Impressions from Omaha

Impressions from Omaha

Together with my good friend Christer Hagberg, I set off for Omaha again in late April following a two year hiatus. If we needed any more confirmation that meeting in person is better than on screen, this was it; conferences, meetings, drinks (quite a few of them) and dinners and – most importantly – real interactions with real people. Here are some of my impressions from the week. I hope to see you in Omaha next year!

Common themes

 Given the large and increasing number of events in Omaha around the Berkshire AGM, I felt it would be useful to organise my thoughts around a few themes that characterised the week.

• It’s all about the people

I don’t think there is any other place where investors of a certain type can meet so many likeminded people as in Omaha in spring. They are everywhere; at conferences, in bars, in hotels, outside Buffett’s house, at the Berkshire AGM etc. If you do go to Omaha, in my view it’s not mainly about the AGM (although of course that too is a great experience) but about the fact that a large number of people with a similar outlook on investing and life come together in the same place for a few days (therein of course lies a danger; more on that later).

While most participants have a similar philosophy, their implementation often varies significantly. We participated in the MOI conference (wonderfully organised by John Mihaljevic and Tyler Howell). The overall impression was one of ‘there are many ways to skin a cat’. We heard about quality compounders, about cyclicals with earnings upside, about growth companies, about underresearched EM opportunities and so on, and so on. The message really is that one has to find an investment style that works given one’s personality, temperament, structure of investment vehicle etc. As an example, I was very impressed with Bob Robotti and Chris Bloomstran laying out the case for investing in ‘underinvested’ old-economy, and often carbon-intensive, industries like refining. While it is not a space where we have invested, it can clearly be a very successful approach for someone with the ‘right’ mindset and temperament.

On the topic of people I have in all honesty sometimes wondered whether the ‘networking’ which is so popular these days really is that significant for investors in public companies (as opposed to in private markets where relationships matter hugely when it comes to deal flow etc). I have reached the conclusion that in a professional sense, spending time with other investors is mainly beneficial when it comes to developing one’s investment (as well as life) philosophy and process as opposed to idea generation as such (although it is also very valuable to pick up snippets of information e.g. from listening to Tom Russo discussing Heineken where he has been invested for almost 40 years).

• Simplicity

In an industry obsessed with making things sound complicated, it is so refreshing to listen to the likes of Buffett/Munger and Gayner. They keep it simple, e.g. in the case of Markel’s four filters for identifying investments, and focus on avoiding obvious ‘stupidities’ etc. Very often they are looking at a few key factors like culture, moat etc when assessing a business. This applies to their own organisations as well; both Berkshire and Markel HQs are characterised by small teams, decentralised decision making, clear incentives (through significant equity ownership) etc. Of course, one can only be a big picture thinker with lots of experience and strong technical skills. Simplicity itself is ‘simple but not easy’.

• Pragmatism

I’ve heard Charlie Munger say on a number of occasions that his best piece of advice is to ‘figure out what works and do it’. This pragmatism can be found with all the great investors. Let me provide a few examples from Omaha.

Buffett is of course known to all of us as the ultimate long-term investor. However, it is also well known that he was quite active in merger arbitrage in the early stages of his career. What was less well known to me was the fact that he still in fact invests in these types of situations and he discussed the Microsoft/Activision situation in some detail at the AGM. Pragmatic to say the least given Buffett’s age and wealth.

Tom Russo is one of the great investors in global consumer brands. However, he also showed his pragmatism when he invested in Alphabet as one of his most recent holdings. One of the ways he came to this investment was through conversations with his portfolio companies about their marketing strategies and how online has become a very efficient medium in many cases. I think this shows real pragmatism.

On this note, it is worth mentioning that Buffett and Munger spent time discussing the dangers of tribalism at the AGM. While I agree with that point, we must also recognise that Berkshire shareholders and others in the so-called ‘value investor’ community (a misnomer according to myself and many others) are as tribal as most. This can e.g. be seen in the reactions to some of Buffett’s and Munger’s answers at the AGM where I sometimes get a sense of ‘us and them’. We must try and guard against this with disconfirming evidence and other approaches e.g. speaking to/reading about investors with opposite views on a position.

• Continuous learning/development

Compounding your knowledge is another key aspect of becoming a great investor. Buffett and Munger have been discussing this for years and seem to be the ultimate examples of the value of lifelong learning. Gayner talks about ‘putting one foot in front of the other’ and thereby focusing on the process as opposed to the outcome (at least in the short term).

• Modest expectations

One of the things that strikes me when I listen to great investors is their often modest expectations compared to most retail investors and lesser portfolio managers. Let me give you a couple of examples.

One of the questions at the Markel brunch related to return expectations and the fact that Markel in its first annual report as a listed company, back in 1986, stated its ambition as growing at least at 20 % p.a. and generating a 20 % ROE. Was this still the case?

Tom Gayner provided us with a pretty clear ‘no’; the 20 % target was established in an era of very different conditions in financial markets including significantly higher interest rates. In today’s environment, Markel’s hurdle rate will be double-digit returns according to Gayner.

Similarly, Tom Russo in his presentation on Heineken stated that he is looking for companies that can compound at reasonable rates (which seems to be in the low double-digits) for long periods of time and said he is ‘not aiming for the stars’.

We have long maintained that our ambition is to grow our NAV at a compound rate of around 10 % p.a. If anything, that may be ambitious at least in the medium-term given continued very low (although rising) interest rates; we would of course love to be proven wrong on this point.

Why to go to Omaha

Why spend the time and money travelling to Omaha? For me it is mainly about meeting great people, being inspired and being reminded of some very sound principles for investing and life. I hope that this annual get-together will remain in some form for a long time to come.