Skip to content

Woodstock for capitalists

Our office just returned from the annual Berkshire Hathaway shareholder meeting where we heard first-hand from Warren Buffett, the World's Greatest Investor. It's a glorious weekend that is dubbed "Woodstock for Capitalists.

Our office just returned from the annual Berkshire Hathaway shareholder meeting where we heard first-hand from Warren Buffett, the World's Greatest Investor. It's a glorious weekend that is dubbed "Woodstock for Capitalists." This year 37,000 people from across the globe were in attendance.

This was my 10th pilgrimage to Omaha. It's the second time Meagan has been down, and Niko's first experience at the celebrated event. Over the next few weeks we will report on our personal experiences from the meeting.

The basic format of the event is a pure question-and-answer session. For roughly six hours Buffett, and his partner Charlie Munger, answered questions from Berkshire Hathaway shareholders on investments, the state of the economy, public policy, solar power, or whatever else that people wanted to ask them. Here are some of the highlights:

When asked to comment on the situation in Greece, Buffett responded that he isn't concerned about it affecting Berkshire, but what we can't forget is that what happens in Greece could have an effect on the world and on the US. Munger added that Greece is an interesting problem. What's happened in the past is that the conservatism of the United States has given the USA a wonderful credit status in the eyes of the world. It helped win World War II and it helped revive Japan and Germany after the war. It has ensured prosperity in all these decades that Berkshire has flourished. Now all governments have less credit and Greece is just an example of a country that pushed its credit too hard. You need credit for society to function and when you blow it, it's not a good thing. Responsible voices are now seeing the trouble in government credit; more than they have been previously.

When asked "what is the biggest challenge facing US economy relative to other countries, and what are the implications for investors?" Buffett replied that the major threat isn't economic, but rather a chemical or nuclear attack. In one year there is a small probability of such an attack, but over 50 years the probability is very high. Having said that, Buffett followed by saying that the USA unleashes human potential more than any country in the world. We live differently because this system has enabled ordinary people to do great things. This game is not over-- humans can achieve a lot more. In the 1790s people had no idea of their ultimate potential and this is still true for us today. He would be perfectly content if Berkshire were forced to limit its investments to the USA. He would rather have the whole world to invest in, but he will not run from the USA because there will be ample opportunities going forward.

Buffett and Munger were asked to share their current thoughts on the risk of inflation in the USA. Buffett said he has always worried about inflation. Munger added that the US dollar has depreciated by 90 percent since 1930, but it has not been the end of the world for the US economy. Buffett believes that the chances for significant inflation are high for the whole world. Governments have embraced things that could lead to inflation. He worries that the weaning off of the medicine may be worse than the initial illness. There is no way that countries with high deficits relative to their GDP will not see the diminution of their currency value over a period of time.

In October of 2008, before the markets began to recover, Buffett wrote a famous piece titled "Buy American, I am." At the time he said, "A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation's many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now."

Now that the markets have recovered substantially, Buffett was asked if he was still optimistic about the prospects for the US stock market. He said that there have been only a few times in the last 30 or 40 years that has he declared his opinion about the market as a whole. He doesn't know what the market is going to do next week, next month or next year. He just thinks that he would rather own US equities than 10- or 20-year bonds. This is partly because he is very bearish on the alternatives. He believes that the alternatives are only likely to provide modest real returns over time.

In a similar question, Buffett was asked that given that we are not out of the woods yet in terms of the economy and the financial system, how he would assess the current buying opportunity for stocks. He said that he has seen some times when undervaluation screamed at him and when overvaluation screamed at him. For the most part he believes that we have been somewhere in between. Right now we are somewhere in between.

He also said that in terms of being scared during the depths of the market lows, if you can't handle the ups and downs, and have the right temperament, then you won't make much money in the investing business. People are focused on the quotes for stocks on a daily basis. But you wouldn't buy a farm and think about what it could be sold for on a day-to-day business. People who own a farm don't think that the market price for farmland is "telling" them something on a day-to-day-basis. What counts is buying a business at a great price and forgetting about it for a long time.

Buffett and Munger were asked to explain their general optimism for the US in the face of the numerous problems that the country appears to be facing. Munger thinks that the main problems are energy related, and solutions will be found. The fact that there is a solution on the way is not a small benefit to humanity. So Munger is hugely optimistic for the future. He believes that there are terrible problems in the world, but he takes pleasure in the potential for India and China. He says "I can be optimistic even when I am almost dead. (Munger is 86.) You guys can deal with some inflation."

The opinions expressed are those of Brad Brain, CFP, R.F.P. CLU, CH.F.C., FCSI. Brad Brain is a Certified Financial Planner with Manulife Securities Incorporated, Member CIPF and with Manulife Securities Insurance Agency in Fort St John, BC. Brad Brain can be reached at brad.brain@manulifesecurities.ca or www.bradbrainfinancial.com.