This year, I and a couple of my cohorts from work got the pleasure of attending the shareholder events for the weekend. And oh, what a weekend. Lining up at 6am outside the gates of the CenturyLink Center, a basketball arena in downtown Omaha, we joined roughly 40,000 shareholders and Buffett fanatics.
We piled into the amphitheater and immediately got comfortable…we were about to witness over 6 hours of glorious and unrehearsed Q&A from two of the greatest investors of all time, Warren Buffett and his perennial partner, Charlie Munger. Over 60 questions alternated between CNBC stalwarts, Andrew Ross Sorkin and Becky Quick, long time Buffett journalist and bridge player aficionado, Carol Loomis, as well as shareholders in the audience. Through it all, these two investment giants only had one break for lunch…their patience and stamina was incredible…especially given their relative vintage (Buffett is 84 and Munger is 90).
Needless to say I was incredibly inspired. So better late than never, I wanted to share my takeaways from the Shareholder Meeting. Here are the words of wisdom:
“Size is the anchor to performance” ~Warren Buffett
As Buffett has long said, as Berkshire Hathaway grows and must therefore invest larger and larger amounts of cash into its underlying investments, overall performance (as measured in Berkshire’s book value growth over time) will surely diminish. This makes sense: larger companies are less nimble with less inherent upside potential for growth.
As investors, we must take this to heart. Generally speaking, if we’re trying to beat the market rate of return (as measured by the S&P 500), we must look beyond the largest companies and get down into smaller, less efficient areas of the stock market. See my series on Value Investing for more details.
“Cash and credit is like oxygen. You don’t notice it 99% of the time, but if it’s absent you notice it straight away” ~ Charlie Munger
Charlie Munger was, of course, talking in relation to Berkshire’s portfolio holdings in this case, but this statement makes just as much sense when applied to our personal finances. As I mention in my free eBook, it’s important to have a cash emergency fund that can provide you with three to six months worth of expenses if you lose your source of income for one reason or another (e.g. lost job, family or personal matter, pursuing entrepreneurial venture, etc.).
Sure, when cash is rolling in from our paychecks, we tend to not pay attention to that cash balance sitting in our emergency fund. But when we need it, that emergency fund (or lack of fund!) is the first place we look!
“There are things money can’t buy. I don’t think standard of living equates with cost of living beyond a certain point. Good housing, good health, good food, good transport. There’s a point you start getting inverse correlation between wealth and quality of life.” ~Warren Buffett
We all want to have nice things in life, but when is enough, enough? I’m a firm believer that material things don’t buy us happiness…true happiness comes from the Great Almighty above in the form of love, satisfaction and freedom!
For happiness, we only really need the basics. Once we have those things (good housing, good health, good food, good transport, as Buffett says), the excess money we generate or earn should be left alone for the benefit of our future freedom, our families, and our communities!
“Investing is slow. You’re dead before you’re done.” ~Charlie Munger
Munger, what a guy! I totally buy into this philosophy. As a Gen Wise devotee, you’ll hear time and time again that long term wealth generation isn’t only for you…it’s for the greater good of mankind and the generations that follow. In life and investing, our journey isn’t done when we leave this earth…it’s what we leave behind for the benefit of others that truly matters!
In this sense, investing should be viewed with a multi-generational mindset and time horizon. After all, what better way to prove the power of compound interest than to have a multi-lifetime time horizon!
If you’re not confused, you probably don’t know what’s going on.” ~Charlie Munger
Investing is tough, peeps! If the greatest investors of all time get confused from time to time, don’t sweat it if you feel lost every once in a while too. But no matter how confused you are, don’t give up! Don’t give in to the complacency or laziness that tells you to simply throw in the towel when things get dicey.
Remember the Financial Crises of late 2008 and early 2009? Of course you do. Guess what, everyone was confused…EVERYONE! Those who thought they had it figured out, obviously didn’t!
However, the investors who stayed the course and kept investing through their 401ks or IRA’s came out gang-busters as the stock market has sprung back over the past 5 years to record highs. Those investors saw their money invested in the market at historical lows at the bottom of the cycle in March 2009, and are now reaping the benefits of one of the longest bull market runs in history.
Remember, cycles come and go, and it’s not our job to try and figure out when they’re beginning or ending. We just keep our long term perspective and keep investing for the long haul!
Any more Buffett-isms or Munger-isms you care to share? Comment and let me know what’s resonated with you!