2016 Berkshire Hathaway Annual Meeting

Lessons from this meeting:

1. Embrace Experimentation & Learn from Mistakes
   • Try new approaches (e.g., online insurance portals) knowing some will fail but valuable lessons will follow.
   • Keep iterating over decades—today’s “mistakes” often seed tomorrow’s breakthroughs.
2. Prioritize Culture & Long Tenure
   • A strong, consistent culture attracts and retains managers who “love their jobs,” minimizing costly turnover.
   • Entrench values through aligned boards, investors, and managers rather than relying on titles or formal committees.
3. Focus on Microeconomics, Not Macro Forecasts
   • Study the detailed economics of individual businesses—unit costs, customer behavior, competitive positioning.
   • Ignore “macro” noise; emphasize the specific drivers of cash flow within the companies you own.
4. Value Trustworthy, Owner-Oriented Managers
   • Seek leaders whose incentives (ownership stakes, compensation plans) align with shareholders’—and whose character you can trust.
   • Negotiate swiftly and in good faith, avoiding drawn-out, zero-sum haggling that tests relationships.
5. Keep Incentives Simple and Aligned
   • Tie bonuses to just a few clear metrics (e.g., GEICO’s growth in policies-in-force + profit on seasoned business).
   • Avoid one-size-fits-all schemes; design bespoke plans that reward precisely the behaviors you want.
6. Be Patient but Opportunistic with Cash (Float)
   • Treat underwriting float as a long-duration option—willing to “pay a little now” (underwrite at a small loss) to control large sums.
   • In low-rate environments, stay ready to deploy cash into infrequent but high-return opportunities.
7. Maintain a Margin of Safety in Valuations
   • Never pay up just because interest rates are low; stick to prices that justify future returns even if financing is “cheap.”
   • Don’t let the lure of near-zero rates seduce you into overpaying for “sure things.”
8. Don’t Inflate Reported Earnings
   • Resist the temptation to carve out “one-time” charges or adjust every metric; transparent, conservatively stated results build trust.
   • Remember that aggressive depreciation or amortization can understate true economics—be clear about your accounting’s quirks.
9. Avoid Over-Engineering Due Diligence
   • Checklist diligence (leases, patents, contracts) rarely catches the real risk: future industry economics and manager integrity.
   • Trust your business judgment and pattern recognition—deep dives only where they truly matter.
10. Think in Generational Timeframes

• Aim to add to normalized earnings per share every year; small, consistent gains compound into huge value.
• Beware of size as an “enemy of performance”—focus on the best opportunities, not just “deploying” capital.