Category: Social Networking


The Best of Berkshire

Content provided by Kostya Etus, CFA, CLS Portfolio Manager

May is a momentous month for Omaha. Value investors from around the world make a pilgrimage to see the “Oracle of Omaha,” Warren Buffett, and his partner in crime, Charlie Munger, and to hear their words of wisdom at the annual Berkshire Hathaway Shareholders’ Meeting. It draws such a huge and diverse crowd that it has been uniquely nicknamed the “Woodstock of Capitalism.” For many of us investment professionals, it is almost a sin not to attend the meeting because the knowledge gained is priceless. Here are some brief highlights that stood out this year.

  • On the Wells Fargo scandal: Buffett warned managers and business owners to be careful of what they incentivize; it could unknowingly be bad behavior. He also noted the CEO caught wind quickly and acted. Buffett compared his response to that of the CEO of Salomon, a financial firm taken down by a bond trading scandal in the 1990s that was ultimately righted by Buffett. Salomon’s CEO never acted to correct the bad behavior in the company — an omission, Buffett said, that was almost more important than the transgression.
    • AMAZING QUOTE #1: Munger likes Ben Franklin’s old quote: “An ounce of prevention is worth more than a pound of cure.” But, Buffett added: “A pound of cure applied is worth more than a ton of cure delayed.”
  • On choosing a great business: Buffett had three points to consider. 1) Five to 15 years into the future, does the competitive advantage persist? 2) What kind of management is at the helm? 3) Finally, what’s the price?
    • AMAZING QUOTE #2:  Buffett’s idea of a great business to buy: “An economic castle with a moat and a great knight to ward off marauders [competition].”
  • On fixing the unfixable: Buffett and Munger both said they have learned a lot from their mistakes. Many of their early investments were in failing companies, which they tried to recover. That was a big mistake, they said, as the companies were unrecoverable. They learned to avoid such companies and focus on higher quality investments.
  • On finding value: Munger said it used to be a lot simpler to find undervalued companies and lower hanging fruit (“Shooting fish in a barrel,” Munger mentions). Now, they have to reach for higher branches.
    • AMAZING QUOTE #3: I’m paraphrasing Munger here: “Rule 1: Fish where the fish are. Rule 2: Don’t forget Rule 1. We have gotten good at fishing where the fish are, but there are a lot more boats on the lake.”
  • On intrinsic value: Buffett predicted over the next 10 to 20 years, market value will not be dependent on the economy or presidents, but on interest rates. At current rates, the value is not as high as it has been over the last 10 years. If anyone thinks rates can’t stay low for too long, he said, they just need to look at Japan.
  • On Berkshire’s advantage: Buffett and Munger disagree on something, a rare occurence. Buffett says Berkshire is a great company, but if investors don’t want to worry about money or whether they’re invested the right way when their neighbor is making a ton of money on a hot stock, nothing beats the S&P 500 Index. Munger says Berkshire is still better!
    • AMAZING QUOTE #4: Munger says: “Others are trying to stay brilliant; we are trying to stay rational. This is particularly important when gambling.”
  • On technology: Buffett said it’s very hard to predict how technology will change. Berkshire made huge mistakes by not investing in Amazon or Google, but instead investing in IBM, he said. As for their investment in Apple, they view it as more of a consumer products company.
  • On the top five companies: The largest companies by market cap all have low capital intensity. They don’t need capital and they have no tangible assets. No additional reinvestment is needed to grow. This is a huge change from not too long ago when companies made money to build new plants in order to grow. Today, Google charges every time a human clicks a mouse, much different from taking months to search for the right site for a new manufacturing plant. This trend will continue, but of course not everyone will win.
  • On Berkshire’s value to the world: Companies under Berkshire are able to operate without fear of being bought by someone else. They have easier access to credit and funding for new projects. CEOs of the companies are freed up from calls with banks and analysts, and can focus on operations. In addition, Berkshire teaches the public about the importance of corporate honesty and the benefits of well-run companies.

I leave you with my two personal favorite things from the meeting:

  1. An opening video featuring famous actors, as well as Munger and Buffett that only attendees could view. It will never be available for distribution, and it was quite entertaining.
  2. Munger randomly started chomping away on peanut brittle into the microphone while Buffett was speaking. Hilarious!



The Power of Networking – Use LinkedIn!

Content provided by Rusty Vanneman, CFA, CMT, CLS Chief Investment Officer

I had lunch with Reid Hoffman once. It was fascinating. Reid is known for lots of things, including being the co-founder of LinkedIn, which is arguably the most important social media tool, especially for investment professionals.

My opportunity to have lunch with Reid came when I served on the Board of Overseers for Babson College (my alma mater) in Wellesley, Massachusetts. For a grand graduation ceremony one May several years ago, I was fortunate enough to put on the formal robes and walk into the beautiful outdoor tent along with faculty and prominent alumni for the graduation procession and presentations. In short, it was a really cool experience.

Reid was the featured graduation speaker that day. I was truly impressed by his intellectual curiosity and comments both on the stage and during our lunch. Many of his thoughts are captured in his book, “The Start-Up of You,” which is, refreshingly, an easy and engaging read.

One key point that Reid stresses is we are living in a networked age. In fact, his latest book, “The Alliance: Managing Talent in the Networked Age,” is considered another must-read by many. Here is an excerpt from its description on Amazon that captures the essence of the book:

The employer-employee relationship is broken, and managers face a seemingly impossible dilemma: the old model of guaranteed long-term employment no longer works in a business environment defined by continuous change, but neither does a system in which every employee acts like a free agent.

The solution? Stop thinking of employees as either family or as free agents. Think of them instead as allies.

As a manager you want your employees to help transform the company for the future. And your employees want the company to help transform their careers for the long term. But this win-win scenario will happen only if both sides trust each other enough to commit to mutual investment and mutual benefit. Sadly, trust in the business world is hovering at an all-time low.

We can rebuild that lost trust with straight talk that recognizes the realities of the modern economy. So, paradoxically, the alliance begins with managers acknowledging that great employees might leave the company, and with employees being honest about their own career aspirations.

By putting this new alliance at the heart of your talent management strategy, you’ll not only bring back trust, you’ll be able to recruit and retain the entrepreneurial individuals you need to adapt to a fast-changing world.

These individuals, flexible, creative, and with a bias toward action, thrive when they’re on a specific “tour of duty”—when they have a mission that’s mutually beneficial to employee and company that can be completed in a realistic period of time.

The book’s primary audience is management. While I would argue it’s still a read for anybody who works, “The Start-Up of You: Adapt to the Future, Invest in Yourself, and Transform Your Career” relates to the individual. Here’s a snippet from its description on Amazon:

LinkedIn co-founder and Chairman Reid Hoffman and author Ben Casnocha show how to accelerate your career in today’s competitive world. The key is to manage your career as if it were a start-up business: a living, breathing, growing start-up of you.

Why? Start-ups – and the entrepreneurs who run them – are nimble. They invest in themselves. They build their professional networks. They take intelligent risks. They make uncertainty and volatility work to their advantage. 

These are the very same skills professionals need to get ahead today. 

This book isn’t about cover letters or resumes. Instead, you will learn the best practices of Silicon Valley start-ups, and how to apply these entrepreneurial strategies to your career. Whether you work for a giant multinational corporation, a small local business, or launching your own venture, you need to know how to:

* Adapt your career plans as you change, the people around you change, and industries change.
* Develop a competitive advantage to win the best jobs and opportunities.
Strengthen your professional network by building powerful alliances and maintaining a diverse mix of relationships. 

Find the unique breakout opportunities that massively accelerate career growth.
* Take proactive risks to become more resilient to industry tsunamis.
Tap your network for information and intelligence that help you make smarter decisions.

Of course, the book strongly promotes the use of LinkedIn. But it’s good advice, even if the author is a little biased. Embracing this social media platform and improving your profile is a must in today’s economy. Doing so is a win-win for you and the company you work for. It provides an online curriculum vitae and a tool to showcase your brand and skills, while also allowing your company to show off its talent to current and prospective clients. Building your network is not only a publicity campaign for yourself, it’s a promotional tool for your company.

How do you improve your LinkedIn profile? There are so many helpful sites available with a quick Google search, but here’s one I like:

So, get after it! When you meet new business associates, or ones you want to meet, reach out to them via LinkedIn as soon as you can. Keep your profile clean, up-to-date, and growing. In this networked age, you need to do this — not only to get ahead, but to prevent yourself from falling behind.

Thanks for reading. Stay balanced.



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