Berkshire Hathaway 2019 Annual Shareholders Meeting – Buffet and Munger Explain Berkshire’s Risk Model, Why Tesla Insurance Won’t Work, and Reflect on Their Relationship

These notes are from a brief section of the Q&A portion of the 2019 Berkshire Hathaway Annual Shareholders Meeting.All questions are addressed to Warren Buffet and Charlie Munger.

Key Takeaways

  • Tesla car insurance won’t work
    • “The success of the auto companies getting into the insurance business is about likely as the success of the insurance companies should they get into the auto business” – Warren
  • In 60 years as partners, Warren and Charlie haven’t had an argument
  • Warren’s advice for finding a good business partner – “Look for somebody better than you are and then try to be like they are”

Berkshire’s Discipline/Risk Evaluation Approach

  • Warren
    • “We don’t have any formula that evaluates risk, but we certainly make our own calculation of risk vs. reward in every transaction that we do”
      • “And sometimes were wrong, and we will be wrong a lot more in the future. You can’t make a lot of decisions in this business without being wrong.”
        • “We don’t think our results would be changed favorably by having lots of committees and lots of spreadsheets”
        • “If I had a group under me, they’d try to figure what I wanted the answer to be and just tell me what I wanted to hear”
    • “We have no formulas around Berkshire”

Thoughts on Tesla Getting Into Insurance

  • As background – Elon Musk said that Tesla is going to start offering insurance for their cars, priced better than typical insurance companies because of all the data it collects from vehicles on the road
  • Warren
    • General Motors actually had an insurance company for a while called “Motors Insurance Company”
    • “The success of the auto companies getting into the insurance business is about likely as the success of the insurance companies should they get into the auto business…it’s not an easy business, at all. I would bet against any auto company in the insurance business.”
    • On many car companies reducing their retail footprint (like Tesla), switching to only online sales:
      • “I don’t think it destroys the auto dealer who takes good care of their customers. It’s not an overwhelming threat, but it’s obviously going to be around for a while and will certainly sell some cars.”

Warren and Charlie Reflect on Their Relationship – How do they deal with conflict?

  • Warren
    • “In 60 years, we’ve never had an argument. We’ve disagreed about things certainly, but as far an argument, when emotion starts entering into it or anything of the sort, it just doesn’t happen.”
      • “Sometimes we both think we’re right about something and generally I get my way, mainly because Charlie is willing to follow suit and he’s never second-guessed me”
      • “We’ll never have a conflict”
    • “Having the right partners in life, particularly the right spouse, is enormously important”
      • You get more accomplished and just have a better time doing it
    • Advice on finding a good business partner – “Look for somebody better than you are and then try to be like they are”
    • Warren and Charlie came to know each other when Warren was 28
      • They grew up very closely but hadn’t really gotten to know each other until then
      • For more on their history, check out the book – Poor Charlie’s Almanac
    • “We’re in sync with how we see the world, and definitely on business decisions

Circle of Competence

  • As the world is changing faster and faster, should we expand our circle of competence over time, or stick with the existing circle, but risk having it shrink in such a changing universe?
  • Warren
    • “Under any conditions, you should change your circle of competence if you can”
    • But – you can’t force it
      • “Don’t think you have to increase it and therefore start bending the rules”

Rates of Return

  • Warren has said in the past that in managing a $1 million portfolio, he could achieve a 50% annual return …”with essentially no risk”
    • “But if you raise it to $100 million, that 50% drops like a rock”
    • They don’t really expand how they’d do this
  • Charlie adds – “It gets harder as the amount of money increases”

Random

  • “To write 1 great book is a lot to do in one lifetime! People aren’t holding back on you when they don’t write another, it’s hard!” – Charlie

These notes were edited by RoRoPa Editing Services

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