What I Learned At Warren Buffett’s 2019 Berkshire Hathaway Event

Welcome to Capability Amplifier, the show for business owners and entrepreneurs who want high performance upgrades for their brains, bodies and bank accounts. All right, this is Mike Koenigs. I'm here today with Dan Sullivan. And Dan, what we're going to talk about today that I've got is I just came back from the annual Berkshire Hathaway annual meeting with Warren Buffett and Charlie Munger. I gotta tell you, it was a life changing experience. One of the reasons is it's been on a bucket list for me for years. And I found out, I did not know this, but you only need to own 1B share Berkshire Hathaway stock, which was priced just around 200, $220 as of right now, it was the best $200 I've spent in probably 20 years.

Well, this is a legendary company. Just because they've stayed put in one place forever, you know, I don't know if it's affected either of their lifestyles. You know, the huge success of Berkshire Hathaway. I mean, they're probably the most principle driven investment firm in the history of the United States.

It's true. So I've got a couple answers to that one. First of all, something super exciting I did, which was kind of a non event, but it was still super fun. I'll make sure these are in the notes and on our website, capabilityamplifier.com but I went out and I got a ride to the facility where this was taking place. And the driver said, hey, you want to drop by Warren's house? And I'm like, yeah, sure, why not? Right? And pulled up and there was like almost no one there. And it's the day before the event. You know, people are known for showing up there. There's a big gate outside. But he's had the same house since the 50s. And it's not like an over the top home. It's a nice place. In fact, it's very similar to the place you and Babs have in Chicago. Nice brick, but it's got a fence. Okay, so that was the first thing. Has it affected his lifestyle in a way? No. He still doesn't travel around with a gigantic security team. He goes to McDonald's every single day for breakfast and he eats dinner at very predictable places to be one of the richest men in the world. And it turns out Berkshire Hathaway has more cash as of right now than even Apple by double. $200 billion in cash available. Sometimes they get into a tiff about that, the shareholders. But the other thing is Warren bought A jet. And that was a little bit of an issue between he and Charlie. Charlie is like, his attitude is he always took coach when he said the front of the plane gets to the destination at the same time the back of the plane does. And he's such a fascinating guy. We'll talk more about Charlie in a moment. But the bottom line is, no, it really hasn't affected them because they're just principled people and they run a business that way. And when you look at their revenue now, it isn't the same as of now. I'm reading one of the books about them, but for years, their annualized compounded return was like 23% virtually every year, where the S and p was about 10%. And it's because they just stick to their guns. They do not subscribe to, as they would say, highfalutin Wall Street BS or poppycock. You know, they've got interesting ways of describing it, but they're just fascinating.

Or Silicon Valley hype.

Yeah. None of it. None of it at all. They stick to their guns. And it really made a believer out of me. And I think some of the things I'm going to share with you today and share with our audience are just some of the key distinctions, takeaways, and wisdom. And I've committed myself to reading and pouring over every piece of information I can get on these guys and taking on the value investing approach in how I run and operate my business and also how I acquire and take on new clients as I move forward. It's affected me in that deeply.

Okay, give me strategy number one, A shift in your approach. Because you're essentially investing in people right now with your new business. You're investing in people on the basis that they might have a big future. Okay. That you can help them with. Okay. So it's actually the best use of your capabilities that you're investing in.

Yeah. Part of what happened here is it reaffirmed some instinctive and intuitive things I've always carried around, but I don't always hold myself to a high standard for. And I think that's certainly one of them, if I take it as a mini strategy, is it's like, absolutely, listen to my. My gut about people and values. So, for example, I won't call this, like, the most important, but it's a valuable, important lesson. It comes down to someone who changes the deal at the last minute and does it in a sneaky way. So Warren will walk away from anything that looks sneaky and doesn't follow the original agreement to A T. So, for example, there was a time, and I don't remember the exact company at this point, and actually, at this point, it doesn't matter because they didn't do a deal. But Warren, first of all, has sent one email in his career, and he said the only email he sent, basically something went to court. So he does deals by meeting people in person and looking at them in the eyes, and he looks for congruency, consistency, and competence. He said it's much better to work with someone who thinks they have an IQ of 128 when their IQ is, in fact 130 versus someone who's got an IQ of 180 who thinks it's 240. So that's certainly a grand lesson. Another one is getting back to the value deal. So they made a deal, and when they finally got the paperwork, the agreement was off by, like, a couple of pennies. But he said it just showed the character of the people they're looking for. They're looking for some way of getting a leg up and cheating. And he doesn't work with cheaters, period. And that goes to show, even when the Salomon brothers fell apart, he took responsibility. Even in the wake of all the Wells Fargo scandals, they've held to their guns about what's going on. And basically they said that the CEO was a pinata, even though. And he said, look, incentives cause bad behavior. And again, that comes to the family values of an organization. So they always invest in the behavior and the values of the people on top. I think that really is the big, grand lesson.

You know, I've read a lot about Warren Buffett over the years, but I had actually kind of an inside look at this about two or three months ago, and. And I have a really great limousine service in Toronto. So I made a decision about right around 2000 that I wasn't going to drive in the city anymore. So when I'm with Babs, Babs is driving because she doesn't like being in a car where she's the passenger. With me driving, she overrides me because she wants to be in the driver's seat. So when I'm with her, then she's driving. But when. And I'm by myself, I use a really great limousine service called Bennington here in Toronto, and they're connected to 300 different limousine services around the world. So if I want to go someplace else, I just go through Bennington and they arrange it for me. But anyway, it had to do with one of the drivers having Warren Buffett for the day, driving him around Toronto. And before I heard about this story, I read a report that Mark Zuckerberg, now it's estimated that the number of security personnel he has for his family and for his CEOs is up to 70 to 80 different security personnel. And this is at home, this is wherever they go. This is, you know, in the campus, the Facebook campus and everything else. And they're saying that he's really very, very concerned, you know, about his personal safety, that of his wife and children and everything else. And I was just contrasting that report that I read, and it's not really surprising, and the actual account that the limousine driver gave me, and that is that Warren Buffett was in Toronto for the whole day without any other personnel. It was just him. So he was going to meetings and he was going to conferences, and it was just Warren Buffett and his limousine driver, not even his limousine driver, but service. And he asked to sit in the front seat all through the day, and he just chatted with a limousine driver. And so on the one hand, he's in the top 10 of wealthiest people in the world. And on the other hand you have Mark Zuckerberg, who's In the top 10 of wealthiest people in the world. And you know, Mark Zuckerberg is very famous in the early years of Facebook of having a motto, move quickly and break things. And I would say that Warren Buffett has an alternative strategy which is move slowly and build things. And if you move quickly and break things, then you need 70 security personnel. If you move slowly and build things, then you don't have to pay for that.

Yes, and there is a little stack lesson here, which, and someone did talk about that, like Bezos and Zuckerberg and even Gates, they travel with huge security groups as well, where Warren in general doesn't. Now, of course, he's surrounded by people at this event because there were almost 40,000 people there. You know, it makes sense. But for the most part, he's not hassled. I do, I think that also has to do with the next giant principle, which is the short game versus the long game. And here's a big principle that they look at, the filter they look at. First of all, Warren and Charlie both are building an organization that is self managing and will be around much longer than they do. They talk constantly about how they're not competent. They talk constantly about. All they do is they read. Their lives are geared around reading. Warren reads around 500 pages a day, which is down considerably. And Charlie reads more than Him. Okay, that's astonishing. It's absolutely astonishing. And he says, I'm a slower reader now. They're voracious. And Warren does talk about what books he reads. He didn't talk specifically at this event. So I can't tell you what that is. But going back to the short game versus the long game, what I've tuned my filters to since I was young, because being raised in an environment where I was relatively poor, at least by my standards, didn't have resources. I had my father as a mentor, but I wasn't surrounded by mentor like energy. And I did not relate to any teachers. I grew up, I mean, I felt no connection just because I was such a horrible student. And so I was self managed. I felt alone. That was the story I told myself. So my filter became number one, I wanted to be rich. Number two, I wanted to be warm. And number three, I wanted to be first. You know, it was like because being lower middle class, poor and last, I was last to be chosen. I wasn't great in sports and my dad worked so much. We showed up late for everything. So we got the scraps like if.

We went to a buffet and you had long winters.

Exactly. It sucked in Minnesota. I hated it. I still do. I hate going there. But at least in the wintertime, it's beautiful from summer to fall when we're past mosquito season. But anyway, staying on track, I tuned my filters then to what's going to make the most money. And that carried forth into a lot of the ways that I built and grew my businesses is I learned direct response marketing. I learned influence and persuasion. I learned like, don't let the opportunity for a sale go by without taking advantage of it. And that tunes your brain a certain way. And I've shifted my focus over time as I've gotten more secure in who I am. But when I look at these guys, they look through the lens of. And if you look at all their products, you know, it's Dairy Queen, it's Coca Cola, it's McDonald's, Disney. They're like, disney. He says, it's great that they recycle Cinderella every eight years, for example, people are interested in it again. And I used to think about it. Who'd want to recycle that? That's not artistic. You know, I'd have different rules in theirs. It's sort of like what gets consumed and throws off cash all the time. Coca Cola is the most recognized, well known brand in the world. They make pennies on every serving. But there are hundreds of Millions of servings every single day. And it's a formula, it's simple. So that's what they're going to look at is what's going to be around forever, even taking the chances of investing in Railway, for example. So one of his sayings that he's known for, and I tried to find it, so I couldn't find the exact source or when, but it was something along the lines of, over the course of my life, I've made 25 great decisions over the past 50, 50 years. And I thought, holy cow, how profound is that? The old sage sitting around and other than that, he's like, I don't do anything else. He says, I tap dance to work every morning.

Yeah, yeah. Well, I wonder how many of the great decisions that he made among the 25 are when he said no.

Yeah. He says that they say no more than anything else. And if you look quotes by Warren Buffett, a large percentage revolve around some variation of saying, no, there's never a lack of opportunity, but what there is is the lack of the most precious time that none of us have, which is time. And that really is. They just don't waste time. But he has lots of it. He protects it at all costs. And. And what they do, and philosophically, they're all about reading constantly. And Charlie is quoted in some variation. I just read this, and he even said something along it at the meeting, which was, you become less interesting, less effective the less you read. That's the one thing that all great leaders who continually grow all have in common is they read constantly.

Yeah, well, you know, I mean, then the place where this took place, I mean, Omaha is about as close to the center of the country as you. I mean, you talk about flyover country. Omaha is right in the middle of flyover country. Actually, Omaha is a very prosperous. You know, I don't know how big it is.

It's about a half a million people. I actually had to look that up because it was hell to get an Uber or a Lyft while it was there.

Yeah.

And the ones who are there are not necessarily tuned. You know, when you go to a big city, there's an Uber and a Lyft culture.

Yes.

You can tell by your driver how they think, how they behave, and you can just tell culturally it hasn't kicked in.

Well, speaking of which, I don't think Warren Buffett has invested in either Lyft or Uber. You know, it was interesting. I was at Genius Network, and there's a lot of question now whether Uber is actually even a good business model. You know, so we went through this craze over the last 10 years. The Uber of this, the Uber of that, the Uber of this. But it's not entirely clear yet whether Uber is actually a good business model. First of all, they haven't made a profit yet. They're going to an IPO without any guarantee of a profit in the future whatsoever.

Well, that's worth exploring because I'm going to argue both sides of that. And I'll also say that as of right now, Berkshire Hathaway, not Warren, have invested in Amazon for the first time and he considers it a mistake. At this point, Amazon's violated their models of value because it hasn't kicked off a profit. And one thing I can tell you is I bought Apple Share and that thing kicks off a dividend constantly. Constantly. I'm always getting dividends in my account from Apple. And that's what they look for in general too is businesses that throw off a lot of cash now they invest in brands that are going to be around forever. And I think that is a huge distinction that is also relevant to an Uber, which is a worldwide brand, has more value than currency or cash. That is something because right now cash is cheap. There is so much as the investment community, I didn't know what this term meant, but the term dry powder available, meaning there's trillions of dollars in cash available to invest in businesses. And it's on the side. You know, the federal government has made cash available to banks at record low even though we're in a highly prosperous time, which doesn't make sense. Okay, yes, our economic models, as I would like to say, are fake right now. We have a fake government, we've got fake leaders in many governments, we've got fake news, we've got fake money, fake businesses, we've got fake fame. You could go on down the line, our educational institutions with what's been going on, it just doesn't matter anymore except perception more than ever before. And again, like our medical system, okay, you can chew that up and spit it out. Just stuff is broken. And I would say one of the things that I observe with regards to like an Uber or a Lyft is we've moved to this gig economy. Adults are gigging it. When I get a ride and I'm getting, I always ask the Uber driver, so is this a side gig or is this your full time gig? And I always ask them, how long have you been driving? How much do you make? And without exception, with Hundreds of rides. People tell me virtually everything. What I think is a trend, whether or not it's going to stick around, but I don't see it going away in the near future is being able to open up an app, say I am available for work right now and have a machine deliver you tasks and for you to be a doing machine. So there's a strong positive to the Uber culture and there's a strong negative One is you're being treated like a drone and a machine and the value of doing is at an absolute all time low from a human history perspective. In my opinion, over the long haul. And even the knowing economy is going to be replaced by AI very, very soon. So gigging it for the immediate future is here to stay. I'm available right now to do stuff for money and I can control these guys can take a ride and then turn it off and not get any rides anymore. There's just beautiful flow of supply and demand. It's freaking amazing. And for a long time the big buzz in Silicon Valley was can you Uberize your business? Right, we're the next Uber, which is horse manure, but like you say, throwing off profit. So the argument to and for and against is looking at it through the long term lens is the gig, opportunity, supply and demand thing here to stay forever and at. And what does it really do? I think it reduces us to a lowest common denominator, which is dangerous. No one wants to be in a strict commodity business in my opinion, although Munger and Buffett don't mind it as long as there's a moat. So that's at least some of the reasoning. And again, versus Amazon, massive brand, they're here forever acquiring so much stuff, they're gonna probably own a big chunk of healthcare and medicine in a short period of time. And if I were going to put my money on anyone at this point, AI is going to replace doctors in a short period of time. The knowing business, being able to have an agent that you can talk to that diagnoses you and wearing lots of sensors or having them embedded in us is very, very close. And being able to go somewhere to have a task done to fix you is very, very close. Amazon can own that because they've got the elastic cloud and lots and lots of processing power available. So anyway, I digress, but go for it.

Well, you know, I think Jeff Bezos is very famous for a letter that he sent out to investors about 15 years ago, and this is before they went public. And he said, the one thing I want to tell you is that we're not going to make any profits for the foreseeable future, but increasingly we're going to own the whole world, okay? And they pile all their cash back into expansion and acquisition. So I mean he kind of laid it out. I don't see any violation of first principles here. He kind of laid it out and as a result he doesn't pay any tax. You know, if you don't make profits, you don't make tax and the money comes in, the money goes right back out. So he's taking advantage of really bad service, really bad retail models. What he realized is that in the retail space in the United States, about 80% of it is really kind of subpar, kind of mediocre and not very talented. And that if you offer just a couple steps, one is that you can get it at a lower price and you can get it in two days, three days, or you can get it the same day that consumers will actually go for this. So it's not Amazon, it's actually consumers who've disrupted the retail market. And consumers have said, I don't like the amount of time that I have to spend not getting what I want.

So if you can introduce a couple efficiencies in that chain, the consumer chain, you can make rapid progress. I live in a part of Toronto that's got a lot of owner operated retail shops and I would say on a yearly basis the mortality rate is about 20%. All the stores I can tell usually within about two weeks of a store opening whether it's going to make it through the year. And I remember the all time when you'll enjoy this. Mike was a restaurant. It had a name for the restaurant, but the subtitle was People, not profits. And I said maybe three months, maybe six months. And I said this is a hobby that got out of hand. A lot of retail operations are just personal hobbies that got out of hand, that kind of got out of control. You know, I want to impose my hobby on the world is what a lot of retail. So I think that what, you know, in some sense Amazon is taking advantage of a very, very low level of quality in most retail operations. But you know, over the long run as many new really better retail operations will operate on the Amazon platform. So my feeling is treat it like a public utility. Basically it's public utility and there's a danger for them being a public utility. You can become so useful that people no longer trust you to make good decisions about your utility. You know, and Jeff Bezos himself said That I don't think any corporation today can last more than 30 years. And they're more than halfway into their 30 years. So I was looking at Facebook. You know, people are starting to say, how long does the Facebook model actually last? Even though they're huge and they're gargantuan and everything else. But if they keep trying to play a double game, that they're both a platform and a publisher, the government's going to intervene. So you're going to decide whether you're a publisher or you're going to decide whether you're a platform. But you can't be both at the same time.

So I've got a couple comments. One of them is like Facebook, for example, at least this is my perception, is despised by its users, by the government. It has proven that it's evil and it behaves in evil ways. It tries to play both sides. I'm going to say something that I'm sure someone who listens to us is going to find controversial. Maybe not. I liken it to San Francisco. San Francisco used to be a beautiful city until it was overrun by socialists who despise it. Okay? Right now I call it the land of piss pot and bums and people poop in the streets and there's drug needles and there's a lot of filth and it's been overrun. And I know a lot of people who are leaving it or are like, what happened to my beautiful city? That's sort of like treating your customers sort of like, well, people before profits. It's not that you shouldn't treat people nicely. No one's saying we shouldn't treat people nicely who live on the street in San Francisco. But if you do it at the expense of the people who pay the bills. So it's got to start with unbelievable quality service and an incredible experience, or you've got a devalued low level product. And that's what's happened to San Francisco, for example, is it's a low level product. Now I'm disturbed and disgusted by traveling there in general. And it's not an always, and I'm not saying anything about, you know, any person. It's just look at it for what it is. If aliens landed and they gave their first impression, they'd be like, what's that smell? Would be my impression. And if it's marijuana and urine, we've got an issue. Now it's legal all over. And I'm not saying I'm not making a commentary about it, but I think, you know, what I'm talking about here. And if you don't, you're definitely not my audience. Right. So moving. I had one other observation. Well, first of all, any commentary on that before I move on to one other observation I think was my favorite one of all from the event.

Yeah, Well, I think you're making a contrast between two extremes here with Berkshire Hathaway experience in San Francisco. And it's the difference between long term investment and short term investment. I mean, San Francisco is the casualty of a hit and run mentality. In other words, the money's made in getting a quick hit from a new idea, whether the new idea creates any value whatsoever.

Wow.

Yeah.

That's big and. Well, we're going to see, right?

Yeah. No, I mean, these things work out. I'm sure that, you know, if you go back to the 1890s when electricity was coming in, when telephones were coming in, you know, the early automobile industry, there was just as much short term try to rip off schemes, but we don't remember them, you know, because over time that which works kind of works its way through the system. And we look at things as if the past was all wise people who made really great investments. There were just many casualties, just as many fly by night offers back then as there are today. It's just that we don't have general information about them the way we do today. So I think the biggest change in my lifetime has been the amount of news. It hasn't been the amount of activity reported on. It's actually been just the sheer amount of news that there is today. I mean, we went long stretches every day between the morning news and the evening news, you know, when there was no news. Now it's constant. So I think that you have to filter out news itself is a product. It wasn't a product when I was first born, it was a report on what the other products were doing. But I've heard great things about the Berkshire Hathaway meeting and it's good to have someone that I know and respect actually report on it.

Well, thanks, Dan. So I'll leave it on. One big idea. Because first of all, these guys are old. Warren's 89, Charlie is 95, and they're still very cogent. But the chances of going back there are reduced all the time. So I'm committed. For example, one of the things I'm going to do in my own league, that I'm putting together a business league, is I'm going to make a point of taking all of my clients there next Year, I'm going to make it a trip because it's to me, going there as a group, it's incredibly fascinating. So I was there with a group, and we got together and we talked about what we learned and observed. But here's my favorite takeaway of all, and it sort of breaks the rules a little bit because we talk about the longevity. One of the things that both of these guys mentioned sometimes is how they say there's no core competence at the top of Berkshire Hathaway. Both of them joke about that. We depend on our managers to stay on top of their businesses and inform us of changes and opportunities. So they're always focused on building something that doesn't need them. The but, however, here is. This was an unbelievably great experience of finding out how great leaders are also great entertainers. And you wouldn't expect that. But the way the event opens up, you sit down and they play a movie. And really, it's a string of commercials. So they had a really, really funny DQ commercial, for example. And they have Brooks Shoes, for example. And again, you get exposed to the brands. And just at Berkshire Hathaway, they sell over a billion dollars worth of product while their shareholders are there. So their shareholders are great consumers. Here's what I loved the most, is the first thing you hear as soon as the thing is done, you hear crack, crack. That recognizable sound of Coca Cola. And then you hear crunch, munch, munch, munch, munch, munch, crunch, munch, munch, munch, munch, munch. The lights come up, and there they are with a giant box of See's candy, and they're both eating peanut brittle and drinking Coca Cola. And you're like, what the hell? Because Warren drinks five cans of that garbage every day, you know, and he eats DQ and he goes to McDonald's every day. It's like, how in the hell is this guy still alive? Is one of the questions you gotta ask yourself. But the other thing is, after they're done, it just goes to Q and A. Warren says his bit. For 20 or 30 minutes, it's Q and A from the audience with their shareholders, which, by the way, the number of Chinese in the audience is freaking amazing. He is a God to many Chinese, young Chinese people. It'll be like Warren will talk and answer a question for three, four, five minutes, and then it'll go to Charlie, and he'll have two or three or five words. And here's what the response is. Warren's talk, talk, talk, talk, talk. And you hear crunch Munch, munch, munch, crunch, munch, munch, munch. As Charlie's eating his peanut brittle, he goes, charlie, what about you? And he'll go.

No further comment.

That'll be his commentary. So it's just I was laughing a third of the time because they're like the two old Muppet men. And it was an absolute pleasure to sit there and experience an old school, values driven, two old men saying whatever they want to say. And it's not about being politically correct. I mean, these guys are respectful, decent human beings who just see things as they are and are playing by their own rules in an environment where they got to make their own rules. And I would say they represent freedom, liberty and opportunity. And I walked away so much more excited about business and life and family and values and what it means to be an entrepreneur and a business owner.

Yeah, I'm just thinking, a topic for somewhere down the line. Think of a socialist meeting somewhere on the planet that you would have enjoyed yourself as much at, because this is kind of as close to pure capitalism as you're going to get.

Yeah, well, as he'd say, first of all, I'm a card carrying capitalist and I never used. Except for once. He says, one time I was tricked into donating to a package, but I've never supported a candidate. I've never supported my politics. My business has nothing to do with politics. I'm paraphrasing, but that was something else that was refreshing because, you know, Warren's well known as being a Democrat. He doesn't support a lot of Republican notions and agendas. And that's because the people who call themselves Republicans, most of them are freaking nutjobs. The extremes. Anyway, I'm not talking about everyone, but the ones we hear about, the ones creating the news, the fake news, so to speak, I'm all over the place I belong to. No religion, no political anything. Although I understand, admire and respect as best as I can the principles that guide and the why behind it. But in general, it's sort of like I never met a religion that I really liked because oftentimes the lemmings rushing into the ocean, drowning on top of themselves, speak for itself. Okay. It's sort of like when I go to Disney and I just see people, I don't want to be there.

Right, yeah, that's my variation. Well, Disney was not designed for you in mind.

Not at all. Not at all. No.

There was no religion on the planet that was designed with Mike Koenigs in mind.

True that, my friend.

True that. You're simply a visitor there.

I would prefer to observe. And if there's going to be a religion, it's going to be the one that I made and I created. So any other reflection as we wrap up?

No, no. I thought it was really great because you've been explorer and you brought back, you know, news of a place that a lot of people have heard of, an event that a lot of people have put down on the list that they'd like to go to. And I think you encouraged a great deal of people to take action on this.

Well, here's what I'll say Is Dan, as usual, a total pleasure.

Thank you.

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