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Warren Buffett: 'Not Only Google, I Missed Amazon Too' - My Key Takeaways from the Berkshire AGM 2017

May 10, 2017
In this issue:
» Google the biggest cost item in the Opportunity P & L?
» Market roundup
» ...and more!
00:00
Rohan Pinto, Research analyst

My colleague Ankit wrote to you about "Why Kattappa Killed Baahubali?"

Movie lovers across the country wanted an answer to this question. They even tried answering it themselves in all plausible ways on what made Kattappa do such a thing.

Finally, after waiting for two long years, S.S Rajamouli decided to answer the question himself by releasing the second installment of the movie last week.

Baahubali 2 caught the fancy of everyone in the country and abroad as well. In fact, it has become highest grossing movie in India. Within two weeks of its release.

Our Rajamouli, Warren Buffett did something similar last year when he made live the entire proceedings of the annual general meeting of Berkshire Hathaway.

However, unlike Rajamouli, Buffett did one better, he gave value investors across the world an opportunity to virtually participate the Berkshire AGM which is nothing less than a festival back in Omaha.

Last weekend, tens of thousands descended on Omaha to see the grand daddies of value investing - Warren Buffett and Charlie Munger - in the flesh.

As Berkshire fans know, last year's AGM was streamed live for the first time. The tradition continued this year as well.

Let me walk you through my key takeaways from the 2017 Berkshire AGM.

Changes Stance on Aviation
  • When the facts change, I change my mind. What do you do Sir? - John Maynard Keynes.

After years of scepticism about the airlines industry, Warren Buffett purchased significant ownership of major airline stocks.

This change of stance was questioned at the AGM. According to Buffett, the US aviation industry has come out of pricing wars and undergone consolidation. Buffett expects the airlines industry to operate at higher degrees of capacity in the future.

Automation and Artificial Intelligence

Buffett is of the view that developments in artificial intelligence are unpredictable. According to him, artificial intelligence is good for society but enormously disruptive.

  • I would certainly think artificial intelligence would result in significantly less employment in certain areas but that's good for the society. It may not be good for a given business.

He had similar thoughts on self-driving cars and trucks. While he acknowledged the technology will likely put the insurance and railroad industries at risk, he said it could also end up making the world safer.

Casino-Like Characteristics

A Chinese value investor questioned Buffett about the speculation prevalent in the stock markets and how to spread value investing principles in the market.

Buffett knows booming markets can make investors act like gamblers in casinos:

  • Markets have a casino characteristic that has a lot of appeal to people, particularly when they see people getting rich around them.

In a booming market, the line between investing and speculation is very thin.

Wrong Incentives

Buffett was critical of Wells Fargo, the bank where he holds a majority stake.

  • Wells Fargo incentivized the wrong type of behavior. If there's a major problem, the CEO will get wind of it. At that moment, that's the key to everything. The CEO has to act. The main problem was they didn't act when they learned about it.

We believe incentives play a critical role. As professor Sanjay Bakshi told us, 'The presence of perverse incentives results in perverse outcomes. But if you want to change behaviour, as Charlie Munger often says, change the incentives.'

India Opportunity

In an interview with ET Now, Warren Buffett said India has a huge and enormous market that cannot be ignored. He added he would be in India if he found there was a good value company for sale.

  • With the Indian growth story, there is no doubt that per capita income for India will go up rapidly.
Opportunity PnL

Buffett also confessed missed opportunities that are not reflected directly in Berkshire Hathaway's profit and loss statement.

  • Our biggest tech failure was missing Google. Walmart and Google were missed opportunities.

As many of our readers know, we recently interviewed an ardent follower of Warren Buffett and Charlie Munger, Professor Sanjay Bakshi. Here is what he had to say on Opportunity PnL:

  • I bought Eicher Motors at Rs 200 and sold it at Rs 600 and now it sells for Rs 26,000. This type of mistake helped me realise that one can get disproportionate payoffs by staying invested in high quality businesses for a long time.

    Realising the importance of keeping an 'opportunity P&L' account marked a turning point in my investing career.

Indeed, over the last fifty years, Warren Buffett has taught numerous investors across the world the nuances of value investing both in word and deed.

Now, as you may know, Kunal and I have been working on a project. Its aim was to answer the question: Who are India's Warren Buffett and Charlie Munger? Who are India's super investors?

Kunal and I travelled the country in search of the smartest minds in the Indian stock market. And now we have distilled all the best advice and processes from these successful yet relatively unknown Indian stock pickers into a free eBook called The Super Investors of India.

Click here to download the book now for free.

04:10 Chart of the Day

Warren Buffett has always been skeptical about the companies in Information Technology and Aviation Sector. Given the bad dynamics of both the industries, he always stayed away from both the sectors.

However, facts have changed now.

And as Keynes said - When the Facts Change, I Change My Mind. What Do You Do, Sir?

Not only Buffett has started investing in both the sectors, he also regrets not investing in companies Google and Amazon.

If we look at Google share price moment the company since its IPO in 2004 has multiplied 19 times.

Google has multiplied 19x Since IPO

This clearly is a missed opportunity for world's largest investor. However, it will never appear in the real profit and loss account of Berkshire Hathaway.

But if one is to draw an opportunity Profit and Loss Account, Google would perhaps be the biggest cost item.

This is what Buffets names as Errors of Omission.

Buffett also confessed missed opportunities that are not reflected directly in Berkshire Hathaway's profit and loss statement.

  • Our biggest tech failure was missing Google. Walmart and Google were missed opportunities.

As many of our readers would know, we recently interviewed one of ardent followers of Warren Buffett and Charlie Munger, Professor Sanjay Bakshi. This is what he had to say on Opportunity PnL:

  • I bought Eicher Motors at Rs 200 and sold it at Rs 600 and now it sells for Rs 26,000. This type of mistake helped me realise that one can get disproportionate payoffs by staying invested in high quality businesses for a long time.

    Realising the importance of keeping an 'opportunity P&L' account marked a turning point in my investing career.
04:45

After opening the day on a flat note, share markets in India have opened the day on a positive note. The BSE Sensex is trading higher by 145 points and the NSE Nifty is trading higher by 45 points. Meanwhile, S&P BSE Mid Cap and S&P BSE Small Cap are trading higher by 0.8% and 0.7% respectively. Gains are largely seen in FMCG stocks, auto stocks and power stocks.

04:55 Today's Investing Mantra

"Be Fearful When Others Are Greedy and Greedy When Others Are Fearful." - Warren Buffett

This edition of The 5 Minute WrapUp is authored by Rohan Pinto (Research Analyst) and Kunal Thanvi (Research Analyst).

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Equitymaster requests your view! Post a comment on "Warren Buffett: 'Not Only Google, I Missed Amazon Too' - My Key Takeaways from the Berkshire AGM 2017". Click here!

1 Responses to "Warren Buffett: 'Not Only Google, I Missed Amazon Too' - My Key Takeaways from the Berkshire AGM 2017"

N.Ravi Shanker

May 11, 2017

Warren Buffet is prescient and relevant; despite his misses on new economy stocks. The Indian Economy is witnessing a new phase. In the milieu of Infra and digital push and ambush on NPA, the future seems bright.

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Equitymaster requests your view! Post a comment on "Warren Buffett: 'Not Only Google, I Missed Amazon Too' - My Key Takeaways from the Berkshire AGM 2017". Click here!
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