[00:03:20] Clay Finck: Most people aren’t going to, you know, vote for the board of directors or anything like that. And you know, these shareholder meetings aren’t really a big deal for most companies. Most people aren’t excited to go to the Apple meeting or Amazon meeting. But for Warren Buffett’s company, Berkshire Hathaway, it’s estimated that 40,000 people travel to Omaha, Nebraska of all places to attend the meeting.

[00:03:42] Clay Finck: This is one of Omaha’s largest events of the year. Omaha’s not your typical tourist destination. So, it’s quite a big deal for Omaha in terms of commerce and getting people to come to the city. And this is an event that’s really grown over the years, I believe maybe in the mid to late [00:04:00] nineties are when it really started taking off in Buffett.

[00:04:02] Clay Finck: Really started to get a lot of attention from people all over the world. And it’s an event that’s known as the Woodstock of capitalism as value investors from all over the world travel to the event. And when I think about why that really is, I think part of it is that Warren and Charlie sit down for the whole day, and they answer questions and people just love to be there in person.

[00:04:24] Clay Finck: You know, you and Preston originally, you want to be great investors. So, you started studying Warren and Charlie and you’re like, man, there’s so much more to these guys than the investment side. You know, they just offer so much perspective on life. The right way to do business, the right way to live a great life.

[00:04:39] Clay Finck: And I think the other part of why it attracts so many people still to this day is that we never know when the meeting will be the last for Warren or Charlie. And luckily, we’ve been blessed with them remaining in their positions for so long on the board for so many decades as Buffett first took ownership of Berkshire all the way back in 1965, I believe Charlie’s 98 years old and Warren’s 92.

[00:05:03] Clay Finck: So, if you’ve met anyone. 90 plus years old, it’s pretty remarkable to think that these two sits down for six, seven hours answer people’s questions. They have no idea what the questions are going to be, and I just can’t even believe it. But it’s just something you kind of have to experience if you’re, you know, into value investing, like you and I are Stig, I think outsiders would call it something similar to a cult or to a religion.

[00:05:27] Clay Finck: As you know, when you hear at the meeting that some of these families have their entire wealth tied up in Berkshire Hathaway shares and have been that way for many years, you know, they just don’t trust anyone else to manage their money other than Warren and Charlie. Yeah.

[00:05:42] Stig Brodersen: And thank you for explaining this Clay, because it is sort of like difficult to imagine if you haven’t been. I remember the first time I went; it was in 2014 and I wasn’t really sure what to expect. I’d never been to an annual meeting before. I also have to say I’d never been to anywhere since, so I wasn’t really sure what to expect. And you watch these videos on YouTube about how it [00:06:00] is and you’re like, that’s not how I thought an annual meeting was supposed to be like.

[00:06:04] Stig Brodersen: Or it just be like someone in the suit voting on stuff. I just didn’t really know what to expect. And Clay, I don’t know if you could paint a bit of color around like what is happening on that day, Saturday May 6th?

[00:06:15] Clay Finck: The meeting is scheduled for May 6th, as you mentioned, May 6th, 2023, and I’ll just kind of paint a picture for the entire weekend because there’s a number of events going on in Omaha.

[00:06:26] Clay Finck: I typically just do the shareholder meeting that’s run by Berkshire Hathaway, but on Friday there is a shareholder shopping day at the CHI Center during the afternoon. Then during the evening, there’s a shareholder shopping night at Borsheims. Additionally, there’s also the credential pickup during the day as well at the CHI Center.

[00:06:45] Clay Finck: If you still need to get your credentials, I plan to receive mine through the mail. I’d like to just get mine ahead of time, so I don’t have to worry about it that weekend. There’s more information on that on Berkshire’s website about getting credentials as we get closer to the meeting. Then on Saturday, the doors for the meeting open for the CHI Center downtown.

[00:07:05] Clay Finck: They open at 7:00 AM and the Berkshire Hathaway movie starts at eight 30. This features a bunch of funny and entertaining commercials related to Berkshire subsidiaries and their largest public holdings, and then the Q and A session is what we’re all really there for. Starts at nine 15. Yeah, so Warren and Charlie are up there answering questions and just recently they started bringing up Ajit Jain and Greg Abel.

[00:07:29] Clay Finck: Their vice chairman’s up to answer questions as well, so they jump in from time to time too. They answer questions from nine 15 until around noon, and that’s when the lunch break is from noon until one. So, anyone’s able to pick up, I believe a sub sandwich there, and then at one o’clock the Q and A session resume.

[00:07:48] Clay Finck: And then at 3:45 PM is the formal business meeting. And I think by then a lot of the crowd kind of clears out as a lot of people are there. Maybe to just see Warren and Charlie or sit [00:08:00] in on some of the Q and A session and say, hey, they went and saw Warren Buffett in person. So, I personally don’t like to sit for hours on end.

[00:08:07] Clay Finck: I like to get up and walk around a little bit during the meeting, stretch my legs out. I believe on the first floor of the CHI Center, there are a bunch of booths for the businesses that Berkshire owns. So, it’s kind of nice to just be able to walk around and look at some of the businesses they own, whether it be the booth for Geico, See’s Candy.

[00:08:24] Clay Finck: If you wanted to buy some chocolate, Coca-Cola. Good opportunity. Just, you know, walk around, network with others, chat with, you know, maybe members of The TIP audience and check out all the businesses at Berkshire Round.

[00:08:36] Stig Brodersen: Yeah. And another great thing is that Buffett is an avid reader, as I’m sure everyone knows and there are quite a few books that him and Charlie really like.

[00:08:44] Stig Brodersen: So, what they do is that they invite the authors of those books, and you can speak with, I think Cialdini is there, the author of Influence, Adam Mead is going to be there. He wrote the book, I want to say it’s called The Complete Financial History of Berkshire Hathaway, Gillian Segal is also going to be there. she’s the author of Getting There. Fun fact, Mary to Bryan Lawrence. We also had on show, we also had Gillian on the show, so it just at the top head, I could mention three, but there are ton of other authors there. It’s always a lot of fun to just walk around in and a great place just to network with other people from the value investing community.

[00:09:13] Clay Finck: Yeah, and then after the formal meeting at five 30, they have a little picnic or meal or whatever you want to call it at Nebraska Furniture Mart, if you’d like to pick up a free meal there. The only difficulty is it’s over on 72nd Street, which is probably a 15- or 20-minute drive from downtown. So maybe you have your car there or you have a rental or maybe Uber over to Nebraska Furniture Mart.

[00:09:35] Clay Finck: That’s one of the businesses that Berkshire owns, and it’s quite incredible how big that building is with all the furniture office stuff. That place is just a work of art in terms of capitalism to learn more about, you know, just one of the businesses that Berkshire owns. And then finally, on Sunday, Berkshire hosts a five Kron, which I’ve never attended.

[00:09:55] Clay Finck: But this past year on Sunday, I also went to the Markel brunch, [00:10:00] which this previous year in 2022 was Sunday morning at the Marriott downtown. So yet, another event to connect with others, but here shortly we’ll be talking about the TIP events we’ll be doing as well.

[00:10:11] Stig Brodersen: I just wanted to mention, if you’re not familiar with Markel’s, they’re typically referred to as the baby Berkshire, and they do a lot of the same things if you’re really geeky about it, as I guess we are, there are some differences also.

[00:10:21] Stig Brodersen: So, they’re having their event this Sunday and there’s always a lot of interesting people around that event too. So, we are going to talk about our program later, but I think Clay, that we might go as well. This, that’s how it’s looking right. Partly because Tom Gayner, the CEO, he writes really interesting write up.

[00:10:35] Stig Brodersen: You can do Q and A. But again, this is just another great networking event where you’re going to meet up with really anyone in the space. And then a lot of people, they fly out Sunday and perhaps we’ll get to some of that later. But some people stay and it’s often like the hardcore people who also like take Monday off or at least fly out very late Sunday.

[00:10:52] Stig Brodersen: So please don’t get wrong whenever I say that the quality is like really real high of the people who go Saturday. But also say like those people who stick around for like Sunday, they really mean it. They’re not just there for one event. They’re really there for the entire experience and really immerse themselves into the value investing community.

[00:11:06] Stig Brodersen: And talking specifically about Berkshire’s event, I don’t know if this is the right way of looking at it, but to me it’s kind of like whenever I would go to a football. Just like a football game. You can watch everything much better from the convenience of your own home. Snacks are better closer to the bathroom.

[00:11:22] Stig Brodersen: WIFI’s better too, by the way. But there’s something very special about sitting in that room with Buffett, Munger, Tim Cook, $40,000 value investors and there is just this energy in the air. You just can’t replicate it. And the first meeting I attend in 2014, I thought Buffett’s event with the Q and A was why I was there.

[00:11:40] Stig Brodersen: And I also have to say that is really cool. But I want to say that what I really remember and really stuck with me was the networking event throughout the weekends. It’s almost like everyone who go to the Q and A with Buffett and they’re just like hyped up and then everyone goes out. I don’t know. Again, there’s this energy in the air that’s just amazing.

[00:11:56] Stig Brodersen: Clay, perhaps just to make it as approachable as possible, could [00:12:00] you talk about some of the other events that you attended last year? Just as sample for what other kind of unofficial events you can attend at the Berkshire Meeting.

[00:12:08] Clay Finck: Yeah, so 2022 wasn’t quite what we have planned for 2023, but I can dive into what I did 2022 as well. On that Friday. Robert Leonard, host of our Real Estate 101 show, him and I went to Guy Spiers meet and greet at a bar in downtown Omaha. Luckily, William Green, host of our Richer, Wiser, Happier series was kind enough to get Robert and I into that event, as I believe it was inviting only. I know there are a number of other events and groups getting together over the weekend, whether it be on Friday or Thursday, but what I did was attend guys event for 2022 on that Friday.

[00:12:45] Clay Finck: Then on Saturday, the TIP community got up bright and early, I guess around 40 or 50 of us in the TIP audience, and a couple of us hosts met up at 5:00 AM. If we had met a little bit later in the morning, then I’m sure more people would’ve showed up, but I think going that early kind of deterred some people that wanted to get more rest.

[00:13:05] Clay Finck: Then we had to wait towards the front of the line for a couple hours. So, I had the opportunity to get to know some of the audience members and the doors opened at seven. So, we had a couple hours there to chat and get to know each other a little bit. Doors opened at seven and then the group kind of really got spread out because it’s kind of just like total chaos with that many people trying to find a seat.

[00:13:25] Clay Finck: I sat with Fulkert who a TIP fan from Germany and I was also sat with Trey Lockerbie, our host of We Study billionaires, then Trey and I and a number of other members in the audience. We went to that picnic that I mentioned earlier. That’s at Nebraska Furniture Mart. And then finally that night on Saturday, we went downtown and met with members of the audience of the bars downtown for the.

[00:13:48] Clay Finck: And then finally on Sunday, Trey and I went to the Markel brunch and got to network with many people in the value investing community. A number of people I’ve interviewed on the millennial investing show and a number of people that I’ve, you know, [00:14:00] chatted with you on the show too, it’s just like, it’s pretty crazy how people come from everywhere to come and meet at this one place for this value investing type event.

[00:14:09] Clay Finck: And that was one of the really striking things to me, is how far people will travel to get together with like-minded individuals. And you think about people coming from New York, California, I mentioned, I sat with someone from Germany, even met one of my previous guests that’s from New Zealand. So, it’s quite an interesting experience that I look forward to each year.

[00:14:28] Stig Brodersen: It is amazing how it draws people. Like, I don’t know if I should bring myself in as an example. I guess New Zealand might be even further away, but to me it’s like 22 hours door to door. Like I’m going on three different flights to go to Omaha and it’s because it’s worth it. And of course, I am biased whenever I say that the best networking events that we have is the TIP events.

[00:14:44] Stig Brodersen: I guess I’m supposed to say that, but I do mean that. But you know, think about it like this, aside from Clay, who is so lucky that he lives right next door, most people have to fly in, and you don’t spend thousands of dollars and take time off your work. And you don’t do that unless you’re really serious about it.

[00:14:58] Stig Brodersen: And I guess that’s one of the reasons why those networking events are just so much more valuable. For example, Robert and Trey were two, the host who attended the TIP events before we eventually hired them. Clay, I think it’s the same as the case, but you, I did meet you. I wasn’t going because I think it was 2017 that you.

[00:15:12] Stig Brodersen: So, it’s not in so much in the sense that, oh, we go there because it’s a hiring event. That’s not so much the point. The party is just more like you meet up with people and at least in my case I can say that you might end up doing business with them. I kind of feel like a cliche with such high-quality people that you want to see, like, can we help each other out?

[00:15:29] Stig Brodersen: Sometimes it’s just a favor. It might end up with someone doing business together one way or the other. Clay, we TIP have four events. Could you please talk about our free events and what we have planned?

[00:15:40] Clay Finck: TIP has booked a great venue for each day, Thursday through Sunday. So, four different events, one for each day just to meet up with the audience.

[00:15:50] Clay Finck: We put together an itinerary for you guys, so no need to stop your car and jot down notes as you’re listening to this. It’s all in the itinerary that is linked in the [00:16:00] show notes, and it will be on our website as well. And we’ll also be sending this out to our newsletter subscribers. Subscribe to We Study Markets.

[00:16:07] Clay Finck: If you’d like to get signed up for the newsletter, you can go to theinvestorspodcast.com/newsletters, or just simply Google, We Study Markets. Essentially, it’ll just be a meet and greet where the hosts and the audience members can connect and get to know each other. And it’s also just a great opportunity for all of us to, like I said, connect with like-minded individuals because it’s not often you get to chat with others about Warren Buffett, Charlie Munger, and the like.

[00:16:36] Clay Finck: Also mention that the CHI Center is located downtown, and all of our events are downtown. Just to make it as easy as possible for everyone. Our Thursday event is at a place called The Black Beer and Table, which is a bar downtown. That’ll be from seven to 9:00 PM We have a space booked that’ll hold up to 60 people and we’ll cover the drinks for everyone up to a certain amount.

[00:16:58] Clay Finck: And we will also have appetizers there as well for anyone as we all just socialize and chat. And I’ll just mention here that we’ll be giving free drinks and appetizers for all four of the events, so I’m not saying it four times. So, the Thursday event is at the Black beer and table downtown, seven to 9:00 PM.

[00:17:16] Clay Finck: Then Friday, TIP booked a larger space at a place called Blue Sushi. This is also downtown from three to 7:00 PM I expect this event to be a little bit busier as a number of people will be flying in probably Friday morning or maybe early afternoon. Then Saturday we’re at Blue Sushi again from seven to 10:00 PM and I expect this to be by far the busiest of the four events.

[00:17:41] Clay Finck: Everyone will be in Omaha, it’ll be after the event, they’re ready to go out and have a good time. So, Saturday’s when everyone wants to go out and since we have to get up early on Saturday, maybe not as many people go out on Friday. And then finally on Sunday, we will have another event at the Blatt, and that’s from 7 [00:18:00] to 9:00 PM This one will be likely not be near as busy as the Saturday one.

[00:18:04] Clay Finck: The Blatt will hold up to 60 people and Blue Sushi holds up to one 10. So, I’m thinking we might hit capacity Stig on both Friday and Saturday, but we’ll see how it all pans out. All the events will be first come, first serve, regardless of whether you register for the event or not, as we can’t really guarantee that we’ll have enough space to accommodate everyone heading to Omaha.

[00:18:28] Stig Brodersen: Yeah, and like you mentioned, Clay, it’s probably like if we’re going to have any kind of, I don’t know if I can use the term sold out since it’s free, but if it’s going to be full, it’s probably going to be Friday and Saturday. That’s why everyone, you know, flies in. They’re going to stay there for the weekend, typically throughout Sunday morning or whatnot.

[00:18:42] Stig Brodersen: And perhaps because I am an introvert, I don’t know, to me it can be a bit overwhelming, like for big networking events. I’m also excited for Friday and Saturday, so please not keep me wrong. I am perhaps even more for Thursday and Sunday because there won’t be as many people, and you can get and chat a bit more with each individual and really forward to those bonds that would last.

[00:18:59] Stig Brodersen: So, I just wanted to mention that and perhaps give a clock for why you might want to come for the Thursday event and Sunday event. It’s going to be slightly different than Friday and Saturday, and those events have just a bit more of a, I don’t know, it’s not like people go crazy and get drunk or anything like that, but like Friday and Saturday are just a bit more like going out.

[00:19:16] Stig Brodersen: Whereas Thursday and Sunday are a lot quieter, and people are typically there a lot more for business reasons, for lack of better words. Anyways, I’m going to throw that over to you. Perhaps you can talk a bit more about how to register for the events.

[00:19:29] Clay Finck: If you’d like to attend any of the free events to meet the TIP hosts and hang out with the audience.

[00:19:35] Clay Finck: It’s really important that you register for the event, so we know how many we need to plan for. I included a link to register for the event in the show notes, so please be sure to register for the events you plan to attend. The link to register is also included in the itinerary. If you get ahold of that, it will really help us Also, if you just register for the events, you’re sure you’re able to attend.

[00:19:57] Clay Finck: As of today, I expect a number of our [00:20:00] hosts to be in attendance with stage, and I likely that Trey Lockerbie in William Green will be able to make it to a couple of those, and then a few other of our YouTube posts and newsletter writers and podcast hosts will be able to attend as well. So, TIP should be well represented there.

[00:20:16] Clay Finck: Then for the actual Berkshire meeting itself, I wanted to mention that I decided I’m not going to wake up prior to 5:00 AM this year. I remember quite well how tired I was by midday, and I know you stick will be showing up, you know, later around nine or nine 30. So, I decided that I’ll be getting to the meeting around 6:50 AM.

[00:20:36] Clay Finck: If anyone from the audience would like to meet up, you know, with me and the rest of The TIP audience, then you can meet me there at the CHI Center at six 50 and then we’ll go and get in line at seven. We won’t be able to get the best seats in the house since we’re not going at 5:00 AM So if you’d like to get good seats, you probably want to get there before six.

[00:20:54] Clay Finck: But the TIP community will be getting in line around seven. I also set up a WhatsApp group chat that is linked in the itinerary and the show notes, which makes it easy to communicate with the hosts and with the other members of the audience. For example, I know here in 2022, many people use the chat to connect with others and you know, for example, get an Airbnb setup.

[00:21:16] Clay Finck: So, one guy Lewis from Colorado, I believe, got together with others and you know, got an Airbnb together to kind of coordinate staying and you could go there to ask, you know, what hotels people are staying at. You can see how people are getting around town or just ask any miscellaneous questions. So, being a part of the WhatsApp group, you know, really makes things easier for everyone as it just makes the communication between us all just seamless and you’re able to ask me questions if there’s anything TIP related that you need to know.

[00:21:45] Stig Brodersen: And Clay also wants to say that I feel your pain about getting up really early. I remember the first time I went; I was up at; I want to say about 3 45 because we talked about being there at like 5:00 AM or something. And we had to, I think we had to do a stop before we actually went there, and we were staying [00:22:00] in Iowa at the time to save some money.

[00:22:01] Stig Brodersen: And there was definitely something about being there like really early and feel the energy, but it was also hard. And so, I guess what I’m trying to say is that if this is your first. And you who knows Jet Like anyway, like go there, go like really early and like get the full experience. If you’ve done it before and you also want to do something Saturday night, which is a blast, perhaps consider going there a bit later, at least after the Q and A, go back to the hotel and sleep.

[00:22:26] Stig Brodersen: I mean for me flying in, I was living in Sweden at the time, but like for me flying in like during the whole thing from like 3 45 in the morning, of course not going back to the hotel but like wanted to do the furniture mat. Like doing all the events that you sort of regret about whenever you follow Buffett and then also so like to do your thing Saturday night.

[00:22:43] Stig Brodersen: It was a bit rough. It was a lot of fun. But you know, I think for me this time if I can give any kind of, especially if you’ve done it before, you don’t have to get in as early and if you can get like a nap somewhere in between, it typically is a good investment. Saturday. But we are quite excited to see how this pans out.

[00:23:00] Stig Brodersen: We haven’t really done the same thing about booking venues the same way we’re doing this time. You know, in the past we had Pop Cross and there’ve been a lot of fun, but as we continue to grow, it has become increasingly hard to jump from bar to bar because sometimes there’s just not room enough. I guess last time we were like, I don’t, 250 people at some part in time and listeners of TIP, and it was just like, that’s a bit challenging.

[00:23:19] Stig Brodersen: So, this time we decided to book four venues and ask the audience to come and meet up with us there instead. Clay, most people who are listening to this episode likely haven’t been there. Perhaps they’re considering it might be the first time I would think that a lot of them have the same questions. At least I can hear now that the questions I have whenever I started.

[00:23:36] Stig Brodersen: That’s the same questions I see all over our WhatsApp group. We have a website with all the practical information, but I wanted to run through some of the most frequently asked questions with you how to get access to our events and who typically attends our event.

[00:23:50] Clay Finck: There’s two places to look to get information about the events.

[00:23:53] Clay Finck: The easiest would just be to click the link in our show notes, or you can go to [00:24:00] theinvestorspodcast.com/berkshire. That website shows essentially our itinerary information, what’s planned, where we’re meeting, what time we’re meeting, all that. The itinerary is also included in the show notes. As for who attends our events, really, it’s just fans of the show.

[00:24:16] Clay Finck: People who want to meet the TIP hosts or people who just want to hang out with like-minded individuals. If you’ve listened this far into the episode, odds are you would be a great fit to come hang out with us. As you mentioned earlier, you’ve also met people in the audience who you eventually ended up hiring, so if you happen to have any interest in working For TIP and or just meeting Stig and the rest of the host, then I think this is a great opportunity to connect with us, see what TIP is all about, and what opportunities we might have for you.

[00:24:46] Stig Brodersen: Thank you, Clay, for bringing that up. I just want to emphasize, even though I kind of feel I’ve been doing this pretty poorly until now, that it’s not like we are doing events for like just general networking. See if we can help each other out talking about investing, talking about Buffett or, that being said, I have noticed that quite a few people that we have hired on the team have either been people we met at the event, or someone who attend the event.

[00:25:08] Stig Brodersen: Then, you know, we just got to get to know each other later. And so, if I can just do a plug. We have a position open for right now at the time, recording for Financial Rider, but also a new YouTube host, and you can always be updated on the current openings at theinvestorspodcast.com/careers.

[00:25:22] Stig Brodersen: It’s theinvestorspodcast.com/careers. And we are of course, like any other growing company, always looking for talent. So, if you think that TIP could be a fun place to work, especially Thursday and Sunday might be fun for you to attend. We have a bit more time to get to know each other, but I kind of feel like I’m making this sound like it’s going to be a networking slash hiring event.

[00:25:41] Stig Brodersen: It’s not so much the case, it’s more like we all fans of the whole value investing community and that’s why we hear, I think that’s important for me to emphasize, Clay.

[00:25:49] Clay Finck: When I was looking back through our chat in the WhatsApp group last year, it was pretty funny looking back at all the pictures people were sending each other, you know, people were going crazy trying to get a picture with [00:26:00] Monish Pabrai, Toby Carlisle, Morgan Housel, Lee Liu, Guy Spier, the list goes on the types of people that are at this event. You never know who you’ll run into or really what opportunities might present themselves for this. So, you know, just talking about, it’s getting me quite excited even though we’re plenty of months away from the actual event.

[00:26:19] Stig Brodersen: And Clay, now that you bring it up. I should speak to Toby. I haven’t talked to him, but I’m pretty sure he’s going. He usually is going. It would be fun to invite him to some our events. Yeah, so it’s really the who in the Valley investing community and then of course Tim Cook, which I guess is even more well known, but Clay perhaps for those who are just interested specifically in the Berkshire event, at least I guess, especially if you’re there the first time, that is the one event you don’t want to miss.

[00:26:40] Stig Brodersen: How do you get access to Buffett’s or I should say Berkshire’s event?

[00:26:45] Clay Finck: Yeah, so anyone can attend the Berkshire annual meeting who holds at least one share of stock. You don’t need to own the $430,000 Berkshire A share, you just need one share of Berkshire B, which is under $300. And you know, there’s still even a work around that.

[00:27:01] Clay Finck: You don’t have to have a share of Berkshire B, but that’s the easiest way to get a hold of a credential to get.

[00:27:09] Stig Brodersen: And another way to do it is just to know someone like you, Clay, who is a shareholder, and then get what are your credentials? Like no one is checking or like looking up that you are the actual shareholder.

[00:27:19] Stig Brodersen: And very often what happens whenever you order those credentials is that you get four and many people go there alone. So, they always have quite a few they can give out. Like perhaps you can talk a bit more about that process, about getting those credentials.

[00:27:31] Clay Finck: So, Berkshire sends out their annual report and inside that there includes a form in which you can mail in your credentials for your proxy statement.

[00:27:40] Clay Finck: And you know, I usually do that one or two month in advance. So, since the meetings in May, it’s probably in the March timeframe that I send that into Berkshire. And like you mentioned, Stig. Each shareholder gets four credentials, and since many people are coming from all over the world and the mail’s going to Omaha, it can take some time for shareholders to get their [00:28:00] credentials, especially if you’re so far away.

[00:28:02] Clay Finck: So, you really don’t need to worry too much. If you mailed your deal in two months earlier and you still haven’t got it back in time for the meeting. A lot of the people in the TIP audience are going to request four credentials and they’re going to bring extras to come to the meeting. I can’t provide any guarantees, of course, but if you happen to not be able to get your credentials that you mailed into the office and get back, odds are you’re going to get it back in time if you do it plenty of time ahead.

[00:28:30] Clay Finck: But in the case where you don’t get in time, don’t cancel your trip to Omaha. It’s likely that many people in the TIP audience, many of the hosts will probably have extra credentials if you meet up with us on Thursday or Friday before the meeting.

[00:28:43] Stig Brodersen: I would be very surprised, Clay, like without making any promises, I would hate for anyone to fly to Omaha and then think that they had a credential through us and then.

[00:28:51] Stig Brodersen: We had one event one year, I want to say there were like 60 people and we just asked around, not every single person, but we just like said whenever we met people, if they had any extra credentials, if they could just put it in the box. And I think we ended up with like 80, 90 extra credentials and that was just like 60 people.

[00:29:06] Stig Brodersen: I completely agree with you. Please make sure to go to Omaha. I found it really hard to believe that we won’t have extra passes. And also like the security, I guess I don’t want this called wrong, but like they have to check that you do have peak credentials with. It’s not the most, how can I put this?

[00:29:21] Stig Brodersen: Efficient security. Like I would not be surprised if you could just get in without showing it because they don’t really have an incentive for you not to go there. Of course, there’s like limited amount of people, I don’t know like, 40,000 people who can attend, but you’re going there and you’re going to spend money there and they want you as a customer and like they have no incentive to be like, no, you don’t have this credential.

[00:29:40] Stig Brodersen: Again, I don’t want to or promise, and I’m pretty sure that we’re going to have enough, but I just remember going to my first event, which was the one thing I was most concerned about, and it quickly turned out it was the last thing anyone should be concerned about.

[00:29:52] Clay Finck: How about we talk a little bit about accommodations? Because one of the most common questions I get in the WhatsApp chat is what hotels I recommend. [00:30:00] So maybe I pass it off to you and ask you where you’ll be staying in Omaha.

[00:30:04] Stig Brodersen: Yes, thank you Clay. And going from something that isn’t painful to something that’s a bit painful, that is accommodation and it’s just, you know, the prices just through the roof that weekend, especially Friday and Saturday nights are pretty crazy.

[00:30:18] Stig Brodersen: During the first two events I attended, I stayed in Council Bluffs, Iowa, which is around, you’ll probably know this better than me, quite like 15, 20 minutes away, something like that. So, it’s a three-star hotel and it’s a little cheaper due to the location, but you probably would still end up paying a few hundred dollars per night for those two nights on every other day.

[00:30:36] Stig Brodersen: It’s much, much cheaper. Another option is staying downtown so you can walk to the events. It’s more expensive. And again, I need to point out the irony that we are value investors, and we care all about price, but we go to a city that’s normally cheap, but it’s Manhattan prices that specific weekend. Just as an example, I stayed at a two-star hotel in just a perfect location and it was the cheapest I could find, but still I paid $276 for the room and my door couldn’t close and I didn’t have hot water.

[00:31:06] Stig Brodersen: So, I just wanted to like mention that whenever you go there that it’s just expensive with the accommodation. And another thing is just I don’t want to discourage you from going its wealth worth going because there are other options including Airbnb, but you really have to be prepared to spend some cash for your accommodation.

[00:31:22] Stig Brodersen: This year I’ll be staying at the residence inn by Marriott, Omaha, downtown old market area. That’s a full name that I pulled out from Google. Google tells me is a three style tell. I haven’t stayed there before, but the location is really nice. And I’m flying out Wednesday and then leaving Monday. So that’s five nights and I’m paying north of $2,000.

[00:31:40] Stig Brodersen: So, it’s not a fancy hotel. I just want to say that at least not based on the photos, it said probably decent like a three-style hotel. That’s what Google is telling me. But it is just expensive. So, if you’re not into hotels or you want to save some cash, perhaps you look into Airbnb or something like that. I know it’s also been popular in the past to find someone you can share accommodation with through the WhatsApp group, so that might be another way to go. [00:32:00]

[00:32:00] Stig Brodersen: And then there’s also this other option, which is quite interesting, that some employers have a budget for, call it training, seminar education. And sometimes they will approve an event like this. So, you might be able to get some of the cost covered by employer. So, play. I wonder if you have any kind of home field advantage giving that you are based in Lincoln, Nebraska, just hour away.

[00:32:20] Stig Brodersen: because it’s, I can totally, like whenever I hear myself, I kind of feel that what I’m doing is not the most optimal thing. Especially if you want to save some cash and you are flying in. Where will you be staying?

[00:32:29] Clay Finck: I’m not the best person to ask for advice on where to stay because I went the really cheap and easy route.

[00:32:35] Clay Finck: Since I’m from Nebraska, I’ll be staying at friends that I know that live in Omaha, and since I only live roughly an hour away, I’ll also have my car there as well, so I don’t have to worry about Ubering around. Although I do think Ubers are great in Omaha and not overly expensive. Maybe 20 to $25 to get to Nebraska Furniture Mart, for example.

[00:32:56] Clay Finck: But obviously depends on how many drivers there are and whether Uber prices have changed over the years. But I do think Ubers are great and you know, it would be ideal to stay downtown, but like you mentioned, downtown is going to be more expensive because almost all the events that are going on in Omaha are going to be downtown.

[00:33:14] Clay Finck: And like I also mentioned earlier, there are many people on the chat that kind of organize an Airbnb where four or five people all stayed at just a giant house with multiple bedrooms. So, if I were traveling to Omaha from outside Nebraska, I would probably prefer to stay downtown, maybe check some of the prices and see if it fits within your budget.

[00:33:34] Clay Finck: Otherwise, you know, you mentioned Council Bluffs, which is essentially neighbors. Omaha, essentially the same city. And also, there are of course hotels in other areas of Omaha as well. I know Berkshire, they’ve posted on their website to link some hotels they recommend. So that might be a good place to start for some people.

[00:33:56] Stig Brodersen: Yeah, and I just wanted to highlight that whenever you’re listening to this [00:34:00] or whenever this is being published, it’s going to be like six months until the event is there, but make sure to win a book. Now. Whenever I was booking my hotel, I don’t know if it’s, this is like a hotel.com kind of thing, but this is like three rooms left and it probably is, but I have experienced in the past where I booked a few months in the events that I could only find like one or two hotels unless I really wanted to go super, super expensive, which I didn’t.

[00:34:21] Stig Brodersen: So just a piece of advice if you want to go. You really have to be out there early. Clay, do you have anything you wanted to talk about for events for the meeting before we transition to the next segment of the show? What we’re going to talk about, the intrinsic value of Berkshire Hathaway.

[00:34:35] Clay Finck: If you’re going to be traveling to Omaha, I encourage you to check out the itinerary for our TIP events.

[00:34:40] Clay Finck: If you plan on meeting up with us, be sure to register using the link on our website or on the itinerary. And I’ll just echo what you said, where, you know, the earlier you booked this stuff, your hotel and your flight, the better because I’m sure the prices are only going to get worse as we approach it and as many people kind of book last minute and when they decide to go.

[00:35:00] Clay Finck: So yeah, the more you get ahead of this stuff, the better. Yeah, I think that kind of hits on everything important. You know, I’ll be in the WhatsApp group chat if you have any questions and that helps other people too because they’ll be able to see the questions too. So yeah. How about we just talk about Berkshire Hathaway?

[00:35:16] Stig Brodersen: Yeah, so Clay, this is one of my very topics. I love talking about Berkshire Hathaway, love talking about the intrinsic value, and there’s just something beautiful about it because we are, at least many of the listeners here, were taught how to think about intrinsic value from Buffett himself. So, using some of those techniques, valuing his company, there’s just something beautiful about it.

[00:35:34] Stig Brodersen: So, Berkshire Hathaway stock is the one I held on to the longest. I bought it back in 2013, and I’m still holding on and I’m glad I did. It’s the biggest individual stock position that I have. It’s around nine-ish percent right now of a total investible portfolio, and it’s around half of everything. I own individual stocks, so I do have some exposure to the stock myself.

[00:35:54] Stig Brodersen: So, who knows? It might mean that I’m biased, but it’s certainly a stock that I’m following quite closely. [00:36:00] Whenever you look at the landscape, US stocks today, it seems like Berkshire has held up a lot better than the general market. So as an example, over the past 12 months in absolute numbers, Berkshire has down less than 1%, but you might not find that super appealing.

[00:36:13] Stig Brodersen: But the S&P 500, for example, is down 20% at the same time. What’s interesting about Berkshire is that whenever there is a bear market typically perform better again. They might still at drop in price, but comparatively they are performing better than the general stock market. Whenever there’s a bull market, they typically don’t perform as well.

[00:36:31] Stig Brodersen: But whenever you crunch the numbers in absolute numbers and you both add in the bull markets and the bear markets, Berkshire is performing better than the stock market. So, I just wanted to mention that, and Buffett has done this for a very long time. Clay, I know you looked into the return of Berkshire from 1965 when Emma Buffett took over.

[00:36:49] Stig Brodersen: So as a sample, let’s say that you invested $10,000, how much would you have accumulated in the S&P 500 compared to Berkshire Hathaway? This is just mind boggling whenever you consider the compounding.

[00:37:02] Clay Finck: Yes, I put together a number of episodes on Buffett in his company, Berkshire Hathaway. If someone hypothetically would’ve invested $10,000 in Berkshire Hathaway back in 1965, that would’ve led to 284 million at the end of 2021, versus if you invested in the S&P 500 at that exact time, you would’ve accumulated 2.68 million.

[00:37:25] Clay Finck: So, in terms of the return difference, it’s 20.1% for Berkshire Hathaway and 10.5% for the s and p five. So, it just goes to show, you know, how much that additional compounding, how far that really goes when it’s applied over a period of 56 years. And you know, it’s kind of funny how Buffett really got ridiculed, you know, in 2021 and 2020, especially when people were comparing Berkshire Hathaway to something like the Arc Fund with the high-flying growth stocks.

[00:37:55] Clay Finck: And after reading through Buffett’s biography, that period actually reminded me so much [00:38:00] of the 1999 tech bubble where many investors and fund managers just said that Buffett’s strategy was dead. The days of value investing were gone, and tech was where the money was to be made. And during that time, really, you were the crazy one if you hadn’t bought any tech stocks.

[00:38:15] Clay Finck: Like that’s how extreme it got. That’s where everyone was making money. And I believe Berkshire, you know, was just a dog during the 99-tech bubble, and it was really just the pinnacle of FOMO investing. Well, history has shown that when people say that Buffett’s value investing strategies are dead, is typically the buy signal for Berkshire, at least relative to whatever’s hot in the market.

[00:38:37] Clay Finck: So, 2021 and 2022 was no different as you just referred to Berkshire, holding up much better than most stocks in the market. So, Stig, I’m curious, given the drastic performance over the many decades, what do you think of Berkshire’s valuation today?

[00:38:54] Stig Brodersen: Well, I’m still bullish on Berkshire at the current price.

[00:38:57] Stig Brodersen: I don’t think it’s crazy on the value, but I do think it’s trading an appealing value, or I do think it’s trading at an appealing price. And I just wanted to clarify. It’s very important that we distinguish between price and value. Whenever I talk about the price at the time of recording Berkshire’s trading at $289, that’s the price.

[00:39:14] Stig Brodersen: We’re going to focus on. The value. What do we truly think it’s worth for this intrinsic value assessment, I’d like to focus on the B shares and the intrinsic value of them. As you might know, Berkshire has A shares and B shares with different voting rights and a different corresponding price to those stocks. For retail investors, there’s no need to focus on voting rights.

[00:39:33] Stig Brodersen: That is certainly the case for Berkshire’s shares too. So, Berkshire Asias are trading at 1500 times the price of a B shares and B shares have at 10000th the voting right, rather than a 1500th voting, right? But unless you have a lot of shares and you want to have a say on how Berkshire has run, there’s really nothing to be concerned about.

[00:39:52] Stig Brodersen: Those voting rights really does matter. And by the way, Buffett owns a ton of the stock, even though he’s doing everything he can to give them away, and he won’t be [00:40:00] overruled by investors, at least not for a very long time. So even if you wanted to have a say and had a lot of money, it probably wouldn’t make any difference when you look at what that would cost you.

[00:40:09] Stig Brodersen: So, there’s really no added value with the shares. So just a bit of history to the B shares. They were originally issued in 1996 as many investors wanted to invest with Buffett but couldn’t afford a single Asia, which at the time was trading at $30,000. And that Asia is trading at around $430,000 today. You might know the saying that when the ducks quack feed them, and that is exactly what Wall Street did at the time.

[00:40:33] Stig Brodersen: So, they bought and sold small pieces at a premium to the public. Buffett obviously didn’t like the scrupulous practice, so he issued B shares, that’s all intents and purposes with the same as A shares, but just trading at a lower price. And then in 2010 we had a 50 to one stock split, which is why the B shares today is now trading at 50 times 30 or 1500 time the price of an Asia.

[00:40:55] Stig Brodersen: Before we do our intrinsic value assessment of Berkshire. I always find interesting to look at inside of buy. The reason why insider buying is interesting is that you are looking at which prices are people buying at, like those people who know the company better than anyone else. For example, no one understands the value of Berkshire better than Buffett.

[00:41:11] Stig Brodersen: So as much as I would like to do my own assessment, I can’t help but look at how Buffett values Berkshire. If you followed Buffett’s writing, you also know that you will only repurchase shares if you can buy them at a discount. So, what Buffett would call a conservative assessment of the intrinsic value. In other words, if you can buy, she’s at a lower price than what Buffett at Berkshire buying them at, you are likely getting a good deal.

[00:41:31] Stig Brodersen: So, if you look all the way back to the Q1 filings, we can see that Buffett for example, bought most of his, she’s back between 312 to $322, and that was back in February and March. And you might then be surprised to learn that in Q2 he only bought very little back and only in June for the average price of 276.

[00:41:51] Stig Brodersen: And you might be thinking that doesn’t make any sense. Why wouldn’t he buy much larger quantities in Q2 than q1? because the price is lower. We also know that Buffett had a lot of cash, like [00:42:00] more than a hundred billion at the time. So, it’s not because he was cash strap, and he couldn’t do it. The reason is that opportunity cost changes all the time.

[00:42:07] Stig Brodersen: When Berkshire stock is cheap, it’s often because other stocks and other companies are cheap too. In this situation, whenever we are seeing Berkshire stock fall in price, it’s not anything near what the rest of the stock Mon is doing. So, everything else equal, despite Berkshire seemingly being cheaper, the rest of the stock market is cheaper too.

[00:42:24] Stig Brodersen: And we also have to keep in mind that buying back shares is not Berkshire’s first priority. Buffett has said this during multiple shareholders meeting, that he would rather reinvest in the businesses that Berkshire already own or buy whole new businesses before the buy back their own shares. That requires cash and that is why Buffett in Q2 bought less of Berkshire.

[00:42:44] Stig Brodersen: At the time we’re recording. Berkshire just released the earnings for Q3 over the weekend and the market just opened Buffett bought back $1 billion worth of Berkshire stock, and that is less than a 1% annualized buyback yield. So, it’s very little. The shares are brought back between prices of 282 to $296.

[00:43:04] Stig Brodersen: So, with the current price of 289, you are somewhat in the middle of what Buffett is currently buying back chefs for. And keep in mind that with interest rate as it happened, this year goes up all the assets including Brexit, Holloway goes down in value. So that’s just another thing to keep in mind.

[00:43:20] Clay Finck: Another interesting thing worth considering Stig when it comes to the insider buying is you know who the next leadership team is going to be once Warren and Charlie are gone. And I noticed that Greg Abel had purchased shares in the insider buying activity. What are your thoughts on that?

[00:43:36] Stig Brodersen: Greg Abel is a very interesting character because he’s vice chairman of the non-insurance operations and he’s widely expected to form the leadership with an Ajit Jain who’s the vice chairman of insurance operation.

[00:43:47] Stig Brodersen: So, this won’t happen before Buffett and Munger steps down for whatever reason, but that is the expectation that right now then we’re also going to have Ted Weschler and Tom Coombs and they will be managing financial assets, including the equity portfolio, [00:44:00] but not be running the actual business. But going back to actually answering your question, to me it’s interesting to see giving how central Greg’s role is, or Greg Abel’s role is that he brought back shares in the open market first, perhaps I should say, and now I’m touching your question, but Berkshire has a different approach to giving out stock options to key people.

[00:44:18] Stig Brodersen: They don’t, Buffett wants the executive to think like owners and not just becoming shareholders because they’re getting free stock in the company. That’s not how to think about running a business. If you ask Buffett. He also talked about how he wants his executive and board members to already be financial independent.

[00:44:34] Stig Brodersen: Like the driver should not be for them just to make more money. They should be a greater goal, and he doesn’t believe in just incentivizing people with money. I kind of like that because it’s a good signal then they know how to handle money and if they know how to handle money and they’re themselves financially independent, they also have the back of the shareholders.

[00:44:51] Stig Brodersen: They don’t have to cater to a CEO or like they can truly be independent and take the tough decisions that you otherwise would not be able to do if you are not independent or if you really needed the money to become reelected to the board or whatever it might be. But to your question, in the finding from September 29, Greg Abel bought 68 A shares, which is worth today around 30 million ish, an equivalent price of $270 per Bisha, and he made the purchase on behalf of a family trust.

[00:45:19] Stig Brodersen: To this story, I want to mention that Greg Abel has tied up a big part of his net worth in Berkshire Hathaway Energy, where he recently sold his stake for 870 million. So, he’s in no way in the same boat as Buffett, where more than 99% of his net worth is tied into Berkshire Hathaway stock. But it is nonetheless a strong signal that inside, who knows Berkshire almost as good as Buffett, find the current price somewhat attractive.

[00:45:42] Stig Brodersen: Again, he bought it around 270 and we arrived out at 289. That’s not how to value a stock. It’s not a few percentages here and there. You want the margin of safety, but I just found that interesting. A bit more information about Greg Abel. Even if Berkshire would default, which I guess none of us think is going to be the case, he will [00:46:00] probably be okay.

[00:46:00] Stig Brodersen: I talked about his net worth before. He also has a 16 million salary, plus a 3 million bonus from his current job, and I can help us say that. I hope he will follow Buffett’s example whenever he leaves by tying up more of his net worth into Berkshire. Of course, this is a tough act to follow. Buffett did mention before has more than 99% of his net worth in Berkshire Hathaway stock, and he takes a hundred thousand dollars salary.

[00:46:23] Stig Brodersen: But let’s do our valuation. So, whenever we look at the earnings power from operating businesses and normalize them, and this is one of the things that Buffer talks about, like you should be focusing on the short-term net income. That’s not too relevant. They own a bunch of equities too, or that goes directly to the bottom line in income statements.

[00:46:40] Stig Brodersen: So, like if it’s a bull market, it looks like Berk is a lot more profitable than it truly is, and vice versa if it’s a bear market. So, he really wants you as a stock analyst to focus on operating earnings. And if we normalize them, we’ll get around 30 billion pretax right now. Then you could assign appropriate multiple.

[00:46:58] Stig Brodersen: Generally, the higher quality and the more spectrum to grow, the higher you can assign that multiple. And then on the other hand, you can also say that higher interest rate gives you a lower multiple since you have different opportunity costs. If I have to sign a multiple, I want to assign around 15, and I do that because of what I just said before.

[00:47:17] Stig Brodersen: The interest rate is going up, which is not good for the multiple, but the assets are really high quality, so that’s sort of like posted in the other direction. So, in very rough numbers, multiply 15 with 30, you have $450 billion for the operating part of Berkshire Hathaway. Then today you have 300 billion in equities.

[00:47:34] Stig Brodersen: This is approximate number. I just pull up the Q3 filing. It says 306 billion, but same. We are trying to make a somewhat accurate assessment. Again, if you have to focus on 1% here, 1% there, that’s not the way to value stock. You want approximate numbers, or I think there is this saying that you want to be approximately right, not exactly wrong, or something like that.

[00:47:52] Stig Brodersen: And I kind of feel that’s also the case here. So, for simplicity, I assume that whenever Berkshire has 300 billion equities, which is also [00:48:00] worth around $300 billion. It also depends very much on how you want to value Apple. That is 40% of his portfolio. I know, Clay, that you’re going to talk a bit more about it here later in this episode.

[00:48:11] Stig Brodersen: But without derating the conversation too much and we can talk into any specific holdings, but like if I generally and brought a look into the stock portfolio that Berkshire owns, I would say that it’s approximately fairly valued. If you have to put behind the spot, I will probably say that it is slightly undervalued, but it’s so close that let’s just, for the sake of arguments, say 300 billion, it’s a growth number.

[00:48:33] Stig Brodersen: Then you also have 109 billion in cash. You can choose to add this number as you would use a more creative route. You can also assign an optionality of that cash because historically that’s been very profitable for Berkshire to have that. And you might even add that to the earnings power if you want to.

[00:48:49] Stig Brodersen: But whenever I’ve been doing all of that, I will come up with valuation around 900 billion for the company. That will give you an intrinsic value of ABI of around 400. If you want to know a bit more about valuation, I interviewed Chris Bloomstran here on the show back on episode 438. This was back in April, and he’s doing a brilliant job breaking down four different ways of how to value Berkshire.

[00:49:11] Stig Brodersen: He came up with $429 of his intrinsic value for Bisha. I’m a bit more conservative and also want to say that I think we all want to buy $1 bills for 50 cents, and I’m definitely guilty as charged. I also want to say that for a company like Berkshire Hathaway, I might be okay with a slightly lower margin of safety because it’s a more stable company and has a very solid downside.

[00:49:33] Stig Brodersen: So, depending on what your goal is, this is a stock that you think would be a good stock to buy. It would be a good stock to buy, even though you can probably argue that you can find stocks out there that are trading at a significantly lower discount to intrinsic value.

[00:49:47] Clay Finck: Well, if we assume that the intrinsic value for Berkshire Hathaway is $400 and the stock at the time is trading at 287, then that’s still a pretty good discount for a stock that’s widely known.

[00:49:59] Clay Finck: It’s roughly [00:50:00] 28%, which definitely seems quite compelling for those that may want to initiate a position or maybe add to their current position, they may have. One item I like to look at too is the earnings yield for a company like Berkshire, because oftentimes when I’m investing in stocks, individual stocks specifically, I’m often investing for the future growth of that company such as a company like Apple, for example.

[00:50:25] Clay Finck: expect Apple to continue to reinvest back into their business and increase their earnings, and they have opportunities to do so. I believe. However, when I think of a company like Berkshire, I almost think of it as like a bond whose earnings happen to grow over time. So, I’d like to take a look at, okay, how much earnings am I getting today when I purchase Berkshire shares?

[00:50:47] Clay Finck: So, you mentioned the $30 billion from the operating business pretax, and if I apply a conservative tax rate of 21%, it’s likely lower for Berkshire, but I’m going to use 21% for this example, which brings the post-tax operating earnings to 23.7 billion. Then if I do the look through earnings of their stock holdings and say, okay, for the stocks they own, what earnings are looked through for Berkshire?

[00:51:15] Clay Finck: So, I used a spreadsheet that Adam Mead put together for the audience when he was on our show. And I pulled in Berkshire’s most recent 13 F filing, and I came up with $17 billion and looked through earnings for Berkshire. So, adding those two together, that gives us $40.7 billion in earnings. And when you divide that by the market cap of roughly 630 billion, I get a 6.5% yield on the bottom-line earnings.

[00:51:43] Clay Finck: Considering the 10-year treasuries at 4%, you know, it is a higher yield, but obviously comes with, you know, maybe a little bit more volatility. So, it’s important to have that longer term time horizon too.

[00:51:54] Stig Brodersen: Thank you, Clay, for highlighting that. I also wanted to paint a bit more color around the interest rate. Like most of [00:52:00] the listeners to this podcast, they have been used to very low interest rate and all of a sudden, the interest rate is just skyrocketing in very short period of time. And it has impacts on all financial markets and that also includes Brexit, Hathaway. One thing that I mentioned before is that you can now attribute more value to cash for a company like Berkshire.

[00:52:17] Stig Brodersen: It’s not just sitting in the bank; it’s invested in something with a very short duration. And Buffett was previously asked about this during one of the annual shareholders meetings, and he’s talked about how the cash that Berkshire has is invested in short term treasuries, and at the time it was with a median duration of four months.

[00:52:33] Stig Brodersen: I would imagine it’s somewhat similar right now. If you do that today, you have an annual return of around 4%. It just doesn’t make any sense for a company of Berkshire’s size not to do that. Whenever you have so much. And there’s a very low downside to that because even if the interest rate goes up, it doesn’t have a too much of an impact on the value of those bonds.

[00:52:52] Stig Brodersen: It’s more or less the same as bonds. It just gives you a bit of return too. So, it also means that as the interest rate is going up, the optionality value, or for example, investing in common stock is different too. Buffett is not chasing a 4% return, that’s for sure. But you can think about it like this. If he can make 4% safely in bonds in short term treasuries, that comes at no risk, well, he needs significantly more now in opportunity cost to invest in something else where he doesn’t have that safe return.

[00:53:20] Stig Brodersen: Also want to mention that this should not be confused with the bonds that Berkshire are buying for the insurance operations. This is through a process that’s called matching. As an insurance operation, you need to match the claims, so claims of xyc will happen to one of your customers to make sure that you have money on hand whenever that is due, and that claim will be worthless, not worthless, but worthless whenever the interest rate is immediately height.

[00:53:44] Stig Brodersen: But when the new policies are underwritten, the income for those bonds will also be higher. And I should also say that the situation today is a little weird because we have an inverted yield curve. Typically, you have a high return on your longer duration bonds. So, for example, the 10-year yield would be higher [00:54:00] than a two-year yield, even though it’s not the case at the time of recording.

[00:54:03] Stig Brodersen: Another thing I would like to highlight for you to consider if you were to invest in something like Berkshire is that we are entering inflationary period. Or you might even say that we are certainly in the middle of it, and I would prefer to have an expert like Buffett managing the company than any other CEO.

[00:54:19] Stig Brodersen: Most CEO’s have no experience managing company in times of high inflation. And after they came down in early 1980s, profit has, and I’ve learned a lot more about inflation from him than any other investors or CEO. Like he really gets it and I think that there is an under-appreciation among many people in leadership right now who thinks that either this transitory inflation or it’s probably going to be somewhat the same.

[00:54:42] Stig Brodersen: It’s not the same managing company if the inflation rate is 10% or higher as opposed to 2%. It’s just a very different beast, and I feel very comfortable having buffered on my team in times like this. Having said over that Clay, I wanted to talk a bit more about Apple. Apple is around 4% above its portfolio, so that’s around 120 billion.

[00:55:02] Stig Brodersen: And this is a company that’s 600 plus billion, so approximately fifth of the market value of Berkshire Hathaway, that’s Apple stock. And I know that you look a bit more into Apple and to value Berkshire. You could also argue that you need to be able to value Apple stock. So, I wanted to bring that extra component into the mix.

[00:55:19] Stig Brodersen: So, Clay, please take it away here. How do you assess the intrinsic value of Apple?

[00:55:25] Clay Finck: First, I wanted to hit a little bit on the inflation piece you were talking about. I’ve thought a lot about inflation, and I’ve done quite a bit of research on inflation recently, and I was quite surprised to see that, you know, over the past decade the theme has really been growth investing.

[00:55:41] Clay Finck: You know, growth has vastly outperformed value throughout the 2010s until, you know, just recently that has turned in 2022 specifically. But when I look at past decades and how growth and value have kind of compared some of the best decades for value relative to growth, has been during [00:56:00] times of high inflation.

[00:56:01] Clay Finck: So, if you look at the 1940s, the 1970s and eighties, as well as the two thousand I don’t believe is quite as inflationary as the others. But during inflationary times, value, stocks thrive relative to growth. So that alone makes me, you know, a bit more attracted or makes Berkshire a bit more of an appealing investment for me.

[00:56:19] Clay Finck: So, with that, I’d like to transition to talk a little bit about Apple. I recently released an episode talking all about the intrinsic value of Apple as well as Dollar General. That was episode 4 89. And during that episode, I came to the conclusion that Apple’s price today around $140 per share is either fairly valued or possibly slightly undervalued.

[00:56:41] Clay Finck: All just kind of depends how the growth of their free cash flows play out into the future. During my assessment, you know, which may be slightly optimistic, it probably depends on who you asked. I assumed a 12% growth rate of their free cash flows for the first five years, and then 9% for the following five years year six through.

[00:57:01] Clay Finck: And then I trailed off the growth to 6% for the following 10 years, and then 3% after that. And for that scenario, apple is expected to achieve a return slightly above 10%. But of course, Apple’s growth might not be quite as good moving forward. So, I also consider the possibility of the recession of recession hitting or something.

[00:57:23] Clay Finck: Pushing the free cash flows down for the coming year. So, I brought down those free cash flows by 20%, and then I just used the same growth figures going forward and that still put the stock around the value it is today, which is $140, and that’s using a discount rate of 10%. So that essentially means that if you purchase the stock today using those free cash flow assumptions, you will achieve roughly a 10% return.

[00:57:52] Clay Finck: You know, again, some might say that was a bit optimistic. So, I was interested to see what their recent quarterly earnings report showed [00:58:00] because, you know, there’s so much pressure on stocks today. With the macro environment we’re seeing, they released revenue of 90 billion for the most recent quarter, which was up 8% year over year from 83 billion.

[00:58:13] Clay Finck: The quarterly earnings per share were a dollar 29 per share, and that was up 4% per year. But their earnings over the entire fiscal year 2022 was up 9%. So, a little bit better than just the quarter alone. And considering the macro environment and how well many other stocks have, you know, weathered through this, I think it was a pretty good quarter for Apple.

[00:58:36] Clay Finck: And the two segments I like to keep my eye on when looking at Apple is their iPhone segment and their services segment, because I think those are two really key pieces for them. Their iPhone sales were up 7% on the year, so fiscal year 2021 was 191 billion fiscal year 2022 was 205 billion. And then for the services segment, that was up 14% year over.

[00:59:01] Clay Finck: For fiscal year 2022 from 68 billion to 78 billion, and one insane statistic that stood out to me was their number of paid users for their services. That’s up to 900 million, which is an increase of 154 million, which is just insane to think about how there’ll likely be hitting a billion users for their services segment for fiscal year 2023.

[00:59:24] Clay Finck: And I think one reason I like to look at the services business, it’s a smaller segment of their overall business today, but it’s one of the key drivers for their growth. One, because it’s one of their faster growing segments, and two, it’s much higher margins. Their growth margins on their services segment are 70%.

[00:59:41] Clay Finck: Plus, the recurring revenues that services business brings is very good for them because that recurring revenue is valued much higher than, say, an iPhone sale or their Air Pods, where they need to sell it over and over. The services are much less friction for their business. So, for example, if someone [01:00:00] purchases Apple Music for 10 99 per month, and you know, many of these users that purchase Apple Music are going to buy it and have it for the next five years plus.

[01:00:09] Clay Finck: And you know, they make that purchase once and it just gets pulled out of their bank account each month. So, within their services business, I also want to touch on what else they have in there. They have Apple Pay, they have Apple Care, they have their iCloud segment where they charge a monthly fee to store them.

[01:00:24] Clay Finck: So, on top of the many successful products they sell, they’re also really good at expanding their ecosystem and their value proposition through their services business. Now, hitting more on the iPhone sales, the iPhones consisted of 52% of their revenue for fiscal year 2022, and their services business increased from 17% to nearly 20%, and Apple’s revenue overall grew by 8% while their free cash flows actually grew by 20% year over year.

[01:00:53] Clay Finck: I think it’s also really important to note that the dollar has strengthened significantly over the past year as Apple does business outside of the US and many other countries. Just looking at the Dxy over the past year has increased from 94 to one 10. Other fiat currencies in that basket that Apple is accepting.

[01:01:14] Clay Finck: Those are declining in value, which puts some pressure on their earnings because they’re earning in something that’s outside the dollar while the dollar strengthens. And then they report those earnings in dollars.

[01:01:25] Stig Brodersen: And that’s a really good point to bring up Clay, which is also why whenever you go through earnings calls, they talk about what’s the revenue number and absolute number, but also what if it was in constant currency?

[01:01:34] Stig Brodersen: And I think that’s important to keep in mind and goes back to the whole thing about inflation. There is only so much you can do in different markets whenever the price is going up or whenever the exchange rate changes. If people are used to paying a thousand dollars and now you are in Europe and it’s, let’s call it a thousand euros, there’s only so much you can do.

[01:01:51] Stig Brodersen: Like consumers in Europe don’t really care too much about the value of the dollar. They’re looking at how much money do they have and what can they spend. And so, in times of inflation, [01:02:00] in times of having a currency that’s going against you, there’s only so much that you can put on the consumer. And of course, you can make the argument that a company like Apple can put more than due to the brand value can put more than other companies, but still your margins just tend to be hit even for a fantastic company like Apple.

[01:02:15] Stig Brodersen: And so, I just wanted to mention that. I’m sorry Clay. I kind of felt like I stopped your train of thought there.

[01:02:21] Clay Finck: Now looking at what Buffett’s done with Apple, you know, ever since he entered the position in 2016, it’s just done spectacularly well. Yet Buffett’s continued to buy more. In his most recent 13 F for q2, 2022, Berkshire purchased 4 million shares of Apple at roughly $160 per share.

[01:02:40] Clay Finck: And when I analyze the stock, I like to look at how the multiple for the stock has changed over time, because different stocks and different industries trade at different multiples. So, you can’t compare two different industries based on just the multiple alone. So, looking at Apple for example, their multiple has been trading at elevated levels ever since the pandemic hit.

[01:02:59] Clay Finck: Zooming back to 2016, when Buffett first bought, the price of free cash flow, for example, was around 10. And then in 20 17, 20 18 it was in the 15 to 17 range. And then in 2021 it hit nearly 30, so nearly double where it was a few years prior. And then now today the price of free cash flow is around 20 giving investors just based on this multiple free cash flow yield of around five.

[01:03:23] Clay Finck: And you know, apple isn’t a company that’s going to make Buffett or make us rich over the next decade, but I do think it is a company that will continue to grow, thus likely providing a reasonable rate of return relative to the overall market. It’s more so what Buffett says of great company trading at a fair price.

[01:03:42] Clay Finck: And I don’t believe that today’s price is a bargain by any means. You mentioned the buying 50 cents for a dollar earlier, but especially it’s not a bargain since many other stocks in the market have fallen. So, there might be a lot better opportunities in other sectors of the market, but again, I just think [01:04:00] Apple’s a great company trading at likely a fair price.

[01:04:02] Clay Finck: And I’d encourage listeners if they’d like to learn more about Apple, get a bit more of a deep dive. They can check out episode 4 89 where I dive a little bit deeper into my analysis and you know, what’s inside their business. And so, to your point,

[01:04:16] Stig Brodersen: Clay, Buffett did buy stock in Apple in Q2, and I wanted to offer a new perspective to this because Apple is also buying back roughly around 5% back of the shares a year.

[01:04:28] Stig Brodersen: So, by owning Berkshire, you get a bigger share of Apple’s ownership. Two different ways. You own more and more the ownership of Berkshire, and in turn Apple, because Buffett is buying back shares in Berkshire, and you own more of Apple because they are buying back shares. And it might not seem like a lot, but the compounding effect of this is really immense.

[01:04:47] Stig Brodersen: I remember there was one annual letter where Buffett talked about that he trained his position a bit in Apple, and there have been some talk about what that means and Buffett says, oh wait, you actually own a bigger part of Apple now than you did before, just because if we are selling a bit of Apple, which I should say is not the case today, he’s actually adding, but just because he’s selling a bit of Apple, you might still end up with a larger ownership shares of Apple due to those two reasons.

[01:05:08] Clay Finck: Yeah, Buffett loves Share Repurchases. I feel like a lot of meetings, he mentions it or tells some story. He did it in 2022 of a company he’s owned for decades, and he just showed how his ownership has drastically increased while he hasn’t purchased any more shares. So Buffett’s definitely a big fan of buybacks, and I think that’s why he likes Apple a lot more of some of these other bigger tech companies with wide moats, it’s because Apple Acts more like a mature company where they want to see those bottom line profits and then they shovel a lot of that into the share purchases.

[01:05:41] Stig Brodersen: Yeah, and Buffer also talked about how him and Tim Cook have these conversations about how to best allocate capital. So, I can’t help but think that some of that has dropped off a bit on Tim Cook who knows.

[01:05:51] Clay Finck: All right. Well, I really hope you guys enjoyed this conversation. For those of you making the trip to Omaha, we really look forward to seeing you there.

[01:05:58] Clay Finck: I know it’ll be a great time. It’s [01:06:00] something I look forward to each and every year. So again, we’ll be sure to include those links in the show notes. And if you’d like to learn more about Apple, you can go and check out episode 489. And Stig has done plenty of conversations and intrinsic value analysis on Berkshire Hathaway, so we’ll be sure to link those in the show notes as well. Thanks for tuning in.

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