Summary of the Presentation at the Cincinnati NIRI Chapter Meeting on December 7, 2010
JEFF MATTHEWS – PILGRIMAGE TO WARREN BUFFET’S OMAHA:
A HEDGE FUND MANAGER’S DISPATCHES FROM INSIDE THE BERKSHIRE HATHAWAY ANNUAL MEETING
At the Cincinnati Tri-State Chapter of NIRI meeting on December 7, 2010, Jeff Mathews provided his views of how Warren Buffett and his partner, Charlie Munger, have managed to grow Berkshire Hathaway in 42 out of the last 43 years. Below are some key insights from Jeff’s comments.
- What is Warren Buffett's key personality trait that makes him so successful? – He is highly rational with every decision he makes.
- What caused Buffett to declare financial derivatives "ticking time bombs" five years before the rest of the world became aware of their dangers? – In his annual letter to Berkshire Hathaway shareholders in 2002, he warned shareholders about his concerns, "Unless derivatives contracts are collateralized or guaranteed, their ultimate value also depends on the creditworthiness of the counterparties to them. In the meantime, though, before a contract is settled, the counterparties record profits and losses – often huge in amount – in their current earnings statements without so much as a penny changing hands."
- How has Buffett prepared Berkshire Hathaway for periods of financial crisis? – He has continued to buy stocks; He has the ability to buy when either no one else wants to buy or lacks the ability to buy.
- What hidden weaknesses might lurk within Berkshire Hathaway after 43 years of Warren Buffett's management? – After buying companies, it uses the cash they generate to fund additional purchases rather than reinvest in the individual business from which the money was generated.
- What role has Charlie Munger-"The Abominable No-Man"-played in Berkshire's success? – He led him to the purchase of See’s Candies, which lead to many more acquisitions. Charlie has the view that good businesses will throw cash at you, while bad businesses will always be a struggle.
- Most importantly, will Berkshire survive without Warren Buffett? – Yes, he has been channeling money into operating businesses. In 1997, stock was 2/3 of the assets, today stock is 15% of the assets and the rest is an operating conglomerate. Going forward, the company will "not be your father's Berkshire", but it will survive.