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Berkshire Hathaway


08 May 2018

“Ignore the noise” – Buffett and Munger

By: David Shapiro, Deputy Chairman, Sasfin Wealth

If you would have invested $10 000 in productive assets (businesses, or immovable assets that are able to generate cash flow and profits) in 1942, your initial capital would now be worth in the region of $50 million. If, however, that $10 000 was invested in non-productive assets (such as Gold, or the like), your initial capital would only have risen to around $400 000. This is according to Warren Buffett and Charlie Munger, doyen value investors, who held court at the 2018 Berkshire Hathaway Annual General Meeting, held in Omaha, over the weekend.

On the troubles at Wells Fargo, a bank long-held in the Berkshire portfolio, Buffett was not worried. He clearly believes in management, and that they’ll pull through the current challenges:

"All the big banks have had troubles of one sort or another, and I see no reason why Wells Fargo as a company, from both an investor standpoint and a moral standpoint going forward, is in any way inferior to the other big banks with which it competes."

From a tech perspective, both Buffett and Munger were remorseful for their long-standing reluctance to invest in growth stories such as Apple and Amazon. On the former, they suggested that the share was currently trading below its intrinsic value (according to their calculation thereof) and as Berkshire, they would be adding to their portfolio at current levels. In general, they admitted to having ‘underestimated’ the growth potential of some of the tech giants, and in one memorable quip, Munger was asked about his firm’s position in Amazon:

“The truth is that I've watched Amazon from the start and I think what Jeff Bezos has done is something close to a miracle, and the problem is if I think something is going to be a miracle I tend not to bet on it.”

Both Munger and Buffett were quick to rebut suspicions of key-man risk in light of their respective ages (and collective wisdom). Talking specifically to their perceived (and admitted) shortcomings in past investments in the tech sector, Buffett pointed to the arrival of portfolio managers Todd Combs and Ted Weschler to strengthen their hand in this specific sector.

For all the emerging market pundits out there, Munger’s outlook was not sanguine. ‘It’s about size, not geography,” he added. There are very few companies that can simply compete with their developed market counterparts.

How to react to external ‘noise’ such as volatile oil prices or a decision by the US Fed to hike or decrease rates? Simply: remain focussed and stick with your investment strategy.

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