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Warren Buffett and Charlie Munger Weigh In

Written By Brian Hicks

Posted May 6, 2009

Warren Buffett has been a busy man these days, entertaining his shareholders between sips of Cherry Coke and cheeseburgers.
Along with his partner Charlie Munger, the famed investor threw another party for about 35,000 of his followers recently at the annual Berkshire shareholder meeting.  
Meanwhile Berkshire Hathaway itself has seen better days. The book value of its assets dropped 9.6% last year, its worst performance since 1965. That has caused some to openly wonder whether the Midwestern Midas has lost his famed touch.
But after a six-hour question and answer session, it was pretty clear that neither Buffett nor Munger had missed a trick.
Here is some of what the investment duo had to say during the session.
From The Wall Street Journal by Scott Patterson and Alistair Bair entitled: Business Musings From Woodstock for Capitalists
Mr. Buffett on Newspapers
Mr. Buffett has long held himself out as a newspaper man. As a child, one of his first jobs was delivering newspapers. An Omaha newspaper Berkshire owned, Sun Newspapers, won a Pulitzer Prize in 1973 based in part on a tip Mr. Buffett provided. One of Berkshire’s biggest investments in the 1970s was the Buffalo News, which it still owns.
But his view on the future of the newspaper industry is dismal. “For most newspapers in the United States, we would not buy them at any price,” he said. “They have the possibility of going to just unending losses.”
Mr. Munger called newspapers’ woes “a national tragedy….These monopoly daily newspapers have been an important sinew to our civilization, they kept government more honest than they would otherwise be.”
Mr. Buffett on Insurance…
In response to a question about the worst possible development for Berkshire Hathaway’s vast insurance operations, Mr. Buffett responded: nationalization.
If inflation jumped and insurance policies became extremely expensive, pressure could rise on the government to nationalize the insurance industry, he said. “When people get outraged, politicians respond,” Mr. Buffett said. It’s highly unlikely that such a development would happen, he added. But he did note the example of Social Security, which is a form of a nationalized annuity.
Mr. Buffett on Housing…
“In the last few months you’ve seen a real pickup in activity although at much lower prices,” Mr. Buffett said, citing data from Berkshire’s real-estate brokerage business, HomeServices of America Inc., which is one of the largest in the U.S.
In California, medium and lower-price homes — under $750,000 — have been selling more, though there hasn’t been a bounce back in sale prices, Mr. Buffett said. “We see something close to stability at these much-reduced prices in the medium to lower part of the market.”
Mr. Buffett on Moody’s…
Mr. Buffett was asked about Moody’s Investors Service, which gave a triple-A rating to billions of dollars of mortgage securities that subsequently lost value. Berkshire has a 20.4% stake in the company.
“Basically, four or five years ago, virtually everybody in the country had this model in their heads, formal or otherwise, that house prices could not fall significantly,” Mr. Buffett said. He later added that “it was stupidity and the fact that everyone else was doing it.”
He said that if Moody’s had started to take a negative view on residential real estate, the ratings provider would have been hauled before Congress to testify about why it was hurting the U.S. economy with its bearish ratings. “They made a huge mistake, and the American people made a huge mistake,” he said.
Messrs. Buffett and Munger On Math and Theories..
Messrs. Buffett and Munger made clear their complete disdain for the use of higher-order mathematics in finance.
“There is so much that’s false and nutty in modern investing practice and modern investment banking, that if you just reduced the nonsense, that’s a goal you should reasonably hope for,” Mr. Buffett said. Regarding complex calculations used to value purchases, he said: “If you need to use a computer or a calculator to make the calculation, you shouldn’t buy it.”
Said Mr. Munger: “Some of the worst business decisions I’ve ever seen are those with future projections and discounts back. It seems like the higher mathematics with more false precision should help you, but it doesn’t. They teach that in business schools because, well, they’ve got to do something.”
Mr. Buffett said: “If you stand up in front of a business class and say a bird in the hand is worth two in the bush, you won’t get tenure….Higher mathematics my be dangerous and lead you down pathways that are better left untrod.”
Mr. Munger on the Future…
“As I move close to the edge of death, I find myself getting more cheerful about the economic future,” Mr. Munger said.
Mr. Munger sees “a final breakthrough that solves the main technical problem of man,” he continued.
By harnessing the power of the sun, electrical power will become more available around the world. That will help humans turn sea water into fresh water and eliminate
environmental problems, Mr. Munger explained. “If you have enough energy you can solve a lot of other problems.”
By the way, Buffett also had this to say in an interview with CNBC’s Becky Quick.
“I am 100% enormously optimistic about the future of this country all the time. I mean there is no way you can bet against America and win.
But in the short term, things are going to be tough for a while and we see no real pick-up in whole variety of businesses we have. I don’t know if they will be doing fine in three months, six months, two years, but I know they will be doing fine in the next five years.”
All of which reminds of something I posted earlier this year called “Old Doc Nadler’s Remedy”
It reads:
  • “You’re right if you bet that the United States economy will continue to expand;
  • “You’re wrong if you bet that it is going to stand still or collapse;
  • “You’re wrong if you bet that any one element in our society is going to ruin or wreck the country;
  • “You’re right if you bet that men in business, labor, and government are sane, reasonably well informed and decent people who can be counted on to find common ground among all their conflicting interests and work out a compromise solution to the big issues that confront them.”
Great stuff.
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