Lessons from this meeting:
Ease of Entry, Power in Staying Power
Key point: In catastrophe reinsurance anyone can start up, but only deep pockets and staying power win.
- Small “spray-and-pray” entrants go bust once in ten tries; only a few like Berkshire can underwrite at scale and survive multi-billion-dollar hits.
- Clients chase carriers they trust to pay claims long after a disaster—capacity without capital strength is a nonstarter.
Ben Graham’s Yardsticks Apply to Tech Too
Key point: The same value-investing framework works for high-tech—if you understand the business.
- Buffett and Munger would insist on the same margin-of-safety and business-like approach, even if volatility and risk look higher.
- Lack of tech expertise, not flawed principles, keeps them out; a qualified “Bill Gates” applying Graham’s rules could build a tech fund.
“You Don’t Have to Make It Back the Way You Lost It”
Key point: Chasing losses in the same form often deepens the hole—investors must pivot to fresh opportunities.
- Berkshire’s write-down in USAir preferred is acknowledged but won’t drive them back into the same airline sector to recoup it.
- The first rule of recovering from a bad bet: don’t repeat the mistake; redeploy capital where odds are better, not where you last lost.
Videotaping Meetings Would Kill the Atmosphere
Key point: Berkshire values live engagement over mass broadcast—even great ideas aren’t worth empty seats.
- Management fears videotaping would sap turnout and genuine Q&A energy; a packed hall yields higher-caliber dialogue.
- Keeping shareholders in the room preserves the rare culture of direct accountability and spontaneous exchange.
Succession Is Almost a Non-Issue
Key point: With strong businesses and decentralized leadership, even an “idiot” could keep Berkshire humming.
- The operating units run autonomously under proven managers; headquarters needs surprisingly little hands-on direction.
- Capital allocation is the only key skill to replace—an advantage, not a crisis, given their bias toward buying stakes in great firms.
Options Give Optionality—Preferred to ‘Pay Up Front’
Key point: Issuing convertible preferred stock is a powerful way to raise capital without immediate dilution or debt strain.
- Berkshire prefers structures that offer the right, but not the obligation, to turn paper into equity over several years.
- Having flexibility to choose cash or stock on redemption dates keeps Berkshire ready to pounce on big acquisitions.
Economic Moat ≈ Scale + Alignment
Key point: A durable business combines scale advantages with managers whose interests match owners’.
- Scale—whether buying power, brand recall, or network effects—builds the protective moat around a high-return castle.
- Low “agency costs” (i.e., honest, owner-oriented managers) ensure castle keepers don’t strip away shareholder value.
Derivatives: Few, Understandable, Counterparty-Safe
Key point: Only employ derivatives when they’re the simplest, cost-effective way to achieve a clear hedge—and counterparty risk is nailed down.
- Buffett insists on two modest-sized derivative programs he fully grasps; sheer novelty or leverage without purpose is off limits.
- Never enter a paper swap unless you know you’ll collect the payoff—Berkshire underwrites only against rock-solid partners.
Projections Are Advertising, Not Analysis
Key point: Forecasts from sellers or advisors almost always reflect bias, not truth—skip the guff and trust organized common sense.
- Managers who push elaborate five-year models usually want to justify a pre-set deal; real due diligence is far simpler.
- Buffett once demanded past forecast accuracy alongside new projections—and found the track record laughably poor.
First Filter: Do You Understand It?
Key point: No matter how enticing the returns appear, if Buffett and Munger can’t grasp a business quickly, they won’t invest.
- The very first question is “Can I explain how this company makes money?” If not, move on—complexity is a warning sign.
- Only once the business model is crystal-clear do they probe economics, competitive position, and future cash-flow potential.
