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The following are the notes I took at the “Morning With Charlie” event this morning in Pasadena, CA. Sorry for the short hand and paraphrasing used throughout, I am a little out of practice taking notes during lectures. Overall, it was an excellent meeting full of wit and wisdom from one of the most wise men on Earth. Enjoy!!

On the merger of Wesco with Berkshire:

“ This is the desirable outcome we have always wanted but just wasn’t feasible.”
- Mentions that half of the Wesco shareholders went with shares of Berkshire, the other half took cash.

On the power Berkshire holds but doesn’t use:

“ How nice it is to have a tyrants strength, how wrong it is to use it like a tyrant.”

On lollapalooza:

“Almost always come from a confluence of factors going in the same direction from different academic disciplines”

On Academic Economics:

“Current economic doctrine is treated as definitely as physics doctrine, although it is no where close to being as concrete”

- Talks about pricing used by movie theater concession stands and car dealers. Explains that consumers hardly notice the abuse of prices due to the high price of the car/entry.

- Charlie talks about Keynesian tactics and how the tricks do not work as well when everyone knows you are playing them.

- Does not believe Americans would be as good at handing a situation like Japan economics.

- Stresses the need to use checklist techniques when approaching a problem.

On competition:

“ Competition in capitalism causes the most power and advantage to go to the most competent.”

- Talks about the purchase of Blue Chip Stamps and its eventual extinction. Talked about recognizing the need to use the float to purchase something as the company become extinct. Mentions only three purchases were made in decades.

-Says most companies making acquisitions hurt shareholders. Mentions that Berkshire and Wesco did not lose in this case.

-Emphasized patience being key. Also talked about purchasing individual securities rather than whole companies being beneficial earlier on at Berkshire.

- Mentions the worst thing that happened in terms of acquisitions was Wesco.

-Envy is most stupid ; can’t have much fun with it

-Talks about the purchase of See’s Candy. Says WEB and himself did not fully understand the power of brands. Over the years of raising prices and seeing no resistance, huge shift in mentality.
- Berkshire was massively ignorant at the start; massive failure and loss.

On the Great Recession:

- The Great Recession is somewhat like Japan. Says the “asinine bubble” was caused by insanity and evil on the part of mortgage bankers, investment bankers, etc.

- Investment bankers had huge advantages and did not want to give them up. Makes correlation with casino games.

- Situation was helped by the lack of responsibility and accountability of accounting individuals.

- Refers to Jamie Dimon as being the only outspoken individual on accounting.

- Talks about Bernie Maddoff and his lack of contrition. Maddoff says to fellow inmate, “I kept that guy flush for 25 years and in turn I am now doing 150.”

- “If you use government credit to borrow, there ought to be rules keeping you doing simple things that are safe for the government.”

- In Korea and Mexico, derivatives killed many companies. Says we do not need this type of inventionism in the US. Also says we do need government regulation.

-Mentions he is a Republican who admires Elizabeth Warren.

On the Current Investment Scene:

- Bonds paying very low interest; lousy.

- Mentions Europe is finally having an “adult” experience.

- Common stocks carefully selected will return a modest amount

- Computer program investing is like letting rats loose in the grainery.

- Does not like the message of no tax increases period. Also does not like the response of solely taxing the rich. Says we need a moderate tax system.

- “Hard to be optimistic in the current political state, though is mildly hopeful it will change in the future.”

- Combination of patience and opportunism is so beneficial. One needs to be ready when opportunities come, and cannot be timid when big opportunities arise. Talks about how quickly Berkshire jumps on opportunities.

Question and Answer Session:

-At your point in life, what are the three most important parts of your legacy?

Most people who try to follow my example will end up unpopular and unsuccessful. Follow life long learning. Don’t emulate my attitude. Self discipline, basic morality, objectivity.

- Has the WSJ deteriorated since Murdoch took over?

Likes the WSJ, never liked the editorial page. Likes The Economist, thinks it is the best magazine for his interests.

- Would it be a good thing for CA to become a single chamber state?

One cabinet legislature is not good. Agnostic on the subject.

- Can you recommend 3-5 authors regarding mental models?

Don’t think I can answer that.

- What are your thoughts on ETFs inn comparison to mutual funds?

I never look at them. Approves of low cost ETF funds. Does not think about them because he doesn’t invest in them.

- Why do you stand by while others criticize you?

I am crazy.

- On the two column approach at Berkshire…

It is hard to buy businesses and securities. Pays liberal prices when buying business. Does not necessarily get businesses for cheap. Returns cannot reflect the past due to the size of Berkshire. “I think those who own Berkshire at current prices will do quite alright while sitting on their butts.”

- What advice do you have for successfully developing a family?

Soldier through adversity. Quitting under adversity brings contempt. Coping with adversity is an opportunity. “Woe is me is not the route to take”

- Asked about BYD valuation being an opportunity….

Early developing high technology company is difficult. Admires the culture. Will hold his BYD stock, even if to the bitter end, because he likes the people. Can’t constructively answer the question.

- On inflation….

Obvious to have significant inflation over 50 year period. Says this is more of a success story than a failure. Says a failure is significantly worse. Greece is contemptible raising all this h*ll about experiencing adult life. If he was running the EU, he wouldn’t have taken in Greece. Cannot allow major banks to fail. Shareholders can be wiped out, but depositors need to be saved. Believes Paulson, Bush, and both parties handled the situation well during the recession.

- Is there hope for engineering companies?

Subject I don’t think about. Hard to see Google not having a strong position.

- Have you added social value in your financial activities?

Pick securities that will go up and sit on you’re @ss. Only difference between others, I am ashamed of it.

- Have you helped your children financially?

Of course. Lose graciously. They may not be as motivated as a poor individual trying to make it, but can be successful and contribute.

- Which economic entities in history are most similar to Berkshire?
General Electric and Standard Oil. Both in the right place at the right time. I do not know what the next Standard Oil is.

- What are BYD’s competitive advantages?

Likes their hard work on engineering problems. Likes that when they fail, they press on harder.

- Would you like to see more value investors buy large stakes and proxy to take boards over?

Doesn’t like entrenched management, but doesn’t like vultures raiding. Would rather endure current evils than more raiding.


- Advice on how one should prioritize stages of life….

Continuous improvement. People shouldn’t be a total greedy jerk all their life, then be nice at the end.

- Will you be doing this meeting next year?

No. We need to find a new cult hero.

- If you were college age and had 20 years to become an expert, what would it be in?

Do what you are interested in. Passionate work. A man is a prisoner of his talents.

Take the best hour for yourself and use it for self improvement.

- Is Coca-Cola as good a business as it was 20 years ago?

No, but compared to others, it is a very good business. Its strategy to take its distribution lines and pour new drinks down them is a very good strategy. Expensive items encourage competition to knock you out, but low cost items like coke do not. “If I were investing for pension funds, there wouldn’t be a single account without KO in it.


---One certain path to failure is to be unreliable. Does not like having his calendar full.

- On Berkshire Annual report statement of beating average by a few %…

Doesn’t think it is unrealistic. Might not happen with just large common stocks, but with people approaching BRK with businesses to buy.

- Being famous, does it improve your ability to do what you want?

Only wants to impress people like those in the audience, which is a good thing because we are the only ones he does impress.

- Prospects of Berkshire dividend…

Some of us will live to see it. Hopes he doesn’t because it means BRK isn’t reinvesting at higher rates.

-How to evaluate competitive advantages…

Evaluate all factors available in the time given. Stick to what you know.

- Are there parallels between the collapse of the Roman Empire and the current US situation?

Every great empire ends; failure rate of 100%. Everyone must pass the baton. The great things from each empire endures in the next. If China becomes the next most powerful nation, some aspect of the US will be there.

- On unemployment…

I will be flabbergasted if it bounces back to previous levels. Will be a considerable problem for a considerable period. Favorite word: Gumption

- On improving unemployment…

Chinese competition has affected employment opportunities. Investors must keep outside competition in mind. A big problem we have is that Asians are so darn smart. We do benefit by cheaper goods, but the side consequence is competition and less employment. Likes seeing the comeback of many Asian countries.

- What company and CEO do you most admire?

Costco is the most admirable capitalistic organization in the world. Senegal is in the top 4 best retailers of all time. Costco will take a lot of ground in the future. Unfortunately, Costco sells at 25 times earnings; nosebleed prices. If you are comfortable with 25 times earnings with slow advances, it’s a good choice. Thinks everyone should get Costco’s annual reports.

- If you were managing a $10 million fund, how much would you have in cash?

I am managing one that’s a little bigger, and it has less than $10 mill in cash. ( Do not know if this actually means a much larger account, was kind of confused on this one)

- How would you select an investment manager without prior results?

BRK has had current experience with this, and it is very difficult. Must find a person’s niche and put them there. Knows only one young investment person who can scale. Does not like the manager’s manager concept. Easy to know the ones to totally avoid.

- With all the recent natural disasters, will the insurance industry continue as usual?

It will continue to be a mediocre business. It will always attract more people who do stupid things with premium float.

- On ethanol..

One of the most asinine ideas ever.

-On renewable energy…

With wind and solar, we will have enough energy to make up for the depletion of oil and coal.

- Asked about Berkshire succession….

I am a bold and crazy man, but I am not that crazy to comment on that.

- Is private school worth the tuition compared to public schools?

Two different educations. Concludes his public school education was good enough. If you have a talented child, they must get that education.

- Advice for judging management…

There are not many people who have the incentive to succeed like those at Iscar. It is easy when the people are off the wall wonderful. If you are not frustrated by what you see, you don’t understand it.

- Banks like Wells Fargo are better at managing risk than most…

You have to make due with what is available. Feels more comfortable with bankers who can admit they had their heads up their rears and are living with their mistakes.

- On Level 3...

I have never looked seriously at L3. It is in my too tough file.

- On Benjamin Franklin…

“When citizens of the Republic learn they can vote money, the end of the Republic is nigh. If Ben was around now, he would have this large and in bold. If we had compulsory voting in America, it would ruin us.


Again, these notes are pretty rough ad raw. I hope you are able to take something from them and put them to good use.

Kyle
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