Topics include election of directors, bid for LTCM, history of hedge funds, 1998 financial crisis, float-based evaluation model, disbanding Berkshire Hathaway, investing in Chinese companies, big bath accounting, Berkshire's inclusion in S&P 500, analyzing Japan's recession, stock price and institutional investors.
The impact of the internet on the retail industry varies depending on the sector, with brand names playing an important role in online sales.
Float is crucial for insurance companies as it can be used for financing, but it's necessary to differentiate between cheap float and other financing options.
Options should be treated as a compensation cost in the income account, and corrupt accounting practices should be addressed early on.
When investing in equities outside of the US, Berkshire Hathaway considers factors like transparency, market breadth, shareholder rights, and currency stability.
Berkshire Hathaway believes in the long-term growth prospects of Coca-Cola but remains cautious due to the high current P/E ratio of leading companies.
Deep dives
Business meeting proceeds with Berkshire Hathaway directors and shareholders
The podcast episode discusses a business meeting of Berkshire Hathaway directors and shareholders. The chairman, Warren Buffett, introduces the directors and provides updates on the company's shares and proxy holders. The meeting focuses on electing directors and conducting the business of the company. Afterwards, questions from shareholders are entertained. The episode highlights the decentralized nature of Berkshire Hathaway's subsidiaries and their individual compensation practices.
Warren Buffett discusses the impact of the internet on retailing
Warren Buffett talks about the impact of the internet on the retail industry, noting that while it may revolutionize certain sectors, it may have less of an impact on others. He highlights the importance of brand names in online retailing and mentions that Berkshire Hathaway's jewelry business, Borsheim's, is well-positioned to benefit from online sales due to its trusted brand. Buffett also acknowledges the challenges that the internet poses and emphasizes the need for retail businesses to adapt and stay competitive in the changing landscape.
Warren Buffett explains the significance of float in finance
In response to a question about financing methods, Warren Buffett explains the importance of float, especially for insurance companies. He clarifies that if an insurance company has cheap float, it can use it for financing rather than issuing bonds. However, he notes that if the company has already utilized all the float and still sees attractive opportunities, it might consider borrowing moderate amounts of money. He also mentions the need to differentiate between cheap float and other forms of financing.
Warren Buffett discusses the issue of stock options and accounting
Warren Buffett addresses the issue of stock options and accounting, stating that options should be treated as a compensation cost in the income account. He criticizes the corrupt accounting practices in corporate America, which attempt to downplay the true cost of options and restructuring charges. Buffett believes in rational and honest accounting, and emphasizes the importance of addressing the issue early, as it becomes more challenging to change the system once corruption becomes embedded.
The importance of understanding the accounting system and corporate governance in foreign markets
When considering investing in equities outside of the United States, Berkshire Hathaway places importance on factors such as transparency of the accounting system, the breadth and liquidity of the market, the rights of shareholders, and the stability of the currency. They consider these factors as they assess potential investments in various countries, including Japan, Germany, France, and England. The accounting differences in foreign markets do not bother them as long as they understand the accounting system in each country.
Coca-Cola's earnings and market conditions
Berkshire Hathaway is not worried about Coca-Cola's earnings being affected by emerging markets or the strength of the dollar. While there may be short-term fluctuations due to currency translations, Berkshire believes that the long-term growth prospects for Coca-Cola are strong, given its strong brand and global presence. However, Berkshire does find the current P/E ratio of Coca-Cola and other leading companies to be high. They have a more cautious stance on investing in these companies at current valuations.
Berkshire Hathaway's unconventional investments
In the past, Berkshire Hathaway made unconventional investments, such as purchasing silver. However, the company has decided not to disclose specific unconventional investments unless they become significant enough to warrant disclosure or if regulatory authorities require it. Berkshire Hathaway aims to provide transparency to its shareholders about its investment decisions, but also respects the need to protect sensitive information when appropriate.
Importance of Stock Ownership in Street Name
Having stock in your own name is advantageous in terms of receiving shareholder reports and accessing information promptly. While mailing reports to shareholders of record is under control, the distribution of reports for shareholders with stock in street names can be unpredictable and delayed. To ensure reliable and prompt access to important information, owning stock in your own name is recommended.
Criticism of Questionable Business Practices
Warren Buffett and Charlie Munger express their disapproval of certain business practices but refrain from naming specific companies. They believe it is more effective to criticize practices rather than publicly calling out individual corporations. Examples of the criticized practices include manipulating accounting charges to inflate future earnings, hiding compensation expenses, and engaging in deceptive accounting methods. Buffett and Munger emphasize the importance of maintaining ethical standards and are in favor of stricter regulation to prevent such practices in corporate America.
