Notes from the 2018 Berkshire Shareholders Meeting

The Annual Berkshire Hathaway Shareholders’ Meeting is something of a legend in the investment world. More than just an informational annual meeting, shareholders come from far and wide to listen to the musings of the Oracle of Omaha, Warren Buffett, and his partner, Charlie Munger. During the 2018 meeting, both Buffett and Munger discussed their investment philosophies and opined on a number of economic issues and trends they foresaw as influencing the future for investors.

The Power of Long-Term Buy and Hold

The meeting kicked off with Buffett discussing his strong conviction in his time-tested investment philosophy. When he made his first stock purchase in 1942, Buffett bought a few shares of a company called Cities Service. The stock declined by about a third before coming back; somewhat shaken by volatility, he exited his position for a small profit. Buffett’s initial investment in Cities Service was $114. If instead of selling due to his fear of volatility he had held onto the stock, it would be worth about $400,000 today.

“When there’s nothing to do, Warren is very good at doing nothing,” said Munger, exemplifying the power of the long-term buy and hold strategy as the key to Berkshire Hathaway’s success. The lessons of long-term buy and hold are neither exciting nor sexy and are often forgotten during large market moves over the course of a year.

A decade after the Great Recession, with unemployment below four percent and the Fed hiking interest rates, investors are starting to feel uneasy about the market cooling off and may be tempted to react to sell-offs. When a correction comes, these are exactly the times that Buffett and Munger say one should hold the course and be prepared to find value in the market for new long-term buy and hold positions.

Finishing off with a discussion on the power of compounding, Buffett predicted that the Dow would reach one million over the next 100 years. As big and bold as this might seem, it’s actually pretty conservative once you realize that the Dow Jones would only need to grow at 4 percent annually to reach this level—approximately half the historic rate of return over the past 100 years.

Cryptocurrency and Other “Trends”

Buffett and Munger warned of being seduced into hot new investments like cryptocurrencies at the expense of investing in stocks for the long run. Their concern is not about cryptocurrencies in particular, but that it is a non-productive asset. Non-productive assets don’t actually create any value or wealth, but rise based only on perceived scarcity.

They warned of the greater fool theory, that anytime you buy a non-productive asset, you are counting on someone else to buy the exact same holding for more money later. They ended the discussion by observing that “cryptocurrencies will come to bad endings.”

U.S. Healthcare

Buffett expressed strong views on the U.S. healthcare system. He believes spending is a problem, noting that approximately 18 percent of U.S. GDP is spent on medical costs, a growth of five percent over the 1970s. In response, Berkshire Hathaway formed a partnership with Amazon and JP Morgan designed to assist employees by lowering healthcare costs for similar services. He foresees significant resistance to broad adoption of such plans by the healthcare industry as it threatens their entrenched position.

Munger went a step further and noted he thinks a single-payer medical system will eventually be adopted in the U.S. in response to rising costs.

U.S. Trade Policy

Exports have doubled since the 1970s, making up about 11 percent of GDP versus about five percent back then. Despite this increase, imports have increased as well, accounting for 14 percent of GDP today—creating a trade gap of three percent.

Buffett is concerned about this trade gap widening over the long term, as eventually we will have to pay for it.

Take Away

The main theme of the annual meeting was centered on Buffett and Munger’s time-tested long-term buy and hold theme. While they touched on a number of other issues, the time they devoted to this illustrates their belief in its importance relative to other matters.

How to Get More Customer Referrals

When it comes to finding new clients, businesses can do so in many ways. Whether via a radio or television spot, or an advertisement on a website, social media platform or digital billboard, the goal is to reach new viewers. Another cost-effective way is to develop more customer referrals. In fact, according to The New York Times, referrals account for 65 percent of a company’s new accounts. As an important part of marketing, how can organizations more effectively accomplish this type of advertising?

Simply Ask 

One under-utilized way to get referrals is to simply ask existing customers if they would kindly refer your product or service to others. Based on statistics from Texas Tech University, 83 percent of customers are happy to refer a company’s product or service, yet only 29 percent of these customers follow through. Often all it takes to get a referral is expressing your gratitude to existing customers whose expectations have been exceeded and showing them how they can refer your company’s products or services.

There are considerations, however, concerning when to ask for that referral. When it comes to a customer who requested a rush job to have their website built over the weekend, it might be more effective to ask for a referral immediately after they’ve had a chance to see the website. Following up shortly after the project’s completion can make the most of a referral request because that’s when the client is most impressed.

There are other scenarios when it could be more effective to ask for a referral well after the sale. When it comes to enterprise application software, such as software that backs up files passively in the background at each user’s endpoint, or when using automated billing or payment processing systems, clients will not see the results for a few weeks, months or longer. For products that produce results over the long term, ask permission to follow up with the client in 90 or 180 days for feedback on how the product has performed. A client might not need a backup for six months; and it could take a month or two for a client to analyze their sales reports to see the software’s effectiveness.

Leverage Social Media Platforms 

What matters less than the type of social media platform is the ease and ability of a company to use this media to ask for and receive a referral. If a customer expresses a highly positive review based upon a recent experience, social media can be leveraged to increase referrals for a business. Push friendly reminders and embedded links via social media or email newsletters and on your website to encourage clients to post a Tweet, Facebook comment or photo on Instagram as a referral for your company.

While there’s no single avenue to seek new business, taking care of your current clients is one way that can pay dividends both now and in the future.

Sources

https://www.slideshare.net/sidekick/107-mindblowing-sales-statistics-that-will-help-you-sell-smarter/93-65_of_a_companys_newbusiness

https://today.ttu.edu/posts/2015/04/why-referral-marketing-works

Common Money Mistakes As We Age

It is common knowledge that as we grow old, our bodies tend to not work as well. Some folks begin having physical challenges, some have cognitive issues and some have both. But what we don’t know is which, if any, of those challenges we will face. Worse yet, those who fall into cognitive decline often do not have the ability to recognize it.

The lesson here is to prepare for the unknown. If you’ve worked with financial advisors throughout your career, it’s a good idea to narrow your resources to one or two trusted people—possibly including a family member. That way, if and when you need help managing your finances, you’ll have a loved one who can help recognize when it’s time for you to relinquish control of the reins—and an expert to help take over.

The following are some common areas in which seniors make mistakes that could impact their future financial security.

Draw Social Security Too Early

Many of today’s current retirees started drawing Social Security at the earliest possible age of 62. This might have been due to a layoff, health issues or simply because they retired and needed to turn on the income stream. However, the earlier you start drawing benefits, the lower the payout—and this payout level is locked in for life (with the exception of periodic cost-of-living adjustments). It also locks in the amount a surviving spouse—whose benefit is derived from your earnings—will receive when you pass away. Waiting as long as you can before starting Social Security allows your benefits to accrue higher.

Spend Assets Too Soon

Once you retire, it’s important to create a household budget for regular and ad hoc expenses each year. Then, subtract the amount of Social Security and any pension benefits you (and your spouse) will receive to estimate how much you’ll need to withdraw from your savings and investments each year. One of the most common mistakes is withdrawing too much of these assets early on in retirement and then running out of funds.

Forget RMDs

When you turn age 70½, you will need to make Required Minimum Distributions (RMDs) on all tax-deferred 401k and IRA accounts, even if you don’t need the money. Each year your brokerage will send you a notice indicating the withdrawal amount. You’ll need to make that withdrawal before the end of the calendar year and pay any taxes due on your return for that year. Any RMDs you do not withdraw will be subject to a 50 percent penalty. Remembering to take RMDs as a young retiree might be easy, but you should have a plan for someone to continue making these withdrawals on your behalf should you forget to in old age.

Cancel Life Insurance

Many couples stop paying for life insurance once their children are grown. However, consider how much your household income would be impacted should one of you die first. Would the elimination of a regular pension and/or Social Security benefit check impact your loved ones’ lifestyle or financial security? Consider purchasing life insurance for one or both spouses to help ensure that there is enough money for the survivor’s lifetime.

Chat With Strangers

Elder financial fraud is big business. Each year, $37 billion is fraudulently taken from seniors—often willingly given. Because many seniors live alone, they are more susceptible to chatting on the phone with a friendly caller, who uses this to their advantage. It’s a good idea to never respond to phone calls you receive from marketers or unsolicited offers from unfamiliar companies.

Keep Information in Different Places

The wider the range of your savings and investment accounts, the harder it is to look after them when you get older. Consider consolidating accounts into as few as possible, such as combining checking and savings accounts into a single bank and transferring investments to one investment firm.

Pay Bills By Hand

Stop paying your bills every month; have your bank pay them automatically. Enter all regular payors and authorize your bank to pay them from your bank account automatically. Also, get some help monitoring this process. As you get older, you’ll want someone helping sort through your mail on a regular basis to address periodic bills like homeowner’s insurance and your property tax bill.