What we learned from our trip to Omaha
Christ Titley at Morgans recently hosted us on his podcast on the subject of our recent trip to the Berkshire Hathaway annual shareholders meeting. Below are the key take-away’s, with a link to the full podcast. Totus has been a holder of Berkshire Hathaway for four years. We've read widely on both Warren and Charlie over the years, so we weren't expecting any lightning bolts or flashes of new information. However, I think the key take-away was an avalanche of common sense out of both Warren and Berkshire Hathaway throughout the five hours of Q&A.
Both reiterated the mantra of buying quality and sticking with integrity in businesses and management teams. Which resonates with us, and our investment process. The warning was to stay away from poor businesses. And they had some reasonable insights on disruption, which will have implications for portfolios both here and in the US in years to come so, plenty came out of the meeting.
Thoughts on the comments on Google and Amazon
We have about 30% of our portfolio invested in mega-cap US names. Google (or Alphabet) is the second largest position in our fund. So it was incredibly encouraging to hear Warren and Charlie talk about missing Google in the early years as being one of the biggest own-goals of their careers, and to talk at length about the strength of the Google business model.
Another name that they mentioned with regret having missed was Amazon, which is also a holding in our portfolio, and they highlighted the fact that these businesses have been able to grow without recourse to external capital. Which means that there is a lot of value generated by these businesses that is directly payable or goes directly to shareholders. We found that very encouraging as well.
If Warren and Charlie are talking about the strength of the business model of both Amazon and Google, then make sure we look for an opportunity to add to those positions on dips or if and when volatility increases. We'll be looking to add to our positions in those US mega-cap names.
We tacked on a trip to Seattle and San Francisco on the back of the Berkshire meeting and caught up with Costco, Expedia, Amazon, Apple, Facebook and Equinex (a US equivalent of Next DC). We're holders of a number of these businesses and will look to buy on dips too.
What would Buffett buy in Australia?
The environment gets a lot tougher when you come back to Australia. Our market is dominated by the big four banks, and the resource companies. Both of which are facing some challenges even from the end of the structural bull market in the resource space, or the housing boom and the implications if that slows for the big four banks.
I think you have to search down the market cap chain here in Australia. We've got a few high returning mid-cap businesses that we like, the likes of Smartgroup (ASX:SIQ), is a reasonable holding.
But it's a lot tougher to find those, the See's Candies or the Coca-Colas, back here in Australia unfortunately.
I've got to recommend going over to the Berkshire Hathaway meeting for any investment buff, young and old. It was well worthwhile, a great learning experience, and a good networking event. I think we'll be back next year.
This was an edited version of the podcast with Chris Titley, click here for the full version which also features commentary from BKI Investment:
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Ben has 19 years of financial markets experience on both the buy and sell side. As an analyst at UBS Australia and Morgan Stanley in London, Ben covered a broad range of companies and sectors.