Deep Dive – Report from the pilgrimage to the Woodstock of Capitalism
Foreword
The trip to Berkshire Hathaway's annual meeting in Omaha had a special character this year. It was the first edition without Warren Buffett on stage. But Berkshire wouldn't be Berkshire if they didn't still give the "Oracle of Omaha" a prominent role. Warren Buffett briefly took the floor from the audience, there was an extensive live interview, and the first question was asked by a certain Warren from Omaha (spoiler: an AI deepfake).
But the many events surrounding the meeting perhaps offer an even more valuable experience. There were presentations to admire from big names such as Tom Gayner (CEO of Markel), value investor Mohnish Pabrai, Bill Ackman and many others. A personal highlight was a meeting with Mark Miller, the new CEO of Constellation Software. You can read all about it in this extensive deep dive.
Personal note
This deep dive will be somewhat more personal in nature than you are used to from us. The reason for this is that the trip to the shareholders' meeting can no longer simply be labelled a "business trip". Our travel group can by now be considered a group of friends. This gives the remarkable insights of the world's best investors an extra dimension, because we reflect on them together during and after the events in Omaha.
As a personal note, I'd like to share that it was especially special that my father was also part of the Omaha trip this year. My father taught me how to handle money, showed me what a share is, and sparked my interest in the world of finance. It is no coincidence that the first share we bought together was Berkshire Hathaway (a B-share, to be precise). In 2022, we made the trip together for the first time to the Woodstock of Capitalism, as the meeting is also known.
For background information on the new CEO Greg Abel, I'd like to refer you to our deep dive from last week:
Michael Gielkens
The shareholders' meeting
You can watch the full shareholders' meeting here:
Interview with Greg Abel:
Interview with Warren Buffett:
Our loyal readers know that I sometimes tend to write half a book. Some relations appreciate this, others find it too extensive and drop off. That's why I've deliberately chosen to refer to good articles about the shareholders' meeting, to which I myself also contributed. You can read a few passages here, and click through yourself for more information.
Five members of our travel group - Pieter Slegers (Compounding Quality), Jurgen Vluijmans (Backstage Communication), Kristof Heyndrikx (Potential Multibaggers), Kevin Schoovaerts (100baggerhunting.com) and myself - reported on our experiences at the shareholders' meeting for Investment Officer. A short passage from my contribution:
'A symbolic but telling detail: whereas Buffett always spoke of the "shareholders' meeting", Abel deliberately calls it the "owners' meeting". "You are our owners and we welcome you to Omaha." This year's theme was accordingly "the legacy continues", a reference to the transition at the top of the company. All Berkshire employees on stage quoted Buffett and his late business partner Charlie Munger extensively. They were clearly still very much present, but the torch has genuinely been passed on.'
You can read the full article via the link below. The editorial team at Investment Officer was kind enough to remove the paywall as an exception, for which we are very grateful.
Investment Officer
Journalist Laurens Bouckaert interviewed Pieter and me for the stock market magazine Trends, in which we share five observations. A few passages can be read below.
Greg Abel provides more depth and puts his finger on the sore spot:
"This year we learned more substantively about Berkshire than during the past ten annual meetings combined," says Slegers. In the first hour, Abel went into more depth on the subsidiaries than Buffett ever did. He showed slides in which competitors in specific areas score better than Berkshire itself. Car insurer Progressive beats Berkshire subsidiary Geico. Railway company Union Pacific scores better on operational indicators than subsidiary BNSF. "We have important gaps to close," Abel admitted.
Abel shows a considerable amount of skin in the game:
Abel earns 15 million dollars a year. He puts the entire net amount into buying Berkshire shares. He has committed to keep doing so for as long as he remains at the helm. Buffett took a fixed salary of 100,000 dollars for decades, worth less each year after adjusting for inflation. Buffett himself remains active. He comes to the office every day. On Friday morning he was still on the phone with Abel about the figures of the Japanese trading houses, Gielkens says. Insurance chief Ajit Jain filled the role once played by the late Charlie Munger. When an investor asked when Berkshire would start insuring ships passing through the Strait of Hormuz, Jain replied: "That depends on the price." The room laughed.
Pieter on the appeal of Berkshire at present:
Anyone who put in 10,000 dollars in 1965 now holds 3.6 billion dollars. The same investment in the S&P 500 would have yielded 6 million dollars. Slegers sees the current underperformance as an opportunity. "For the lazy investor, Berkshire is more attractive today than an index tracker. It has a cheaper valuation, better diversification and a huge cash pile ready to be deployed if the market crashes."
Kris
Kristof Heyndrikx wrote in his newsletter Potential Multibaggers about the five lessons he learned in Omaha. A particularly interesting moment during the meeting was the person who asked the first question. Kris writes about it:
The Q&A session opened with a video on the big screens. A man in a suit, claiming to be "Warren from Omaha", asked the first question. That Warren looked remarkably familiar. He asked Abel: "I'm now 95 years old and have nothing but time and Cherry Coke. Why should shareholders hold Berkshire shares for the long term?"
Abel later revealed that the video was an AI-generated deepfake of Buffett, made without Buffett's knowledge or consent. He turned it into a five-minute lesson on cybersecurity risks, since this is a risk that Berkshire's insurance subsidiaries deal with on a daily basis. It was probably the most viral moment of the entire weekend. At the same time, it is probably a good indication of the opportunity AI represents for every company in the world. The threats are real, but the defence is a multi-billion-dollar opportunity.
Kevin
Kevin Schoovaerts wrote in his newsletter 100 Bagger Hunting that it's all about the people. One of the best things to do is attend an event and talk to like-minded people:
[Warren] Buffett and Charlie [Munger] have created something similar. And it's not just about investing in stocks. It's about values. About integrity and respect. 40,000 people don't show up just to hear what the holding company Berkshire Hathaway stands for. They want to seek out the philosophers of our time. They want to feel connected to like-minded people.
And that's why I thought the introduction video they chose at the start of the annual meeting was so fitting. To emphasise that, although Buffett is no longer at the helm, those values and virtues will be kept alive. I've watched this video several times, but those last 10 seconds still give me goosebumps.
The introduction video shows a famous example of Buffett talking about reputation
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Events surrounding the meeting
As mentioned, it was extremely valuable to attend the various events surrounding the meeting. Pieter Slegers took part for the third consecutive year in the Berkshire Hathaway Panel at the Gabelli conference, alongside, among others, the well-known Berkshire analyst Chris Bloomstran.
This was followed by a conversation with Markel CEO Tom Gayner, of which you can watch a video below.
I had the opportunity to speak with Gayner several times in Omaha. Markel recently came under pressure from activist shareholder Jana Partners, which argued that Markel should, among other things, sell off its Ventures division (its non-insurance businesses). I discussed this with Gayner after the Gabelli conference.Last week we wrote the following about it:
Where Jana regards this division as a distraction, Gayner instead sees it as a crucial form of diversification that generates additional cash flow to cushion weaker periods in the company's other pillars. According to Gayner, Jana simply has a different investment horizon and views the situation from a perspective that sits less well with Markel's culture. He emphasised that entrepreneurs and families sell their businesses to Markel precisely because of the intended long-term partnership; after all, you do not sell a family business to just any bidder. Markel therefore deliberately chooses to act as an active partner that continuously strengthens the underlying businesses rather than disposing of them.
During Guy Spier's ValueX event, which is incidentally well worth watching in its entirety given its impressive speakers and insights, Gayner once again gave a presentation. This time I put a question to him via the microphone, against the backdrop of the activist campaign:
Markel is known as a family-led company. It is named after the Markel family. You call yourself the fourth generation of Markel. But there is no large, controlling long-term shareholder such as Buffett at Berkshire. There are some larger, long-term-oriented quality shareholders, but what would you say to people who actually try to be successful in such an activist campaign, and what guardrails does Markel have to keep a short-term activist at bay in order to maintain its long-term focus?
The full recording of the ValueX event. At 1:40 hours I ask Gayner a question
Gayner gave a fitting answer, with a matching Scottish accent (better captured in the video above):
Communication. I recently met a Scottish gentleman again, and he told the story of a particular project he had been working on. He was the third presenter on the matter. The first two presenters had preceded him, and this was quite a difficult problem he was working on. At the start of his presentation he said - and I'll do my best not to ruin the Scottish accent too much - "For this project to succeed, the three of us had to commit to a programme of hyper-honesty and hyper-communication."
So what I promise you is to be hyper-honest and hyper-communicative. That's the process I can control. The outcomes I cannot control. For 39 years we have acted very honourably as a listed company and we have kept the promises we made, not only to you as our shareholders, but also to the people who are our customers. That's why people keep doing business with us, our employees and our relationships, by taking care of each other. That's a culturally wonderful way to live your life.
Charlie Munger spoke about his goal of wanting to live within a seamless web of deserved trust. It's a spectacular concept and a spectacular way to behave. I cannot control what markets do and how people behave. But I can be hyper-honest and hyper-communicative and do what we said we would do. So we do what we say we'll do, and we'll see where the ship runs aground.
Mark Miller, CEO of Constellation Software
That evening our travel group had dinner organised by Mattias Saggau, chairman of Chapters Group. It was valuable to speak with various board members and executives of Chapters. However, the most striking moment was meeting the director of another software company: Mark Miller, the new CEO of Constellation Software, at a dinner organised by Giverny Capital, run by François Rochon (an excellent investor, incidentally).
Miller clearly sees AI as an amplifier rather than an existential threat to the Constellation group, which also includes Topicus.com. Because of his background as a software developer, he is in fact very enthusiastic about the possibilities AI offers. Within the decentralised organisation, all subsidiaries are engaged with this. The now 1,600 subsidiaries are actively experimenting with AI and sharing their best practices with one another.
We previously wrote extensively about the integration of AI within the Constellation group, including with CFO Jamal Baksh. You can read that report in the article below.
Michael Gielkens
Miller emphasised that not all companies will make it and that this has to be accepted. He simply regards this as the reality of capitalism, and applies the principle that one should not throw good money after bad.
He spent his first five months as CEO mainly visiting all the companies and divisions in order to prepare substantively for the role of CEO. Under his earlier leadership, subsidiary Volaris managed to spend the most capital on acquisitions within the holding company, a period during which he was more operationally involved. He approaches matters more from the perspective of a developer and firmly believes in clustering companies within the same sector, a strategy he will also pursue at Constellation Software.
During the conversation he spoke at length about capital allocation and came across as confident. Moreover, he showed himself to be very open and indicated he was willing to be far more transparent, including by attending events, holding conference calls, and visiting key investors and employees.
Asked whether as CEO he focuses most on integrating acquisitions or on optimising operations, he made clear that his primary focus is on the top 50 people within the company. These are the key decision-makers who need to drive the company forward. In such a large and decentralised organisation, he pays most attention to this core group. If this top 50 functions well and successfully carries the shared message forward, the organisation is extremely resilient and can withstand a great deal.
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Conclusion
The trip clearly strengthened our confidence in the future of our portfolio companies. Greg Abel has made his mark as someone who may lack Buffett's charisma but who knows at least as much (if not more) about the company's operations. As guardian of the legacy of Buffett and Munger, he is the right man in the right place at Berkshire Hathaway.
The same can be said of Mark Miller, who likewise has big shoes to fill as the successor to founder and largest shareholder Mark Leonard. First impressions are positive, and in a world where one AI development follows another in rapid succession, it seems a sensible move to have a software developer (Miller) at the helm rather than someone with a more financial background (Leonard). It appears that Miller feels a greater sense of urgency to turn Constellation, Topicus and Lumine into "AI-first" organisations.
Chapters confirmed our existing confidence, and Markel CEO Tom Gayner once again underlined why it is so important in investing to take a longer-term view, rather than chasing a quick profit in the short term.
It was a remarkable week filled with great conversations, plenty of reflection and valuable insights. Reuniting with old acquaintances, making new contacts and deepening our relationship with the friends in our travel group. A highly worthwhile trip, both professionally and personally. In this way, the word "value" in value investing takes on a double meaning.
To conclude, just like Mohnish Pabrai, I will apply the principle of "shamelessly cloning" ideas here, since Kris had already shared this in his article. One of our fellow travellers summed up the experience in Omaha perfectly: "Everyone here is a friend, or a friend I haven't met yet." I couldn't have put it better myself.
I look forward to many more wonderful trips with this group, and I will be sure to share updates with you through our newsletter.
Warm investment regards,
Michael Gielkens
Partner/owner Tresor Capital
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This article was translated automatically from Dutch using AI. In case of any difference, the Dutch original prevails. Read the original in Dutch.
