Just made my annual trek to Omaha for the Berkshire Hathaway Shareholder's Meeting. After all the doom and gloom in the world with H1N1, the financial crisis, AIG angst, Madoff Madness, Detroit's downfall and global climate change, I was ready for something positive. For those that have never been to the BH meeting, it is one of the most exciting meetings. You sit in a room with 35,000 other people and listen to the wise words of Warren Buffett and Charlie Munger as they field questions from 9 AM to 3 PM with a half hour break for lunch while drinking their coke products and eating their See's candy, and Dairy Queen Dilly Bars, all popular BH holdings. Just before their speech, they debut a 30 minute video showcasing all of their brands with snippets of Charlie and Warren interspersed doing interesting things. This year, Warren, caddied for Tiger Woods and tried to learn how to play golf like the pro. Simultaneously, in another room down the hall, BH is showcasing all of its brands reminiscent of a trade show. With well-known brands like Wrigley, Coca-Cola, Geico, See's, Dairy Queen, Net Jets, Clayton Homes, Shaw Industries, etc, they have some of the biggest names in the world. I have to say, that this is one of the great events, I look forward to every year, being in the presence of sheer genius and hoping that there is one snippet of something they say that helps me in my year moving forward. This year, was no different. Warren said that Geico spends of $800M a year on advertising and that this year will be no different. He said that this is a great year for advertising because you get more bang for your buck with the current state of the economy. He said to be a household name, you must have your name in every market in every part of the world like Coca-Cola. He got several questions about the housing market because he has so many brands in that market. He said that it was going to come back in the next couple of years but the crash was a combination of two things, too much inventory for the current population, and loans to people that don't have the ability to pay. Warren said that too many people got accustomed to loaning people money that can't pay it back and everyone else did it because everyone else was doing it and no one would stand up and say, "this isn't right". He also kept saying that financial people have gotten out of the habit of using common sense. He said that finance is pretty simple. A bird in the hand is better than two in the bush. It really is that simple but people can't charge big bucks if they say that to their clients. They need metrics, etc to make themselves look like they are earning their money. This is the no nonsense way of life we need to get back to. Our world is not sustainable. Warren says that he doesn't employ lawyers or risk officers because he said to invest in another company is simple. If a company has solid managers and doing what they do best, they will be successful. There is a kernel or two of truth in all that Warren says, I think that is why we all hang on his every word. Two things that I have always thought we always are going to need is Water and Energy so I have always thought that preserving them is a good idea. It seems that this year BH companies are also moving in that direction. There were several BH companies worth noting this year that I haven't given much thought to in year's past.
One is BYD, www.byd.com, a Chinese Lithium Ion Battery manufacturer that has started manufacturing hybrid and electric automobiles. BH bought a 10% stake in the company. On the outside, the car looks nice enough, the technology behind the vehicle looks brilliant and the price points are $22K USD hybrid, and $35K USD electric. BYD is one of the hottest selling cars in China, pretty amazing feat. To bring this to market in the US is going to be a little tougher. One, China has been known to manufacture based on quantity, not quality and this worked when the US was on a wild spending spree without giving much thought to what they bought or from whom. More and more people are not interested in the poor quality of Chinese goods. It is one thing to buy a spatula made in China, but a car, is a major purchase. Two, China has already dampened its business reputation by selling us toxic products, ie., dog food, baby food, milk, children's toys and drywall. It is the reason that I pour over labels now to make sure I am not purchasing anything from China. Clearly, I know that I am not the norm with my spending habits but I do believe more and more people who have less and less discretionary will think like me and think twice before purchasing cheap goods from China. We all pay a price in the end, from more toxins in our air and water supply, to more health risks to ourselves and our children. Also, when you step into the BYD automobile, you smell a noxious odor that closely resembles that of volatile organic compounds VOC's off-gassing. I don't care how strongly Charlie Munger believes in BYD and its dynamic founder Wang Chuanfu, this is a problem with this vehicle that will have to be remedied before entering the American market. The vast majority of Americans that buy eco-friendly products will certainly pay attention to every component that went into the manufacturing of BYD. If BYD gets this one problem rectified, this could be a big hit!
Another BH company that I think is going to do really well over the next few years is Eco Water, www.ecowater.com. This company is a subsidiary of BH's Marmon Group. They manufacture and distribute commercial and residential water treatment system's. This is clearly going to be a direction people move toward. I put a system in my home in 2001 and it has paid for itself several times over. It delivers about the best tasting water you can find without being in a natural spring and there is no more desire to buy bottled water. With bottled water sales down this year, people are looking for alternatives and this is one of the best for saving money while getting good drinkable water.
The third BH company to look out for is Clayton Homes i-house, www.claytonihouse.com. Clayton's architects took a California-based designer's mid century modern look with sustainable features and brought it to scale for the masses. In a time when people are looking for a bargain that looks good and functions even better, the I-House is one such product. This home is about conserving energy and resources while looking stylish and comes with options like PV solar with an integrated inverter, rain harvest, eco-friendly interiors, compact fluorescent lighting, Energy Star Appliances, paint without the VOC's, Aluminum roofing, composite decking, energy-efficient windows, tankless water heater and low flow faucets. Clayton has partnered with well-known brands including IKEA, Moen, Andersen GE, Ready Solar, Rheem and BH companies including: Shaw, Mitek, Kirby, Benjamin Moore, Johns Manville, etc. These homes average about $92 a square foot and are built in a state-of-the-art, climate-controlled facility with half the waste of site built homes. My only concern for Clayton, is that this modular home is far different than their standard mobile home and will appeal to an entirely different demographic than its core. I think they are going to have to market this in an entirely different way. I think they should seek out Eco-Ezines', Eco documentaries on public television in their major markets, well-known eco-celebrities and employ a sales team at every IKEA store in their markets. This alternative made for the masses home, is going to take alternative strategies to sell. I wish them luck. It is one of the most promising products I have seen in the US in some time! This is the type of Innovation that American companies need to bring back the confidence of America. Hats off to Clayton Homes.
For more info: visit: http://www.youtube.com/watch?v=Wf_hpsWsArc
