I spent today at the Berkshire Hathaway annual meeting. It’s only my second time there, but I highly recommend it. While calling it the Woodstock of Capitalism is a bit of an overstatement, it’s a really good time. For an entry level price of about $80 per share, you get to have two of the best investors in human history manage your money for free.

I’m not going to give a blow-by-blow summary. The Live-Bloggers at the Times did a much better job.

One of the most interesting parts of the trip was siting next to an attorney who works for Union Pacific railroads. I asked him how business is on the railroads these days, and he said that they are seeing a big increase in stuff getting shipped around and that in his experience, rail transportation is about a 6 month leading indicator of economic activity. I should set myself an alert in six months to see if that holds true in this case.

The meeting generally takes this format:

1. A short movie, followed by some commercials and skits. This movie was a hilarious bit about an evil machine called an ‘MBA’ sent from the future to destroy the economy as we know it, and Warren needed to call on the ‘Governator’ (played by Arnold himself) to quash the threat.

2. Some basic business numbers. The most interesting thing I learned is that this year Geico has processed 25,000 automobile claims due to the tornadoes in the south, and that the earthquake in New Zealand caused 10x the damage as Hurricane Katrina, from a cost and affected people point of view.

3. A few hours of Q&A, followed by lunch, followed by a few more hours of Q&A.

4. The convention center is full of member companies. Pretty much every one has some sort of booth, many of them sell things at a substantial shareholder’s discount on the floor.

The Q&A consisted of questions from reporters, followed by members of the audience, chosen via a drawing. There are no restrictions on questions, and this is the reason a lot of people come to these meetings. I would love to think that I will become better with money simply by osmosis. A few highlights:

The Sokol Brouhaha - When it comes to news, I usually live under a rock. As Buffett said: it’s both inexcusable and inexplicable. The guy has Buffett transfer $12 million of his bonus to his junior partner, without taking any credit. He doesn’t try to hide his trades, and he even resigns himself, saving the company from paying severance. He does something ridiculous by trading on his own account, making $3 million at the end of the day, and not disclosing the fact. The more I heard, I didn’t think he was a bad guy but I can’t wrap my head around why on earth he would do that.

The Economy in General - Both Buffet and Munger are surprsingly upbeat about the economy. They said that they see every sector they are involved with improving every quarter except for residential construction. There they say it’s a matter of time - new households are now increasing faster than new houses, so eventually there will be less excess inventory and more demand. Someone asked them how they can be so optimistic when everything is going to hell in a handbasket, and their response was that this is nothing compared to the 1930, and if the US can survive the Great Depression and the Civil War, and Europe can survive the Black Death, then we should muddle thorough everything happening now just fine.

At some point Munger quipped: The politicians are never so bad that you don’t live to want them back. Their view on fiscal policy right now is somewhat blasé - that the administration is at least not doing anything horribly wrong, and while they have had their quibbles, when they look back, it seems that the government’s actions have made sense.

Interesting tidbit: When Berkshire Hathway first sold shares, they were almost exactly the same price as gold. Which has done better?

Their current prediction is that we’ll see housing pick up around the end of the year, and with it, employment will improve immensely. We’ll see if they are accurate - I hope they’re right. Both them and the UP attorney seem to think that things are on the upswing.

There were a few questions about the financial crisis in 2008. Both praised Bush on doing what needed to be done and acting quickly. Munger said he’s been disappointed with the utter lack of contrition from the financial industry - that every crisis starts on Wall Street, and is driven by greed. Buffett remarked that there are perverse incentives to trade more than we should - if you daytrade and make money, you’re taxed 15% of 60% of your returns. If you work hourly, you are taxed at whatever your marginal income tax rate is (probably twice that), and that is ‘demented’, to use his words. He seemed to think the best way to return the financial system to sanity would be to tax trades the same as income. It’s a strange set of values when a plumber pays twice as much in taxes as a daytrader. He also mentioned that he would love to see a system where, if a company needs to get bailed out by society, the CEO should be ‘dead broke’ at the end of the process. I can’t say I disagree much.

Munger said it’s a shame that those who handle money seem to be the ones who make the most - it draws to finance people who would be better off as snake charmers.

Neither of them think that business schools are producing students that are intellectually or morally fit to run businesses. I thought that was interesting. Munger said he would teach a finance class by going over 100 company histories and discussing where they made mistakes and where they made good moves. GM, for example, went from being the most successful company in the world to completely wiping out their shareholders. I would love to hear his analysis of that. He said that he would probably step on too many toes with other faculty that come from business, and they’d kick him out.

Munger’s comment that schools tend to believe and teach things about economics that are just plain wrong reminds me of the way that software engineering is taught in school.

And to close this rambling stream-of-consciousness post, one of Buffett’s closing comments was that the best investment a young person can make is in their own skills, and he believed that communication skills were the most important of all. That, I suppose, is something practical and actionable that I can take away from this meeting.