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

by Daniel Pecaut

Buffett noted that the analytical hurdle for buying a bond requires answering the question, “Will the company go out of business?” while buying an equity requires answering the more difficult question, “Will the company prosper?”

Buffett also plugged a cartoon series seeking to train kids about money called “The Secret Millionaires Club.”

Watch secret millionaires club

John Maynard Keynes’ The General Theory of Employment, Interest and Money. (Buffett added that he thought Keynes’ chapter 12 was the best description of the way capital markets function.)

The real key, according to Buffett, was correlation – could a contagion break out where many municipalities defaulted at the same time? For bond insurers, the amount of liabilities is extraordinary relative to the capital backing them.

Instead, investors should focus on gains in operating earnings, gains in book value and gains in intrinsic value.

“You can always tell a man to go to hell tomorrow if it’s such a good idea.”

“The State of Long Term Expectation” from The General Theory of Employment, Interest and Money – that

Read “The State of Long Term Expectation” from The General Theory of Employment, Interest and Money –

Munger added that gold is a peculiar investment in that it only works if everything goes to hell.

spouse dead broke. The board should also suffer severe penalties. If society needs to save you, you should have very painful penalties.

He characterized “value at risk” as one of the dumbest ideas ever put forward.

In valuing the operating businesses, Buffett said he would love to buy the group for 10 times pre-tax earnings or maybe even more.

He thinks the key to life is that the old virtues still work, like plugging along and staying rational.

Intelligent capital allocation is the essence of sound wealth-building.

70% percent

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.

Another number that Buffett has mentioned is the ratio of corporate profits to GDP.

Buffett admitted that Amazon is a huge development. What it has accomplished in a relatively short time is remarkable. Amazon’s created a big advantage with its intense focus on developing millions of satisfied customers. You’re not going to beat them.

Later, Munger went even further by suggesting that if you disagree with someone, you should understand their side better than they do before you open your mouth.

Munger summed: “We’d prefer that derivatives were illegal.”

Buffett reminded folks that to buy a stock is to buy part ownership of a business. Don’t get hung up on daily price quotes. Instead, think about business performance and what you would pay for the business, just as you would a farm.

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.”