Live from the Woodstock of Capitalism

Despite being renowned as one of the greatest investors of all time, Warren Buffett has never published a “how to invest” book. Yet his success with investing has realised an annualised return of 20.3% per annum from 1965 to 2008. To date his work has been shrouded in mystery, with only outsider’s interpretations of his methodology being available in the public domain.

The secret is that his lessons were available to nearly everybody and yet only a few have actually cracked the “Buffett Code”. Buffett’s teachings were never communicated in the normal traditional format of a “how to” book, instead they have been outlined at his annual general meetings or his annual reports each year. This year’s annual general meeting was no different.

The Friday evening before this year’s meeting Buffett held a huge cocktail party for all the shareholders. During the party the atmosphere was electric with people congregated from all over the world who had made the annual pilgrimage to hear the Oracle of Omaha speak the following day.

When the day of the AGM arrived people lined up at 5am outside the stadium and the atmosphere was somewhat similar to a major sporting event. People were determined to get a good seat for the day’s lesson. While standing in line I met a group of asset managers from Brazil who attend the event every year. The Brazilians were such devotees that on the Friday prior to the event they organise a shave and hair cut with Buffett’s barber, which is located in the head office of Berkshire. Secretly I think they are hoping to get some inside tips that might have slipped out during Warren’s most recent visit only days prior to the event.

By the times the doors open at 7.30am the 35,000 attendees swarmed the stadium and by 8.30am the venue was packed with not a seat to spare. Bill Gates, one of the Board of Directors for Berkshire Hathaway, was perched up in the first row and to have two of the wealthiest men in the world under the same roof was quite an extraordinary feeling. Interestingly I found it quite amusing to learn that Gates is only paid $5,000 per year to sit on the board.

The meeting started with a quick light-hearted movie of the year’s events. Once this was completed Warren Buffett and Charlie Munger – Berkshire Hathaway’s vice chairman  – entered the stage and the main event was under way by 9.30am.

Buffett and Munger sat on stage for the next five hours answering questions from the crowd. The topics covered were extensive and included how-to questions on investing, the markets, management and marketing, the economy and company succession plans. Despite being 78 years old, Buffett is sharper than most 50 year-olds and his passion and charisma was inspiring - you could tell that he relishes the event each year.

After a day of questions and answers I started to feel like the success secrets of Buffett were being unlocked. Having experienced the Great Depression, Buffett’s thoughts about the current financial crisis are calming and relaxed because he believes in the four main principles when it comes to investing:

Don’t try and pick tops and bottoms of markets; the fundamental analysis is what really matters.

Look forward not backwards. Be only concerned about what you pay today or tomorrow and not what you paid yesterday for a company.

Part of capitalism is that there are years of good times and bad times and the markets also tend to overshoot as part of this process and as a result have periods of contraction.

The devaluation of purchasing power of the US dollar was likely and inflation in coming years would be an issue, due to the actions of the US Federal Reserve.

During the meeting Buffett remarked that he would never broadcast this meeting as he likes the interaction – so if you want to crack more of the “Buffett Code” you’ll have to jump on the plane and attend the annual general meeting.