Active Investor Conferences

Last week, I did a podcast which included some commentary on Warren Buffett who has been an extremely important hero for me and an unofficial mentor. The media, as they sadly often do, twisted my words about Buffett to create the impression that I "had taken a shot at him." In short, I was asked a few questions about Buffett including why Berkshire was holding so much cash, why we had sold Berkshire during Covid and thereby owned the stock for a relatively short period, and whether our approach to corporate oversight is more Buffett or Greg Abel, Buffett's CEO heir apparent. I explain my remarks below: Why I Believe That Buffett is Holding So Much Cash The reason I believe that Buffett is holding so much cash is that he has found it difficult to find businesses he likes at prices he likes in light of current market conditions. On the podcast, I explained that: "But Warren sort of has this price discipline where if it trades for more than 10 times operating income, no matter how good the business, he won't buy it and that's worked really well for him for 60, 70 years. Why should he change?" This was not meant as a criticism. It was simply an observation of Buffett's approach, which has led to arguably the best long-term investment record ever. On Why We Sold Berkshire During Covid I explained on the podcast that we sold Berkshire during Covid because we found better things to do with our capital. Again, this was not meant as a criticism. While Berkshire stock declined significantly during the Covid crash, other businesses we knew as well, traded to even larger discounts to intrinsic value, so we redeployed capital from Berkshire to those companies which included Hilton, Loews, Restaurant Brands and others. As I said on the podcast: "We probably lost more money on Berkshire, ironically, than almost anyone else because of the scale of our investment, and we sold part of the stake back to Warren, by the way. We wanted to at least contribute to Berkshire's intrinsic value. We could redeploy the capital in Hilton at $55 a share and Lowe's at $70, and other businesses, and that turned into a very good decision. So the benefit of owning liquid securities is you can sell a 70 cent dollar to buy a 40 cent dollar. And that's what we did, and maybe some at 30 cents." On Our Approach to Governance Buffett vs. Abel On the podcast, I said: "We bought Berkshire because we thought it was very cheap and we're Warren Buffett fans. And even after Buffett passes and I hope he continues to live forever and he's doing a pretty good job on the forever part I think the next generation of leadership is very good and I think they'll be that much more disciplined. There's a lot of value to be extracted in running the businesses that Berkshire owns better, so that itself was a pretty good story. Our job is to oversee how's management doing, make sure they have the right incentives, make sure they make the right capital allocation decisions, but we view our job as more chief capital allocator. Maybe we focus on designing compensation incentives and then making the hard decision sometimes to replace a leader, but we don't run the business. Greg Abel, I think I was more of an operator. Now you're going to have more of an operator in charge of Berkshire and I think there's a lot of value that can be created at Berkshire with better operations. I mean Burlington Northern, for example, is the biggest railroad but it's probably the least efficiently operated of all the railroads years ago. I think the next generation of leadership will be a little more disciplined about making sure the right people run the companies. But we view our role as capital allocation, certainly beginning of life of this company, identifying transactions, executing on them after we do proper due diligence, making sure the right person is running them, giving the right incentives and letting them do their thing." The press interpreted my above remarks as critical of Buffett when they were not intended to be. Buffett has taken a pretty hands off approach to overseeing the management of his companies. I don't think he likes firing CEOs, and he has built many decade relationships with his CEOs and the families that run businesses that he has acquired. He values those relationships over the incremental economics that could be extracted if a better operator were running those businesses. In my commentary, I was explaining my view that the next generation of Berkshire leadership is likely going to be more focused on improving operations, and won't have the same relationship history that has likely constrained Buffett from taking more steps to improve operations. Again, this was not intended to be a criticism of Buffett. In fact, there is lot of good to be said about the loyalty he has shown to the leaders he has hired over time. I thought the podcast was excellent and I encourage you to watch if you are interested. My only critique is that when I reviewed the transcript this morning, I realized that the podcaster, Jonathan Boyar, had cut and pasted the interview and put all the Buffett commentary together, which may have changed, perhaps subtly, the impression the original would have conveyed. I believe that podcasts should be largely unedited real time recordings of what was said (subject on occasion to compliance-related editing) so I was surprised when I read the transcript in that it did not match my recollection of how the interview transpired, which may have contributed to any misimpressions. I have asked Jonathan Boyar to release the original interview without the cutting and pasting so that my views can be better understood.