineer his math to figure out where he got 25 years from, but I prefer to take his word for it.

4. These numbers are from Yahoo Finance charts like this one and this one.

5. I got these numbers here and here.

6. I got that estimate in the “General Public Ownership” section here. As you can also see in the picture, there are a lot of us!

7. I got that number here.

8. Episode 4, if you must. You know how the show says, “This whole story is completely true, except for all the parts that are totally made up”? Their depiction of the BRK shareholder meeting was totally made up.