Warren Buffett on Charlie Rose: Notes on Part II

Includes: BRK.A, BRK.B
by: Fat Pitch Financials

I hope you have hasd a chance to either read my notes or watch part one of the Charlie Rose Show's Warren Buffett: The Man. I found it pretty fascinating. Today, I want to share my notes on part two of this series called, Warren Buffett: The Business (click to watch):

  • The show started with scenes from the Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) annual meeting and some discussion of how this annual meeting has grown into something unique, a celebration.
    • There is a scene of Warren Buffett singing and playing his eukalalie.
  • Buffett complains about corporate governance checklists. Buffett wonders how can board members that make up half their income being board members be truly independent.
  • Charlie Munger: Board member should be perfectly willing to leave at any time and willing to make the tough calls.
  • Buffett notes that Charlie Munger is the best partner that anyone can have. He has plenty of things to think of but Buffett can call him at any time and Charlie knows him and the company.
  • Warren Buffett’s investment partnership formed with seven members of his family that wanted him to manage their money. Then others stumbled into the partnership.
  • The partnership worked on buying cheap stocks but Berkshire was a terrible company.
  • He then bought Jack Ringwald’s (sp?) insurance companies.
    • Insurance companies give off a lot of money that can be invested if the insurance part is managed decently.
  • Buffett notes that it would have been better not buying these investments and putting them into Berkshire. He just stuck with it. He notes it would have been better selling Berkshire Hathaway.
  • Buffett closed out the investment partnership at the end of the sixties because the market was leaving him behind and he didn’t understand the market at that point. [Stock prices were high. Think the nifty 60.]
  • Berkshire Hathaway only got out of textiles in 1985. Buffett even added a textile company to add to Berkshire Hathaway during that time period.
  • Buffett discussed his purchase of Washington Post (WPO).
    • Washington Post was selling for $100 million at the time but he thought it was worth $500 million. His $10 million investment turned into a $1.5 billion investment.
  • Buffett advised Mrs. Graham, CEO of the Washington Post, to buy the stock that Warren wanted to buy but agreed not to buy of Washington Post.
  • Mrs. B couldn’t read or write but built Nebraska Furniture Mart that Buffett bought for $60 million.
  • Buffett bought The Coca-Cola Company (NYSE:KO) probably after reading the ‘87 annual report. The company was heavily repurchasing shares and had good management.
  • Buffett notes that it is hard to get a big position in a wonderful company.
  • GEICO was a great investment three separate times for Buffett. He put three quarters of his net worth when he was in his 20s into the company, a $10,000 investment.
  • He has no regrets of any companies that he didn’t buy into recently. [I’ve heard him say he wished he had bought Wal-Mart, but that was several years ago.]
  • GM is too tough to figure. [Controlled Greed must be a bit worried about this statement].
    • GM’s got terrible obligations.
    • Entered into contracts with UAW with market dominance . Pay for 2.5 people who don’t work for each person who actually works.
    • GM is a huge annuity and health insurance company attached to the auto company.
    • Buffett can’t come to a conclusion. Can they exist with 25 percent of the market, huge tough competitor and so many obligations?
  • Charlie Rose asked him what is the test. Buffett responded:
  1. I have to understand the business.
  2. It has to have a company that has some enduring competitive advantage.
  3. Management that I like and trust.
  4. Reasonably attractive price. Price is the least important.
  • No candidates right now for Buffett.
  • Buffett doesn’t get paid to hold money, fees for exit unlike hedge fund managers. They have a different calculus.
  • Buffett discussed Iscar now versus in 2004. Buffett didn’t buy in 2004 because he didn’t know about it. Iscar’s CEO emailed Buffett in October of 2005 and that’s what lead to the purchase.
  • He waits until companies are ready for him to buy into them. They come to him.
  • Charlie Rose asks: How does he review management so quickly? Experience?
    • Seller must know the price of their business.
    • [He never really answers this question directly.]
  • Buffett acknowledges he made a mistake in not selling Coca Cola.
  • Buffett doesn’t sell businesses he owns outright.
    • [I think this gives him a competitive advantage when buying family companies.]
  • There are three successors that are potentially available for Berkshire Hathaway.
    • The board knows exactly who to assign immediately.
  • Even if he found a big investment he would keep $10 billion as a minimum in cash for the insurance part of the business.
  • Buffett is good at calculating odds. You always need the right premium.
  • Buffett is looking up international companies.
    • People internationally don’t look to Berkshire for selling their businesses.
  • The economy today looks pretty good.
    • Buffett worries some about inflation. It is never gone, just in remission. When governments are involved that is always a concern.
    • The dollar over time will go down in up to a 10 year time frame. This is a result of the trade deficit. The U.S. is trading away a bit of the farm slowly and this has consequences.
    • Fiscal deficit is not as much of a worry. Buffett recommends to look at it as a percent of GDP. Buffett thinks the trade deficit is more important.
    • China can’t easily get rid of American assets.
    • Social security - the problem revolves around policies. We won’t get rid of social security.

    Later this week I’ll post part three, my notes on the final segment of the Charlie Rose interview with Warren Buffett.