Content provided by Rusty Vanneman, CFA, CLS Chief Investment Officer
To many people, the first Saturday in May is one of the highlights of the sporting calendar: the Kentucky Derby. To many investors, however, the first Saturday in May is the highlight of the year: the Berkshire Hathaway (BRK) shareholder meeting (do note, however, that Warren Buffett, the chairman and CEO of BRK, occasionally moves the meeting to make sure it does not interfere with Mother’s Day).
Based in Omaha, where Berkshire Hathaway and the shareholder meeting is located, CLS can attest the event is big. Nearly 45,000 people attended this year. The popularity of this event is yet another data point to the genius of Warren Buffett. Not only are people attending to hear the wisdom of Warren Buffett, but they’re here to shop at the various BRK companies set up to do business at the meeting. Do any other shareholder meetings actually make money?
It should be noted the genius of Buffett is that he doesn’t do it all on his own. First, he trusts the managers of his subsidiaries to do their jobs. He gives them the necessary flexibility, support, and applause to make sure they continue to perform at a high level. Second, Buffett has a trusted long-term business partner in BRK’s vice chairman, Charlie Munger. It cannot be overstated how influential Munger has been on Buffett. Personally, Munger is nearly as influential on my investing style as Buffett has been.
Of course, Buffett’s talent is also in his long-term investing acumen. His track record has been simply outstanding. His value orientation, long-term focus, and discipline have all been critical to the success of BRK. Performance hasn’t always been smooth though, and this is an important reminder to all investors. For example, from the period of July 1998 to February 2000, BRK lost 44 percent of its value. This was at the same time that the U.S. stock market gained 32 percent. This goes to show that even the greatest investors’ style of investing can go out of favor for a period of time.
I would argue that Buffett and Munger’s impact goes far, far beyond the investing track record. They have been educators and counselors to investors for decades now. They have not only made money for their investors, but they have also helped many money managers and investors get better at investing. Buffett, through his wise counsel and sensible, understandable communication has helped many investors reach their investment objectives. Here at CLS, given again that we’re based in Omaha, we’ve all watched, studied, and followed Buffett throughout our professional careers (and before then). His influence is even felt within our office and in our portfolios.
For example, another secret to Buffett’s investing success is he has an investment strategy that he consistently executes. In short, he emphasizes high quality companies (a recent study identified this: “Buffett’s Alpha” by Frazzinni, Kabiller, and Pederson). These are companies that have stronger balance sheets, higher and more consistent profitability, and business models that tend to have moats around them. This style of investing has been identified in recent years and even boiled down into a single “factor” called quality.
Quality has been one of CLS’s investment themes in recent years. We believe at this stage in the economic and market cycles, it is a particularly good time to emphasize higher quality companies. In fact, a few of the top CLS holdings have been characterized in the press as “Warren Buffett ETFs” due to their high quality orientation.
This year’s shareholder meeting was another great meeting. It was a beautiful day, and even though some of the questions during the Q&A were a little feisty, the overall vibe at the meeting affirmed the nickname to the event: “Woodstock for Capitalists.” And despite Warren’s and Charlie’s ages, they were on top of their games. Still, they’re not getting any younger, so if you haven’t been to a BRK meeting yet, make sure you come to Omaha soon!
The views expressed herein are exclusively those of CLS Investments, LLC, and are not meant as investment advice and are subject to change. No part of this report may be reproduced in any manner without the express written permission of CLS Investments, LLC. All opinions expressed herein are subject to change without notice. This information is prepared for general information only. It does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. You should seek financial advice regarding the appropriateness of investing in any security or investment strategy and should understand that statements regarding future prospects may not be realized. Investing in any security involves certain systematic risks including, but not limited to, market risk, interest-rate risk, inflation risk, and event risk. These risks are in addition to any unsystematic risks associated with particular investment styles or strategies.