University of Berkshire Hathaway: 30 Years of Lessons Learned from Warren Buffett & Charlie Munger at the Annual Shareholders Meeting

by Daniel Pecaut

we will always have bubbles because it is the nature of capitalism to go to excess.

From a standing start in 2004, MidAmerican now provides 7% of the nation’s wind generation capacity and, when projects are completed, an even larger share of the nation’s solar capacity.

there has been some talk to have originators retain 3%

Buffett noted that the railroad business after World War II had 1.6 million people employed in the business, and it was a lousy, undercapitalized industry. Today, the rail industry has less than 200,000 employees, and the industry is much larger, more efficient and far safer. No one is claiming today that it would be better to run the railroads with 1.6 million folks. “Efficiency is required over time in capitalism.”

Each industry is different.

Buffett observed that they do have filters. A key one is whether they have a good idea of how the business is going to do over the next five or 10 years. That filter eliminates many businesses from consideration.

Buffett was pleased that 97% of shareholders voted against having a dividend and in favor of having management invest the cash.

He said the real key is to be able to figure out what the average profitability of the business will be over the long term and how strong the business moat may be.

Solar’s cost per megawatt hour has plummeted from $315 in 2009 down to $128 today.

One ratio that Buffett is known to track is the total market cap to GDP. Recently, it was at 125%, which is a level approached in 1999 during the Internet bubble.

ratio of corporate profits to GDP. From 1951 to 1999, that number ranged from 4.5% to 6%. More recently, that number has been up over 10%.

Every mother tells her daughter, ‘If choosing between two old men, pick the older one.’”

aerospace parts maker Precision Castparts (PCP)

Buffett mentioned Fred Schwed’s classic from 1940, Where Are the Customers’ Yachts?(154)

focus on intrinsic value growth, not reported earnings.

Each business will have a couple of unique factors that are essential in evaluating its progress. Often, those unique factors are not immediately reflected in the reported earnings. In our short-attention-span world, analysts and the media so often focus on reported earnings and look no deeper.

One error was to inadvertently incentivize bad behavior.

“An ounce of prevention is worth a ton of cure.”

Munger insightfully concluded: “A lot of people are trying to be brilliant. We’re just trying to stay rational. That’s a big advantage. Trying to be brilliant is dangerous.”

Poor Charlie’s Almanack: The Wit and Wisdom of Charles T. Munger

Avoid financing overpriced takeovers via the high yield bond market. Avoid the equity of financial companies providing such financing. Avoid unrealistic valuations in your common stock portfolio based on takeover speculation.

The Renewable Fuels Association reports there are 101 ethanol plants in the U.S. and 32 more under construction. An estimated 20% of the corn crop is now going to ethanol production. There are three IPOs of ethanol producers coming in the very near future.

debating the future of ethanol subsidies.

So focus on the process, not the outcome.

Munger may be on the verge of a new analytic device – the PE ratio – that is, Price to Engineers. We noted last year that Munger gave us the “GURF” asset accounting idea– “good until reached for.”

Classic line from the book: “They told me to buy this stock for my old age. It worked wonderfully. Within a week I was an old man.”

Munger is a long-time board member of Costco, so he knows big-box retailing. Why has Berkshire never taken a meaningful stake in Costco?

every industry has a few essential variables.