News » Diary from Omaha: Berkshire Hathaway AGM 2018

Diary from Omaha: Berkshire Hathaway AGM 2018

11/05/2018

Thursday 3rd May:

The 90 minute flight from Chicago is completely full, no seat to spare. About half the passengers are Chinese. There is a palpable sense of anticipation in the air. On landing at Omaha I am met by Dave Clark, an associate of Sanford DeLand, who has published numerous books on Messrs. Buffett, Munger and their methodologies. Keith and I are whisked off to an evening of drinks and dinner at the Fontenelle Forest Learning Center (named after Warren Buffett’s parents). At the drinks there are raptors and a snake to admire/avoid. The event is mainly for German guests attending the AGM weekend, members of the recently formed Alexander von Humboldt Society. Over dinner we are treated to a fascinating lecture on von Humboldt, a Prussian 18th century explorer, naturalist, and geographer, by his recent biographer Andrea Wulf. This is my first taste of the culture of the Berkshire Hathaway shareholder weekend: multinational and dedicated to lifelong learning.

Friday 4th May:

My first impressions of Omaha: it’s bigger than I expect: a population of 900,000 which is roughly 15% bigger than that of the cities of Manchester and Salford combined. Surrounded by prairie, flat for hundreds of miles in every direction, rich farmland. Buffett owns some farms. This morning I am treated to a tour of famous local Warren Buffett haunts: first his office at Kiewit Plaza (Peter Kiewit was a local builder friend and the office only houses Kiewit Corporation, now a major construction group, and Berkshire Hathaway). Then a drive to Buffett’s house. It’s literally on the same street as his office, just further out, and we time the drive: just 5 minutes! The house is in a pleasant suburb, but I would not call it a mansion. Dave Clark estimates its local value at $800,000. Buffett has lived in the same house for decades. All this is testament to his famous frugality and a simplicity of lifestyle that allows plenty of time for reading and thinking. 

Buffett's house

Next a stop off at Borsheims, Buffett’s jewellery store. A giant marquee has been planted outside, ready for a big drinks bash for shareholders on Sunday. We have come here before the crowds arrive, in order to avoid a scrum. Even now there is a buzz in the store. The staff are very friendly, knowledgeable, long-serving. What you would want in any business.

In the afternoon, we go to Omaha’s Creighton University for a book signing event in the Heider Business School. Keith, Dave, Mary Buffett (also an SDL associate) and many other authors are there to chat about and sign their publications. Devotees of Berkshire Hathaway’s methodologies add steadily to their collections, seeking new insights into investing. I buy “The Women of Berkshire Hathaway” by Karen Linder, “The Little Book of Sideways Markets” by Vitaliy Katsenelson and “Invested” by Danielle and Phil Town, a father and daughter (I read the latter on the flight home, it’s very engaging, almost a novel, aimed at inspiring novice investors (particularly women) to methodically set about investing for themselves).

This is followed by a Value Investing Panel, where current Business School students ask investment questions of five experts in turn. Denver investment manager Vitaliy Katsenelson draws the short straw with the question: “What has been your worst investment and what lessons have you learned from this?”. Actually, every fund manager makes mistakes and should have a ready answer to this question (he picked Nokia).

The final event of Friday is the annual Columbia Business School Dinner. Columbia was Warren Buffett’s alma mater, and he was famously taught there by Benjamin Graham, the father of value investing. Again, we have dinner while listening to a panel answering questions. Not a single waking hour is wasted on this particular weekend! My main takeaway from this event is the comments of Columbia Professor Bruce Greenwald, who explains that US corporate profits in the 1980’s and 1990’s were 8.5% of national income but today are between 13.5% and 14%. Greenwald thinks this level of profitability will rise further, rather than revert to the mean, because the economy is becoming more service-based. Many businesses now have a huge local service component, this means they may have a more dominant share of a local market, and the real challenge is to decide how much to pay for these enduring platforms/ franchises. I too am interested in platform businesses so his comments resonate.

Saturday 5th May

The big day has arrived! As a first timer, I simply have to get into the main auditorium at the CenturyLink Plaza to experience the event in person. You can watch it in an overflow room on a big screen, or these days over the internet, but you miss the atmosphere. With an estimated 42,000 attendees, and only 20,000 seats in the main arena, this means queuing early. I am still jet lagged, but as one observer has put it, “you don’t go to Omaha to sleep”! I join the queue at 5.10am when it is still dark. I estimate there are a thousand people ahead of me. By the time the doors open at 7am, there are many thousands more behind me. The camaraderie in the line is immense: I am sandwiched between two, first-timer, young, Chinese-American actuaries and a retired couple from Iowa who have come to Omaha for the nth time in their motor home.

At 8.30am, proceedings start with the annual meeting film. This is a brilliant series of clips, mainly humorous, which you cannot watch online. The standout skits this year are Warren Buffett and Bill Gates trying out double mattresses in the Nebraska Furniture Mart (more on this subsidiary later); Charlie Munger in a highly speeded up sequence trying to open a box of his favourite Peanut Brittle; and a brilliant take-off of the fees charged by many wealth managers while delivering underperformance.

At 9.15am, Warren and Charlie enter the stage. There is tremendous applause. Warren gives a brief introduction, self-effacingly pointing out that he exited his first investment (at age 11) far too early, missing out on the long-term compounding of returns. He has clearly learned from his mistake. He also waves around newspapers from 1942 when the war headlines for the US were grim. He points out that $10,000 invested in the US stockmarket index that year would be worth $51million today. He remains very upbeat about the long-term prospects for investing in equities in his own country.

The proceedings then turn to two sessions of Question and Answer, each nearly 3 hours long, punctuated by a lunch break. The stamina of Buffett (aged 87) and Munger (aged 94) is amazing. I recommend you watch these sessions online rather than give a detailed account here. However, three standout points for me are:

1.  The US is currently very obsessed with a potential trade war with China, it’s on the TV news the whole time. Buffett isn’t worried, he thinks common sense will prevail, but points out that we take the huge benefits of trade for granted, we only notice the negatives.

2.  Buffett, with echoes of the Columbia dinner comments, thinks corporate returns on capital may be structurally higher than in the past. He is clear that he has missed out on technology generally, but has invested in Apple because he can see it has an enduring eco structure around it and he expects it to use surplus capital to buy back shares. He will therefore end up owning a bigger chunk of Apple without doing anything. 

3.  Buffett favours productive assets, and is scathing about non-productive assets such as gold.

I take time out to visit the huge exhibition hall in the basement of the CenturyLink Plaza. Here Berkshire Hathaway companies showcase their wares to shareholders. There are huge queues at Sees Candies, Brooks (trainers), Pampered Chef (cookware), and Fruit of the Loom (T shirts). You can look round the inside of a Net Jet, buy a mobile home, watch a large train set (BNSF). 

  • Brooks sign at the exhibition hall

  • Sunday 6th May

    My final day in Omaha starts with brunch at Warren’s Country Club, called ‘Happy Hollow’! Then on to Nebraska Furniture Mart (NFM), which he bought on a handshake from Rose Blumkin, its Russian immigrant founder, for $60million in 1983. NFM blows my mind. It sits on a 100 acre freehold site. There is a huge warehouse, and numerous huge single storey sheds. We look around the one containing sofas, and the one for electrical goods. There is nothing remotely on this scale in the UK. Dave explains that NFM has such low property costs and such scale that nobody else can enter the market. It offers next day shipping from the huge warehouse and is a strong dominant local franchise. I think of my investment in Dunelm, which also has the attraction of very low property costs, with freeholds plus some leaseholds on very advantageous terms. 

    On the flight back to Chicago I sit next to a young Canadian couple who have been at the event. They quiz me about the book I am reading and note the details down.

    As I reflect on the amazing weekend, I am struck by the immense enthusiasm I have witnessed in Omaha. Large numbers of ordinary people are dedicated to keep on learning about fundamental long-term investing and it has been an incredible privilege to sit under two of the best teachers of all time for a brief few hours.

    By Rosemary Banyard