Ref: Adam Blum’s 2017 Berkshire Hathaway Annual Meeting Notes – May 6, 2017
Guide 31. That reputation of being quick and simple and doing what we say has helped time and time again.
Q53 – utility business is ok – Electricity demand isn’t increasing like it was, and there are some stranded assets. He will be surprised if 10 years from now, they didn’t have significantly more money in wind/solar/utilities. Berkshire is the buyer of choice with many utility commissions.
Munger: “Our utilities are not normal. They’re better regarded by customers and rate-payers. It’s better to be associated with assets of that quality. If someone asked us to build a nuclear plant, we wouldn’t do it.”
Buffett: “We are selling electricity in Iowa cheaper privately than in Nebraska’s public wind environment even with the government getting a total tax benefit But if we were putting together a portfolio of stocks, wouldn’t own any utilities.”
Q54 – McLane reporting – The SEC requires more disclosures of businesses based on sales. McLane has a huge sales volume – Walmart is its biggest customer. The business has a 1% pretax margin, so it is inflated based on how it looks in the financials. These kinds of businesses only work if turnover is extremely fast. It has an outsized appearance because of the gross sales volume. It’s interesting that Walmart wanted to sell McLane to Berkshire. Walmart said they never had a deal that closed so fast.
Munger: “That reputation of being quick and simple and doing what we say has helped time and time again. We bought a business (Northern Natural Gas) and funded it before the regulators approved, because the business sellers needed the money. Others couldn’t have done this.”
Guide 32. At the funeral, if someone says that’s the oldest looking corpse I ever saw, it’s a compliment.
Q55 – asking about Warren and Charlie having iron bladders – “we won’t tell you the secret to that – no contraption, you can come down and inspect.” The real question was about their legacies.
Buffett: “At my funeral, I want them to all be saying ‘that’s the oldest looking corpse I ever saw.’”
Buffett really enjoys teaching; that’s his best legacy is someone thinking he did a decent job at teaching.
Munger: “To make teaching endurable, it has to have enough wiseassery in it. And we do.”
Buffett: “We can’t forget what’s on Wilt Chamberlain’s grave: ‘Alas I sleep alone.’”
Guide 33. Look for the job you’d take if you didn’t need the job. Life must be evaluated backwards but moved forward.
Q56 – What’s your dream?
Buffett: “Let’s skip the first one, Charlie (implying something raunchy).”
Munger: “Oh, to be 90 again; if you’ve got anything you really want to do, don’t wait until you’re 93 to do it.”
Buffett: “Look for the job you’d take if you didn’t need the job. Life must be evaluated backwards but moved forward, as Kierkegaard said. Charlie says he wants to know where he will die, so he won’t ever go there. What will make you feel good, and what will keep you going there in that direction?
We don’t want to be like the man who died, where the minister said at the funeral, ‘now is there anyone here to say something nice about the deceased?’ and the only person that stepped forward offered : ‘his brother was worse.’”
Guide 34. EBITDA can be very misleading.
Q57 – Buffett wishes he’d met Charlie earlier. That’s his biggest regret.
Regarding EBITDA, depreciation is an expense and the worst kind. “You- spend the money first but then have the expense.” It makes no sense to remove depreciation. It’s a very misleading statistic used in very pernicious ways.
Munger: “You’ve understated the horrors of the subject and the disgusting nature of people who brought that term to business; it’s like a real estate broker who said a 1,000 square foot apartment was actually 2,000 square feet. Nobody in his right mind would think depreciation is not an expense. Now they’re teaching it in the business schools – that is horror squared.”
Guide 35. If an industry/business is no longer viable, unemployment or dislocation can result. Unemployment insurance exists for that exact reason. The capitalist system always hurts some people; there’s no way to avoid it. The governments should help.
Q58 – Should businesses make decisions beyond just economic impact? Trade should be and is enormously beneficial. Greater productivity will benefit the world. It’s a shame to be the textile worker in New Bedford or the shoe worker at Dexter put out of work. Prosperity is enhanced by trade – doing what one does best – but the country needs an educator in chief who has to be able to explain the overall benefits of free trade and beyond that have policies that take care of the roadkill. Don’t worry about investors. They can diversify and not get killed by a specific industry condition, but the worker in many cases can’t do that unless the government takes care of people like that. They need to try to hit both objectives.
Munger: “Unemployment insurance exists for that exact reason. The capitalist system always hurts some people; there’s no way to avoid it.”
Buffett: “A rich society can take care of those people. The new tax bill instead reduces my taxes by 17%.”
Munger: “Don’t start spending the money yet. Otto von Bismarck said there are two things that no one should have to watch: the making of sausage and the making of legislation.”