Berkshire Hathaway 2017 AGM Q&A transcript – Part 2

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Berkshire Hathaway’s Annual General Meeting was held on May 6th, with the usual 40,000-odd attendees. It was also webcast on Yahoo Finance, giving us the chance to watch it in full, and live.  There’s always some dorks whining about one or two of their hundred-odd businesses, and the fan-boys asking rubbish about the search for happiness.  The fluff stuff aside, they’re two sharp dudes with clear insights, and answer in old white guy ways, which is sometimes pretty hilarious.

Here’s the second of five parts of the Q&A section.  


About Precision Car Parts, Berkshire’s recent acquisition, and the effect of 3D printing on parts – and new mark-to-market accounting rules coming up

As a very long-term business, you can worry about 3D printing, I don’t think you have to worry about aircrafts being manufactured, but aircraft deliveries can be substantially altered in relation to any given backlog in most cases, so the deliveries can be fairly volatile, but I don’t think the long-term demand is anything I worry about. The question is, whether anybody can do it better or cheaper or like I said, whether 3D printing at least takes away part of the field in some respect, but overall, I would tell you, I feel very good about Precision Castparts. It is a very long-term business.

We have contracts that run for a very long time and like I say, the initiation of a new plane may be delayed or something of the sort, but if you take a look at the engine that’s in the other adjoining room here and in our exhibition hall, you would, if you were putting that engine together with a 20 or 25 year life or whatever it may have, carrying hundreds of people, you would care very much about your supplier.

You’d care not only in the quality, which would be absolutely you’d care of the work being done, but you also, if you were an engine manufacturer or an aircraft manufacturer further down the line, you would care very much about the reliability of delivery on something which you do not want to plane or an engine is 99% complete while somebody is dealing with the problem of faulty parts or anything else that would delay delivery. So the reliability is incredibly important and I don’t think anybody has a reputation better than Mark Donegan and the company for delivery, so I love the fact we bought Precision Castparts, Charlie?

Yes, what’s interesting about the two is that it’s a very good business for just a fair price, but this is no screaming bargain like the old days. For quality businesses, you pay up now a lot more than we used to.

Yes, that’s absolutely true and you don’t get a bargain price. The $400mn plus incidentally, it goes on for quite a while too and Will explained it in the report, just like we all explained it at the depreciation charge that our railroad would not be adequate. It’s the way accounting works. I don’t even want to tell you about this one, but starting the first of next year, accounting is going to become sort of a nightmare in terms of Berkshire and other companies because they’re going to have mark equities to market just like we we’re a Wall Street trading firm or something and those changes in the value of Coca-Cola or American Express or anything are going to run through the income account every quarter.

In fact, they run through it every day in this area, so that it really will get confusing, now it’s our job to explain things so that you aren’t confused when we report GAAP earnings, but GAAP earnings, as reported will become even more meaningless looking only at the bottom line than they are now.

That was not necessarily a good idea.

No, I think it’s a terrible idea, but we’ll deal with it and I mean it’s my job to explain to what extent what GAAP accounting is useful to you in evaluating Berkshire and the times when it actually distorts things. Accounting isn’t supposed to describe value. On the other hand, it’s a terribly useful tool, if understood, in order to estimate value with your analysing businesses and so it is certainly you can’t blame the auditing profession for doing what they think is their job, which is not to present value, although by using these market values.

But you can blame the audit business for that.

What was that?

You can blame the auditing profession for that one. That was really stupid.

Yes, I agree with that actually, but we will do our best to give you, we’re always going to give you the audit figures and then we’re going to explain their shortcomings in either direction and what you should use and what you probably should ignore in looking at those numbers and using them to come to a judgement as to the value of your holdings and I’ll explain it to you the same way I would explain it to my sisters or anybody else. We want you to understand what you own and we try to cover the details that are really important in that respect.

There are a million things you can talk about that are just of minor importance when you’re talking about a $400mn market value, but they’re the things that, if Charlie and I were talking about the company, they’d be the figure or the interpretations or anything that we would regard as important in coming to an estimate of the value of the business, but you can’t knock the media, they only have a few paragraphs to describe the earnings of Berkshire ever quarter, but if the simply look at bottom line numbers, what can be silly this year would become absolutely ludicrous next year because of the new rule that comes into effect for 2018. 

What is the probability for duplicating your great investment track record in China stock markets in the next decade or two in terms of a maximum pursuit, so in a sense my friends are from [a fund management house for guiding me in raising this question. Thank you.

Charlie, you’re the expert on China.

It’s like determining the order of presidency, between the – allows them a fully, yes, I do think that the Chinese stock market is cheaper than the American market and I do think China has a bright future. I also think that there will be growing pains of course.

We have this opportunistic way of going through life. We don’t have any particular rules about which market we’re in or anything like that.

No, Charlie’s delivered a headline anyway now, longer prediction, China will outperform US.


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