Talk on Warren Buffett at Invest Fair 2012

I attended a seminar by Robert Miles at Invest Fair 2012 that was held on 8th April 2012. Robert Miles “is an internationally acclaimed keynote presenter, author and distinguished authority on Warren Buffett and Berkshire Hathaway” (extracted from Invest Fair 2012 site). His talk was entitled: “New at Warren Buffett’s Investment Holding Company: How It Can Super Charge Your Portfolio”.

I will summarise his talk below. My own views are stated in brackets:

• Only 5% of the world’s investors follow Warren Buffett’s value investing style. (This presents a huge opportunity for those following the value investing methodology during a crisis. I quote an observation by Seth Klarman, the author of Margin of Safety, “So if the entire country became security analysts, memorized Benjamin Graham’s Intelligent Investor and regularly attended Warren Buffett’s annual shareholder meetings, most people would, nevertheless, find themselves irresistibly drawn to hot initial public offerings, momentum strategies and investment fads.  People would still find it tempting to day trade and perform technical analysis on stocks.  A country of security analysts would still overreact.  In short, even the best trained investors would make the same mistakes investors have been making forever, and for the same immutable reason – that they cannot help it.”)
• Robert Miles showed us Berkshire’s annual returns arranged (can be obtained from the latest Annual Report of Berkshire) according to percentage returns. It was seen that Berkshire’s value-added years were during down years for S&P 500 and vice versa. Berkshire made lots of money during a crisis and made lesser money during euphoric times. (Warren Buffett’s “Be greedy when others are fearful and be fearful when others are greedy” rings true)
• Robert Miles did a small demonstration on how erratic the stock market can get. He asked the audience if he’s selling a device that can produce $1 per year for 10 years, how much will the audience pay. He asked the audience to shout out the prices. People bid for the device and it started going crazy till it was “sold” for more than $200. The lesson behind this is that the stock market is an auction and it wants participants to be emotionally involved. Why would anyone pay more than $10 for this device? In the stock market, people buy overvalued companies and hope to sell even higher. This is pure speculation.
• Every investor should know how to value a business and how to think about market prices.
• Warren Buffett looks for companies with consistent earnings, ROE above 15%, no debt, honest and competent management and with a simple business.
• 62% of Berkshire’s holdings is in 5 stocks – Coke, AMEX, Wells Fargo, IBM and Gillette (now owned by PG). Concentrate your holdings and don’t diversify too much.
• Warren Buffett bought into IBM – his first foray into the technology sector as IBM’s business is predictable and will still be around 10 years into the future.
• Non-productive assets like gold and silver are traded based on fear and they are highly speculative. Robert Miles then showed a cube with dimensions of 19.2m. He said all the world’s gold can fit into this cube. The same amount of gold can buy all of America’s farmland, plus 16 Exxon Mobils and there will still be about $1 trillion left over. He asked the audience to decide which is more worthwhile. (This was actually covered in Page 19 of the latest Berkshire’s Annual Report)
• Several myths of Warren Buffett and his style of investing – Warren was lucky and his achievements cannot be duplicated; one needs to pick the same stocks as Warren to do well; Warren has access to special deals; one needs to invest in private companies, bonds and currencies; one needs to be an expert in more than equities
• Lou Simpson beat Buffett’s record from 2000-2005. He invests for the long-term (3 – 5 years), does not diversify, thinks independently, buys high return businesses and pays a reasonable price even for a wonderful business.
• Warren’s advice to Todd Combs and Ted Weschler – understand what is predictable and understand what is unknowable.
• A company has moat if the company doesn’t have to conduct a prayer meeting whenever it raises prices.
• Coke has moat and Warren Buffett has this to say about Coke – “If you gave me $100 billion and said, ‘Take away the soft-drink leadership of Coca-Cola in the world’, I’d give it back to you and say it can’t be done.”
• Warren Buffett bet that the S&P 500 stock index will outperform hedge funds over 10 years from 2008 – 2017. More info can be found here.
• Best CEOs think like business owners.
• Berkshire Hathaway’s intrinsic value calculator can be found here. The calculator just gives a rough figure of the intrinsic value of Berkshire and might not be accurate.
• Another way to know if Berkshire’s stock is undervalued is to look at when Warren buys back his shares. He said he will buy back whenever his company is trading less than 110% of book value.

After the talk, I quizzed Robert Miles about discount rates used for valuing companies and if Warren looks at beta of a stock. He said that Warren uses a discount rate of 11% and he doesn’t accept any returns lesser than this.  Warren doesn’t look at beta as volatility should be your friend and you should not penalise a stock just because it’s volatile.

Below is a copy of the handout given at the talk:

Lastly, an entertaining video below for all you readers, taken at his house. Do pay attention to the background.

P.S. I have also interviewed Robert Miles. His exclusive interview will be posted on 15th May 2012. Do keep a lookout for it!