หลังงานประชุมใหญ่ประจำปีเมื่อต้นเดือนที่ผ่านมาแล้วเสร็จลง ท่านวอร์เร็น บัฟเฟตต์ และ ท่านชาร์ลี มังเกอร์ ได้เปิดเวทีพบปะผู้สื่อข่าวจากสำนักพิมพ์ต่างๆทั่วโลกซึ่งก็ได้ตั้งคำถามที่น่าสนใจ เพื่อให้ทั้งสองท่านตอบ ซึ่งทั้งสองท่านได้แสดงมุมมองที่น่าสนใจเกี่ยวกับการลงทุนต่างๆทั้งที่เกิดขึ้นแล้วในอดีต และจะเกิดขึ้นในอนาคตไว้อย่างดีเยี่ยม โดยเฉพาะในเรื่องของการซื้อกิจการรถไฟเร็วๆนี้ ทั้งสองท่านยอมรับว่าตนเองโง่ไปตั้งนาน 3-4 ปีกว่าจะเห็นมูลค่าของกิจการดังกล่าว ทั้งนี้ท่านทั้งสองยอมรับว่าเป็นเพราะทัศนะคติต่ออุตสาหกรรมกิจการรถไฟมาแต่ดั้งเดิมแบบมีความลำเอียงมาตลอด
ต่อไปนี้เป็นบันทึกการให้ข้อมูลผู้สื่อข่าวโดย Jim Gillies (TMFCanuck), Alex Dumortier(TMFMarathonMan), and Matt Koppenheffer (TMFKopp) ทั้งนี้โดย Phil Durrell ผู้เป็น TMFAdmiral ที่ the Fool เป็นผู้โพสต์บันทึกนี้จากเวทีพบปะผู้สื่อข่าว(ไม่ได้เป็นบันทึกแบบคำต่อคำ)
One thing that I noted was the that the number of foreign attendees was a lot higher this year perhaps as a result of the Iscar purchase. Total persons at the press conference up at least 50% (my guess)
Notes from the May 6 2007 Press Conference (not verbatim)
By Jim Gillies (TMFCanuck), Alex Dumortier (TMFMarathonMan), and Matt Koppenheffer (TMFKopp)
Q: Thirty years ago, you told investors to put their money into municipal bonds; now you recommend index funds. If people had done the former 30 years ago, they would have left a lot of money on the table.
Warren Buffett: That [original recommendation] was with a 10-year time horizon, and I gave the estimated after-tax return. I can provide you with a copy of that letter. I recommended that my partners put their money with Bill Ruane, and that has worked out very satisfactorily.
For a know-nothing investor, a low-cost index fund will beat professionally managed money. I have a standing offer to anyone who can name five hedge funds or fund-of-funds that will outperform a low-cost index fund. This eliminates survivorship bias -- no one has taken me up on my offer. The gross performance may be the same, but the fees will eat into that compared to a good index fund, which is almost cost-free.
It goes counter to the interests of almost everyone in the business to promote something with very low fees.
If you look at the performance of Fidelity Magellan -- I don't mean to pick on that fund; Peter Lynch did a terrific job there -- but a lot of that performance came from the early years.
Q: You mentioned your ownership interest in Posco (NYSE: PKX) yesterday. Apart from Posco, what other stocks are you buying in Korea?
WB: We talked about Posco because it met our threshold, which was $700 million this year. Otherwise, we don't disclose our purchases -- it's counter to our interests and to those of people who would listen to us. If you run out to buy a stock simply because you found out that somebody else owns it, that probably isn't a very good idea.
Charlie Munger: Korea is an unbelievable example -- it has come a very long way and it started from real hardship. Korea has no material resources, lousy agriculture, they have been invaded by their neighbors at various times, and they've had a longstanding war that has divided them. It's one of the most heartening stories in the history of the world.
I live in a city that has the largest population of Koreans living outside of Korea -- L.A. has 800,000 Koreans. I really like the Koreans, and they have reason to be very proud of themselves.
WB: Isn't the reason you like them because we made a lot of money there [in Korea]? (Laughter.)
Q: On your succession strategy and the qualities of a CIO.
WB: When Lou Simpson came to GEICO, we paid him a minimal salary, and we paid him [a bonus] based on the percentage of outperformance with respect to the S&P 500 on a rolling three-year basis. We didn't assign him a block of money -- he was able to choose the size of the block of money he was managing. Because of the explosion of money being managed by hedge funds in the last few years, Lou Simpson could have been very much more than he is now. He never came to us and said, "I'm being paid '0-and-10' instead of '2-and-20'" [referring to the standard hedge fund fee arrangement in which the manager receives 2% of assets and 20% of investment gains]. That conversation simply never took place.
We could take on as many as three people initially. If I find three what-look-like-Bill Ruanes, I would probably pay them a pretty small salary -- less than they were making previously -- and a percentage of their returns above the index, but that would probably be on a rolling five-year average. I would give them some $2 [billion to] $3 billion initially, and I'll be looking at three things:
One, although there is nothing wrong with managing these sums, I'll also be looking to see who has the potential to scale up to $100 billion. I will also be looking to see who can "get off the tracks" and look around the corner [anticipate the existence of risks that are known to all]. Finally, I'll be looking at whether the person can invest outside of equities. We have made a lot of money in junk bonds, currencies.
CM: In municipal bonds, too!
Q: You mentioned that you might be considering selling some of Berkshire's holdings to make a big acquisition. Can you comment on that?
WB: We aren't currently contemplating it, but we are always ready to do so. We would put a lot of our cash to work first, but we would be ready to sell some marketable securities if it were necessary to fund the purchase. I have sold stocks [trading] at two times earnings to buy something cheaper -- that was a long time ago, and it's not likely to happen again.
Q: What are the fundamental qualities of your successor?
WB: There are two successor questions. On the CEO front, we had already designated three candidates, and all three of them, in many respects, would do a better job at it than I am (but they don't have 30% of the stock, so they'll just have to wait). Those three people are already known to the board. My successor is steeped in the Berkshire tradition and is tremendously able in terms of both operations and capital allocation.
Intelligence isn't everything. The average IQ in that building in Greenwich, Conn. [the offices of Long-Term Capital Management], was probably over 155, wouldn't you say Charlie?
CM: Yes.
WB: But that isn't enough. The guys at Long-Term Capital Management were extremely intelligent, but they just didn't contemplate what could happen -- they thought the future would look like the past.
You shouldn't operate in the financial markets without being aware of the Great North Corner. I hope you are aware that 25 x 23 x 17 x 20 x ... x 0 = 0; you had better be very aware that about what can introduce a zero in that series [Buffett is referring to the possibility that an investment manager can be wiped out in a single year - erasing all previous gains.] Leverage definitely increases the risk or producing a zero.
Q: [From a South African correspondent] If you could elaborate on investing outside the U.S. What percentage of your assets would you be comfortable holding outside of the U.S.? Any comments on Africa, particularly since much of the work of the Gates foundation is focused on Africa.
WB: I must have told 30 South Africans to call me collect if they know of some business that we might be interested in buying and, in fact, I expect several of them to call. One of them may even already have something of interest. The problem is scale -- we have a market capitalization of approximately $160 billion -- a business that generates $10 million in owner earnings a year and is worth $100 million -- so what? That will hardly move the needle for Berkshire.
CM: If the whole country is a kleptocracy, that make it hard to be a rational investor.
WB: That isn't the case of South Africa, though.
CM: No.
Q: [From Grant's Interest Rate Observer] Why don't you follow your own advice and invest in index funds?
WB: I'm happy to hear that, since we suggested that index funds were appropriate for know-nothing investors. (Laughter.) I don't think we fall into that category -- I would be amazed if we couldn't beat the S&P 500 by a couple of percentage points. We won't do 5 points higher, but we can do a couple of points.
CM: We don't have an iron rule that we have to be invested in common stocks. We think that the combination of things we can do still has reasonably attractive prospects. Nevertheless, it isn't easy.
WB: To transfer our investments to an index fund, we would have $14 billion in taxes, so the performance of the index fund would have to compensate us for that interest-free loan we receive from the government. [Buffett is assimilating the deferral of long-term capital gains taxes to an interest-free loan from the government.]
Q: What are the long-term values you see in the newspaper industry, as opposed to a consolidation play?
WB: The long-term owner will face long-term problems. You will see the drift of ownership of papers toward people who like baseball clubs or sacred trusts. If you want to spend $1 billion on something that has value beyond its economic value, you could buy the New York Yankees, and you would immediately become important. If you buy the New York Times, you become even more important. People will do things and spend money to become important -- it's part of human nature.
CM: We are starting to see a transition like that. There is the case of a woman who got divorced in San Diego, and she went ahead and bought the local newspaper. Some of the integrity that existed in the newspaper business came from their monopoly status -- they had nothing to fear from anybody. If you know that your earnings are going to go up next year by a certain percentage, you don't need to be respectful of anybody.
WB: The worse the economics of the business, the greater the temptation to be less than they should be.
CM: I'll never forget that guy who was the head of the FAA. The Wall Street Journal ran a series of articles on him in which they described his corruption. Do you remember?
WB: Sure.
CM: As soon as the first article was published, that guy was a dead man walking.
Q: [from Business Today Weekly in Taiwan] What is your interest in Taiwanese high-tech companies? Also, have heard rumors that you're buying shares in a Chinese steel company.
WB: We won't be commenting on our buying or selling. As for high-tech companies, change is often wonderful, but perhaps not for investments. We're in the business of seeing the future. In effect, what will the next 25 years look like? If it's too tough to figure out, don't even try.
During the Internet boom, I gave an exam to a class, with but a single question. That is, describe an Internet company, and then tell me what it's worth. Anyone who gave an answer flunked. That's the problem in high tech -- a few will profit, but a lot will have problems, and it's hard to see who does what in advance. We know that Snickers bars will still be sold and do well in 10 years. That doesn't make candy a better business; it's just that we know who the winner is.
In 1903, the auto industry (high-tech of the day) in the U.S. had 2,000 companies. The auto industry effected massive change on people's lives -- now, you've got three companies left, two hanging on by their fingernails, and one up for sale. It's the same story with the airlines. Revolutionized life on earth, yet net, they've lost money. Any self-respecting capitalist would have shot Orville down at Kitty Hawk, and we'd all be better off.
Today, you've got two companies in the world making big commercial airliners [Boeing (NYSE: BA) and EADS], and one of them isn't doing too hot. It's much easier to look at consumer habits, and at companies with big barriers to entry. Gillette was easy -- they had 70% market share, selling to men. Men are easy; women are far more complicated. Men don't like change. So Gillette became the friend of every boy through Cavalcade of Sports [Gillette was a major advertiser], and Gillette kept them into adulthood.
CM: Is it hard to predict that Texas brickyards will be producing the vast majority of the bricks in Texas sold in 20 years? It's obvious. Yet this logic is scorned by MBAs from Wharton.
WB: In 1890, there were about 10 billion bricks produced per year in the U.S. Today, it's about the same amount. We produce about 1 billion of them. In 10-15 years, there will still be 10 billion bricks produced, and maybe we'll be making 2 billion of them -- we'll sneak up on the industry. A great business.
CM: It's a different mindset.
WB: See's Candies -- we bought for about $20 million, it's given us about $1.5 billion pre-tax since we bought it.
CM: It's interesting that the business that didn't shun the brickyards is the one that has the AAA credit rating. You think they'd wise up.
Q: [from Journal de Montreal] Who are your preferred Canadian CEOs?
WB: The CEO of Canadian National Railway (NYSE: CNI) has done the best job of anyone in the railroad industry. [It's not clear whether Buffett is referring to the current CEO, E. Hunter Harrison, or the former CEO who stepped down in 2003, Paul Tellier. I can tell you, as a Canadian, that Tellier has a much higher profile in Canada and is largely considered to be responsible for CN's ascendance. Harrison has been much lower key. -- JG.] Bill Gates was way ahead of us on that one [buying CN], and he's made a lot of money.
CM: It's good the money went to someone who needed it. (Laughter.)
Q: [from the New York Times] Will the new CIOs need to become citizens of Omaha?
WB: Not necessarily. Lou Simpson started in Washington, D.C. After five years, he decided he wanted to be in Santa Fe [N.M.]. More recently, he transitioned to Chicago. It's really not important. What is important, is to go where you can think best. The information is all available everywhere. It's just a question of where you think best.
Say we take on two or three people. Perhaps one might want to live in Omaha [Neb.], fine. If a person has a five-minute commute, versus a one-hour commute, we want them where they think best, and to minimize the frictional costs of life.
Q: [from Jim Gillies of The Motley Fool] You recently took a large stake in railroads, particularly Burlington Northern Santa Fe (NYSE: BNI). You talked a little at the meeting yesterday about how much better the business is today than it was 25-30 years ago. But I look at the price two years ago that was roughly half of what it is today, I know that you [Berkshire] had the cash two years ago, and so I ask, what has changed in those two years?
WB: I missed it. It shows how dumb we were two years ago. Burlington wasn't any different two years ago. I do that time and again. I had a bias against railroads, since they were such a terrible business for decades. I had to get rid of my industry bias.
CM: They were a terrible investment for a long time, and it's tough to break a prejudice.
WB: The past price history means nothing. I prefer not to know the stock price when I'm evaluating an investment. I handicapped horses the same way, I didn't want to know the odds before I had come up with what I thought the probabilities were.
CM: We thought about railroads for a long time and developed a bias. Everybody has this trouble. How could we be so stupid? There's an old German saying, "You are too soon old, and too long stupid." It goes to show you that you can have a lot of stupidity and still end up with pretty good results. But stupidity is inevitable. It happens to everyone.
WB: Some ideas take refuge in your head, though they may be false, such as "stocks are better or bonds are better." It all depends on which stocks and which bonds you're talking about. I should have been thinking about Burlington four years ago. I simply wasn't thinking about them [the railroads] -- there's no excuse.
Q: [from Seoul, South Korea] Do you plan to increase your Asian currency holdings? How do you think of emerging markets?
WB: Generally, emerging markets (and the related currencies) are too small for us; we need to make sizable investments. We believe that long-term, Asian currencies will appreciate versus the U.S. dollar, but who knows when? And with a lot of these currencies, the carrying costs are usually negative. You may have a cost of carry of 4%, grinding on you per year. We do, however, like buying businesses making money in other currencies.
We don't shy away from companies making money in Asian currency. And it's a plus if earnings are in currency other than the U.S. dollar.
Q: [from Financial Times] You talked about drift in the reasons that people seek to own newspapers. Is paying a high premium motivated by non-economic reasons?
WB: Do you think Rupert Murdoch has dome interest in The Wall Street Journal that is not economic? Everyone would pay a little more for Dow Jones and The Wall Street Journal than for a steel mill throwing off the exact same cash flows. Or for a brickyard making the same cash flows.
There are certain assets -- sports teams, newspapers, movie studios -- that have a "psychic income" -- power, ego, influence -- and that's something that people will pay for. So, you can calculate the theoretical value of an asset -- that being the discounted sum of the cash flows it will produce forever, but then there's the "B" value on top of the discounted cash flows -- that the "B" value of owning Dow Jones is huge. There are all kinds of people interested in The Wall Street Journal ... they just don't all have checks that would clear.
Q: [from a French paper] Have you considered investing in France? Your opinion of the business environment?
WB: It's a matter of record, we own a little stock in Sanofi-Aventis (NYSE: SNY). We're totally open to a good-sized business in countries like France, Germany, the U.K., etc.
Q: [from Chosun] China is getting bigger, much faster, and becoming one of the dominant powers, even in financial markets. We saw what happened with the Shanghai market earlier this year. How you do size up the Chinese economy, and how do you account for risk?
WB: We're going to open a large Iscar plant in China in October. Coke (NYSE: KO) -- China is the fourth-largest market for them. Fruit of the Loom, we buy from China. We buy a lot of furniture from China -- they're a huge supplier for us.
I look back at 1790 - there were less than 4 million people in the U.S. and 290 million in China. What happened? The U.S. today has 25% of the world's GDP, not because we were smarter or more fortunate, but because our production of goods was better. China has caught on fast with respect to their untapped potential. They haven't ignored the rest of the world the way they did. They're starting to use that untapped resource.
There's no reason that those people in China couldn't have done as well as we did in the U.S., but the system didn't allow it.
CM: They had a system that decreased the potential of their own people. They also had so many people for that time that they were butting up against the carrying capacity of their environment. They didn't have a wide-open continent like we did in North America [the Native American population would have argued this point. -- JG] But that's over.
WB: We like businesses that will travel well. Iscar -- now in over 60 countries. See's Candies doesn't travel well -- it does well in its native environment, California. Coke travels extremely well. Dr. Pepper has huge market share in its home area (Texas) but has insignificant share in, say, Boston. It's interesting to see what does travel, and what does not. It's really interesting to consider what will travel to China. And we like earnings in currency that we think will appreciate.
Q: You've said that pharmaceutical stocks are in the "too hard" pile. So why are you now in Johnson & Johnson (NYSE: JNJ)?
WB: Well, Johnson & Johnson is more than pharma. We understand Johnson & Johnson. We don't understand who's going to come up with a blockbuster drug next.
CM: They don't, either. (Laughter.)
WB: You could have a situation where we'd buy a basket of pharma stocks.
CM: We've done something like that in the past with respect to banks and newspapers.
Q: You like to drink Coke. You look so strong and healthy. How long are you planning on working at Berkshire?
WB: I like lots of calories. I've never smoked. Never drank. I have a no-stress job. (Laughter.) I'm surrounded by people I love. What could be better? If everything is favoring you, what can be bad.
CM: He's also related to people who lived a long time.
WB: I did eventually buy my mother an exercise bike when she was 80. I figured, the longer she lived, the better it portended for me. (Laughter.)
