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What Warren Buffett and Charlie Munger Have to Say about Investing and the Industrial World

Warren Buffett and Charlie Munger are perhaps two of the most-revered investors in the world – for good reason. Since the early 1960’s Buffett has, with the help of Munger, built the conglomerate Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) into a US$300 billion commercial juggernaut today.

Berkshire had started as a sleepy little textile manufacturer and both investors had grew the company to where it is currently by making sound investing decisions and allocating capital wisely.

Buffett and Munger’s long-lasting success have helped spread their fame far and wide. It is also one of the main reasons why tens of thousands of investors and shareholders would make the trek down to Omaha, Nebraska in the U.S.A. (where Berkshire is based) each year to attend the company’s annual shareholder’s meeting that’s generally held around May.

This year, I was fortunate enough to be able to travel for the event and hear Buffett and Munger wax lyrical on investing, the global economy, U.S. President Barack Obama, and even the future of education in both the Eastern and Western parts of the world. I had made an earlier promise to bring to readers of The Motley Fool Singapore some of my takeaways from the meeting (see here, here, and here for some of my previous thoughts). So, here are some new ones.

The industrial world is growing stronger

One often over-looked aspect of Berkshire – in my opinion – is that it owns so many businesses involved with so many different things in the American and global economy that Buffett has a great bird’s-eye view of what’s really happening in the world of business.

On that front, investors wanting to know how the industrial world is performing might want to pay attention to Berkshire too; the conglomerate owns the Israel-based Iscar, a company that makes industrial cutting tools that sells into “basic industry all over the world,” as Buffett said during the shareholder meeting.

Buffett also mentioned in the event that Iscar had managed to set a new record in April and that there would be many more records down the years. He went on to reveal that Iscar is seeing signs in its business that suggests the industrial world is going strong.

So even though there are many moving cogs in the global economy, having basic industry being healthy is a great thing to know in itself.

It can be a great idea to buy a share again even if its price has gone up

Marmon is an industrial company that was bought over by Berkshire in separate chunks; Iscar was acquired in a similar manner too. During the meeting, a shareholder had asked Buffett and Munger why Berkshire had paid a higher multiple of pre-tax earnings for the latter chunks of both Marmon and Iscar that Berkshire had bought.

While Buffett went on to explain the intricacies of the deal and clarify that the questioner’s interpretation was somewhat wrong, Munger gave an answer that cut straight to the bone: “The price went up because the value went up. We agreed to do that.”

This serves as a great reminder for investors that the ‘value’ of a company is a fluid concept. It also highlights how it can be a great idea to invest even if share prices have gone up if the value of the companies have grown too.

At the start of 2003, Jardine Strategic Holdings (SGX: J37) was worth US$2.60 a share. Five years later at the start of 2008, shares of the conglomerate had gained some 512% to US$15.90. From that point, Jardine Strategic went on to grow by another 121% to its current price of US$35.09. In comparison, the Straits Times Index’s (SGX: ^STI) level of 3252 points today is still 4.3% below where it was at the start of 2008.

So despite having a huge run-up in price five years before 2008, Jardine Strategic had still proved to be a solid market-beater six years on from then. It’s also certainly not the only example with Dairy Farm Holdings (SGX: D01) and Vicom (SGX: V01) being just two others that I’ll mention out of many.

Dairy Farm Vicom
Price: Jan 2003 US$0.89 S$0.625
Price: Jan 2008 US$4.4 S$1.80
Change from Jan 2003 394% 188%
 
Price: Today US$10.44 S$5.83
Change from Jan 2008 137% 224%

Source: S&P Capital IQ

The idea of an increase in intrinsic value for the aforementioned locally-listed companies over the years is certainly subjective and might be open to interpretation for some. But, one thing’s clear: Those companies have still been great long-term investments even after a huge run-up in prices.

Foolish Bottom Line

I’ve thoroughly enjoyed myself on my trip to Omaha this year for Berkshire’s meeting and it’s been such a treat for me to share what I’ve learnt from it all. And while big parts of what Buffett and Munger share every year in Berkshire’s annual shareholder meeting would not be anything ground-breaking or revolutionary for investors with certain amount of experience, it’s still worthwhile to go back to the basics every now and then.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Chong Ser Jing owns shares in Berkshire Hathaway.