Quick Thoughts on Berkshire 2018 AGM
These are the notes from Adam Blum, direct download link at https://drive.google.com/file/d/1dPZt_UYnuyRbKbAiHxsJ8alMUpv_0AbF/view
Here are some things that popped up in my mind:
“Being the low-cost producer is a terribly important moat. Technology doesn’t always translate to the lowest cost. The technology at Geico has not brought down the cost, but its position among big companies is as a low-cost producer, and that’s not bad when selling essential item.”
I think this is also the reason why JD.com, Costco and Yonghui Superstores are really doing well. They play the game so strongly that no one could beat them at their prices and efficiency. It is an incredible moat. Lowest cost is also directly correlates with scale. You can’t have lowest cost, relative to your industry peers, without a sclae.
Charlie: “We would look for mispriced stock opportunities with less capital. I can’t give a formulaicapproach to intrinsic value and don’t use one. I mix all the factors, and if the gap between value and price isn’t attractive, I go onto something else. Costco at 13x earnings was a ridiculously low value because of the brand. I like the cheap real estate and the good competitive position, and even though it traded at 3x book, it was worth more. There was not a formula. If you want one, go back to graduate school, as formulas don’t work.”
I started investing using DEM/DCF models on companies. Subsequently, I realised that these are things which are not entirely preditable and they may change to a large extent. It is tough to say or quantify, however, I’d concur with Charlie that it takes some kind of feel and experience to have a range of intrinsic value. The more stones and things you see, the memory collects information and takes multiple points of reference before giving you a feel of whether this is right or wrong.
“Bill [Gates] told me early on to switch from Altavista to Google, but I wondered who would then skip past Google. We saw at Geico that we were paying Google a lot of money for services costing Google nothing. We made a mistake. We went into Apple, because of the intelligence of the capital deployed and the value of the ecosystem.”
These are network and companies with exponential abilities. Ctrip, Booking.com, IMAX, or Facebook. For them to earn the extra dollar of revenues, it puts out minimum cost of services/goods sold.
Facebook may be a stronger competitor of advertisements to Gooogle in the future. I see that they are dominating in new users easily because of their massive user base (>2b MAUs). Lately, FB had announced entry into the dating scene and that they totally shook confidence off Match.com.