This is the ninth part of my reading experience of “The Text Record of the Berkshire Shareholders’ Meeting”. The background of writing this series is:
“If there is a “cheat book” for investment, in addition to Buffett’s letters to shareholders over the years, in fact, there is another material that is probably ignored by 99% of people. It is:
Buffett and Munger, Q&A to questioners at Berkshire shareholder meeting.
The reason is clear at a glance: Those questioners are just like you and me, so they don’t come here to be false. They ask some very specific questions, such as what do you think of XX company, whether to sell when the stock price is overvalued, and so on.
Although you and I don’t have the opportunity to ask them questions directly, these questions that we “dream about knowing the correct answer”, the views of the stock gods, are in this document.
So, through some means, I obtained the Q&A records of the past twenty years, and the electronic version is in the backstage of my XX (villike’s financial freedom notes) to reply to the records, and will push them to you.
After reading it hungrily, I organized the content of millions of words in a structured way from a practical point of view, and condensed it into the articles you are about to read. “
Before we start to talk about the following content, let’s summarize and see where we are.
In the previous article, regarding “selecting a company”, we first learned about “good or bad business”, and then said that the most important thing in investment is “understanding”.
Next, let’s take a look at the last part of “Selecting a Company”:
company culture.
Before I carefully read Duan Yongping’s investment Q&A, I actually didn’t pay much attention to the matter of corporate culture. The reason is also very simple:
Buffett didn’t say much about corporate culture, but the management said a lot.
Later, when I read Duan Yongping’s interpretation of corporate culture and the importance of corporate culture in investment, I couldn’t help thinking about a question:
Why does Buffett seldom talk about corporate culture, but often talks about management? Doesn’t he value corporate culture?
Later, I saw Buffett say this in the record of the 2005 shareholders meeting:
“The board’s job is to find the right CEO and prevent the CEO from overreaching.”
If a company has a good corporate culture, it will have a good board of directors, and a good board of directors will find a management that fits the corporate culture and continue to monitor the performance of the management. This is logic.
In other words, the penetration of corporate culture must be from top to bottom, and what the management does is the manifestation of the company’s corporate culture.
Against this background, let’s take a look at Buffett’s statement of management’s requirements. The following passage comes from the 1998 shareholders’ meeting:
“I start with the financial reports of companies that I think I can understand, and I read hundreds of them every year, and I will look at the reports to see if management has told us what we want to know.
If a management does tell me these things, and is frank – like a subsidiary management is frank with us, in a language we can understand, it will definitely improve our feeling about investing in the business .
If the situation is reversed, if I see some public relations red tape, such as I see a lot of beautiful pictures, but no facts, it will make some impact on my attitude towards the business.
When I read the annual report, I want to understand the business better than when I picked up the report, which is not difficult for management, if they want to do so.
If they don’t want to, we think that’s a factor in whether we want to be their partner for a decade or so. “
In the long paragraph above, Buffett told us to find the kind of management that is honest with shareholders.
Regarding this paragraph, I have a few feelings to share.
First, it is their due responsibility for management to report honestly to shareholders.
The business itself is initiated by the shareholders, and the management is the “steward” hired by the shareholders to help.
However, because the minority shareholders of listed companies have less equity and do not have sufficient control over the management, many managements have “turned over and become the masters”.
However, this phenomenon does not change the essence of “management is obliged to report the operating situation to shareholders frankly”.
Second, we usually think that the previous paragraphs are theoretical, and other people’s managements just don’t do this, or in other words, there are very few managements who do this, what should we do?
It’s very simple, we try to find the kind of people who are willing to do this.
With a position as powerful as Buffett, he will not choose to forcibly influence the management. In fact, the last thing Buffett believes he can do is to change others.
His approach is also the approach we should choose, namely:
If we find that the management of a company does not want us to understand the company’s operations, then consider not investing in such a company.
The third one, from the above paragraphs, we have encountered a paradox. As long as the information disclosed by a company prevents us from knowing the company in detail, should we not invest in her?
In other words, is this a “one-vote veto factor”?
This is what Buffett meant by the last sentence, which would be “a (influencing) factor.”
In other words, whether the management has given the highest priority to “candid communication with shareholders” is not a sufficient condition for whether to invest in a company.
Let’s go back to the topic of corporate culture, then, what should we pay the most attention to in terms of management?
Buffett gave a clear answer at the 2016 shareholders meeting:
“We hope that our management will think about how to enhance competitiveness and widen the moat every day, and we hope that our products will be better and the cost will be lower.
We want to know what our customers want us to do, day after day, year after year, as long as we keep our customers happy, customers will bring us business.
Sometimes, we will be impacted by the external environment, which we cannot control, so we will not do this business. We don’t want to put our competitors to death, we just pursue to be the best in whatever we do. “
In my opinion, the above paragraph really connects corporate culture and management, and also gives us a clear perspective:
First of all, what kind of management do we most want?
Shareholders hire management to make money for shareholders and make a lot of money.
How can a business make a lot of money? Have a strong competitive advantage.
What does the best management look like? Of course, it is necessary to continue to think about how to enhance the competitive advantage of the enterprise, that is, the moat.
Second, what kind of competitive advantage is the real competitive advantage?
The brand, low cost, and network effects we are talking about are actually just the appearance of competitive advantages, or in other words, some manifestations of competitive advantages.
The core essence of competitive advantage is actually the reason for the existence of a company, that is:
Satisfy customer needs well.
If you think about it carefully, isn’t that what it is? Those powerful companies, none of them didn’t meet some of our needs well, think about it?
Therefore, the best management must be aware of this point. The needs of users/consumers are what the management should pay the most attention to. The most valuable work that the management can do is to find ways to maintain long-term, well meet consumer needs.
And that’s the key to a good corporate culture: consumer orientation.
Finally, the management must be able to achieve “no distractions”.
Many managements will get lost in the evil way of “beating competitors”, but even if you defeat all competitors, if you fail to meet the needs of consumers well, you will definitely not make much money or even survive .
Too many managements don’t realize it, and more managements, they know it, but they just can’t escape the temptation to “kill the competition” and enjoy the attention.
Of course, there are also many managements who know this very well in their hearts, but they don’t care.
No matter what the situation is, if the management cannot achieve “outward-looking and user-oriented”, once they start to look inward, “skills” will not be important, and the “scoring system” will become the focus of their attention.
At this time, we will see two typical performances.
In the first category, management begins to consider how to make their performance “look” better.
Buffett said the following at the 1994 shareholders meeting:
“We think management’s focus on accounting policy is a negative, but we find it so prevalent that we can’t count that negative as a one-vote indicator.”
There are two parts to this passage. In the first part, Buffett clearly tells us:
If management’s focus is on accounting policies—rather than meeting user needs—that’s a definite negative.
This shows that, whether they do not understand, do not want to, or cannot (as mentioned earlier), the management has deviated from the correct path of the company’s existence value and entered the crooked path of “modifying the score”.
The second half of this passage is embarrassing and helpless. In the real world, the vast majority of people cannot “blade outward” without distraction. When performance is poor, too many managements want to Beautify the report.
At this point, what does a good management look like? Buffett also expressed his views in 1994:
“If management doesn’t care about accounting policies, but can clearly explain what the company is doing, that’s a positive.”
This is a combination of the two. Such a management, not forgetting its position as a “shareholder steward”, candidly explain the company’s situation, and accounting is only one of the ways to explain.
If the management is “overwhelmed”, in addition to paying attention to accounting policies, there is a second manifestation. Let’s take a look at the next article.
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