Investment Wisdom

66. Wonderful Tidbits From Omaha

Excellent Book: Charlie Munger For All Seasons

http://www.omaha.com/money/buffett/warren-buffett-charlie-munger-s-lessons-as-worthwhile-today-as/article_ef5ec766-ff78-57cd-a4b4-58f6999a2b47.html
https://www.facebook.com/groups/charliemungersays/

  1. (On boards of directors) – If you embarrass big shots, you have a better shot that they’ll have better behavior

 

Buffett: “If you embarrass big shots, they will behave better. And in that respect, probably the press has done more to cause boards to behave as they should than anything we can dream up.”

2. (On dividends) – We’d Pay Dividend If “We can’t deliver more than a dollar of market value per dollar retained.” [Can You Do Better Than The Oracle Of Omaha? I Don’t Think So. 🙂]

Munger: “We say our break point is when we get so we can’t deliver more than a dollar of market value per dollar retained, we will start distributing the money to the shareholders instead of retaining it. That’s our break point.”

Buffett: “We might distribute more than 100 percent of the earnings.”

Munger: “You’re damn right.”

3. If You Think A Computer Prgram to invest automatically in volatile stocks can give you 2 to 3 percentage points per annum over two or three decades, you are day dreaming.

Munger: “If you talk about Berkshire, I think the result would be far less than what we get using our methods. And I am deeply suspicious of the idea that a strategy so simple would work to produce a large advantage.

“I think if people believe there would be a huge advantage — 2 to 3 percentage points per annum over 20 or 30 years — they should believe in the tooth fairy.”

4. On Pay financial advisers for acquisitions. How About Paying Them To Advice Me Not To Acquire?

Buffett: “If I’m going to pay $5 million to somebody if they give me the advice and the deal goes through, then I think I probably ought to pay $5 million to somebody else whose advice I listen to who gets paid the $5 million only if the deal doesn’t go through.”

5. On Corporate Managers & Monkeys In Zoos: It’s All About The Tokens

Munger: “They’ve done very interesting experiments with monkeys in zoos. They create a system where the monkey can do things to get a token and the token can immediately be exchanged for a banana. The monkey soon learns to work just as hard for a token as he formerly did for a banana.

“You can hardly think that corporate managements are going to be much better.”

6. Li Lu’s Great Admiration For His Two Venerable Teachers

Li Lu’s reflections on turning 50 in April — which he calls the first half of his life — appeared recently on his Facebook page, and the California investor gives much credit for his financial success to Buffett and Munger.

For a time, Li was considered a potential money manager for Berkshire but decided to continue running his own investment fund in California. It was Li who recommended to Charlie Munger that Berkshire invest in BYD, the Chinese auto and battery company, in 2008.

In his Facebook post, Li said the relationship began well before that.

“My temperament and experiences prepared me well for a career in investment,” Li wrote. “I was extremely lucky to be introduced into the field by the greatest investor who ever lived when I accidentally stepped into a lecture by Warren Buffett at Columbia (University) nearly 25 years ago.

“And it was even more magical 13 years ago when Charlie Munger became my investment partner, mentor and lifelong friend. To this day, I don’t know to what I would attribute this extreme fortune. It is something even the wildest imagination or the best fiction could not conjure.

“Now that I have compiled a record of my own for over twenty years, still enjoy the game even better than when I started, I think I will simply continue.

“I’m curious to see how long I can follow the great record set by my teachers, Warren and Charlie, that is by now well over fifty years. Not for the size of asset under management, not for the fees, just keep a score card the way a golfer would after each round and after a lifelong career.”

7. Berkshire (Through Clayton Homes) built more than 34,000 homes in 2015. Walk The Talk, Build The Homes

Berkshire’s Clayton Homes division is now building homes on-site, beyond the factory-built houses that have been its trademark.

The Maryville, Tennessee, company’s Clayton Properties division got underway about a year ago with the purchase of 81 residential lots in Atlanta and recently sold its 500th site-built home.

Last week the company purchased Summit Custom Homes, the largest home builder in Kansas City, Missouri, and owner of about 12,000 lots, paying an undisclosed amount.

Clayton, a part of Berkshire since 2003, built more than 34,000 housing units last year, counting site-built homes, modular homes, manufactured housing, “tiny” homes, college dorms, military barracks and apartments.

We can almost see a pattern here.

When the financial crisis hit the housing industry in 2008, Buffett said it would be wise to buy a house as prices declined and a good time to expand in the real estate business.

Berkshire’s real estate business now has more than 30 offices with 26,000 agents plus more than 400 franchisees with another 44,000 agents.

Keith Holdbrooks, president of Clayton’s home building group, said Clayton is pursuing a similar growth strategy and wants to acquire more companies like Summit.