Closed Berkshire Hathaway annual meeting: The Buffett bonanza

The Berkshire Hathaway annual meeting is like Woodstock for capitalists. It draws tens of thousands of shareholders, value investors, groupies and the curious to the midwestern city Omaha, Nebraska.

They make the pilgrimage each spring to sit at the feet of Warren Buffett and Charlie Munger, the two men who have spent half a century building a sprawling $260bn conglomerate.

The FT’s Dan McCrum was there to capture the weekend festivities and the wise words from the pair of octogenarian sages.

I’ve landed in chilly Omaha, a big open city spread along the Nebraska side of the Missouri River, and its starting to fill up with eager investors from around the world. You can spot some of them carrying the 2013 annual report, required reading among the faithful, and by sound of discussion of the great man.

This weekend’s live blog will be updated throughout Friday and Saturday’s events. We’re hoping for a few updates each hour including pictures, videos and behind-the-scenes analysis from the ground.

There are a few Berkshire organised events over the weekend, aside from the main event tomorrow when Mr Buffett and his long term foil Mr Munger will chew butterscotch and answer questions for around 6 hours, and most of them are aimed at opening pilgrim’s wallets.

The big party tonight is at Borsheims, a Berkshire owned jewelry store, where free food, booze and bid discounts draws the crowds. Mr Buffett will be back there on Sunday if you want his help picking out a diamond ring (spend big he says, he wants to beat the $1.75m worth of sales he racked up last year).

Those shareholders with some money left on Sunday can head to a barbecue at the Nebraska Furniture Mart, another Berkshire property. Or they might watch Patrick Wolff, a chess grandmaster and value investor take on all comers blindfolded, while the hungry head for a steak and a root beer float at Warren’s favourite steak house.

CNBC aired an interview from last night with the man himself on Friday morning. He shared his thoughts on the US economy

“The economy is improving, not at a rapid clip, but this country has done well since 2008 – certainly compared to the rest of the world,” Buffett said to CNBC.

Why do people come? Overheard in Omaha:

I read everything he says. He likes to talk to Becky Quick at CNBC, so when he does I’ll get the transcript

Mr Buffett throws the world’s largest free networking event for investors. Old business school friends catch up, there is a lot of friendly arguments about stocks, as well as formal events like the Value Investor Conference at the local business school that I’ll be checking out later.

I asked Steve Jordon, author of The Oracle & Omaha, what the essence of the annual meeting was. He said:

You have to meet as many people as possible, almost everyone has an interesting story.

Mr Buffett’s 300,000 twitter follows may be disappointed. I caught up with his daughter, Susie Buffett, at an event to launch the Fred & Pamela Buffett Cancer Center, and it doesn’t sound promising for the twittersphere.

We’ll see if he sends another tweet. I keep hearing from my friends that they are following him now. It might get kind of boring.

She said that the weekend event had evolved slowly, each year adding a hundred extra seats, then a thousand, until it moved to the current location at the Century Link Center (capacity 17,560).

Ms Buffett said that a friend from junior school will be at the meeting for the first time tomorrow.

She remembers my dad in his bathrobe making jiffy pop in the kitchen and I keep telling her that you have got to come, you are not going to believe how weird this is.

I can’t wait to hear her perspective. She has seen him, but when we’ve gone to Dairy Queen or something. This is going to blow her mind, I think.

For those contemplating what else to do in Omaha, the city also has other attractions for visitors beside wisdom.

We have an unbelievable zoo, it’s one of the best zoos in the country.

Warren’s right-hand man, vice chairman Charlie Munger, told Reuters on Friday that the company has over the years made many of its most desirable purchases in periods of “great catastrophes,” but little appears on the horizon now.

“With interest rates at zero, the prices being paid for businesses are very high,” he said.

Munger said Berkshire would welcome another purchase on the scope of its $26.5bn takeover of Burlington Northern Santa Fe in 2009.

Everybody would like it, but just because you like it doesn’t mean that the world will necessarily give it to you. You’d be stark raving mad if you were running Berkshire and didn’t want another Burlington Northern. But how many Burlington Northerns have we done in 50 years?

Charlie Munger also told Reuters that he has no plans to join Warren Buffett on Twitter, saying it is too much to do at once

The value investor mindset is on show in Omaha – be fearful when others are greedy, etc – and Howard Marks, chairman of the distressed investing shop Oaktree, is a crowd favourite. (Acolytes can check out his reading list here.)

His talk on the human side of investing is orthodox Buffett creed to avoid siding with the crowd:

Being too far ahead of you time is indistinguishable from being wrong.

In order for extremes and crashes to take place, investor memory has to fail.

Most people think in terms of the average or the norm and don’t think of outliers.

Note to those looking for prime post-lunchtime presentation slots, name check constantly and quote liberally. So far invoked: Nassim Taleb and his black swans, David Swenson of Yale, Mark Twain, Keynes, Kipling’s If, Daniel Kahneman’s Thinking Fast and Slow and an old favourite from Kenneth Galbraith:

We have two classes of forecasters, those who don’t know, and those who don’t know they don’t know.

Your tenure as a Berkshire Hathaway shareholder will swiftly come up in any conversation here. Longer = better, so be sure to establish that you are a serious patient investor.

Oh, a long time, 10 years, but not long enough!

Additional kudos if you can mention reading Mr Buffett’s annual letters to shareholders during puberty, or a visit by the great sage to your business school that inspired an investing career.

Give your kids a head start with the Buffett inspired story book The tale of Tortoise Buffett and Trader Hare.

Several investors talk about how value investing can be a lonely discipline, all that zigging while the crowd is zagging. So the routine of listening to Warren and Charlie each year is a way to reset and recharge with some mental sustenance.

Its kind of grounding, an intellectual diversification.

That’s Kevin Freese, a bond investor by trade for Wells Fargo and a Berkshire shareholder of 19 years standing. Every professional investor, he says, should come to hear Charlie Munger and Warren Buffett in person at least once.

Mr Buffett looms large in Omaha. Hanging in the new Mammell Hall at the University of Nebraska’s Business School is this rendering of the great man.

For more photos, the Berkshire owned Omaha World Herald has a selection over the years, including a very fresh faced Mr Buffett.

We have a second source on the awesomeness of the Henry Doorly Zoo from FT colleague Emily Steel who went there as a child with her Omahian grandmother. Check out the rainforest and acquarium.

It is a cool 9 degrees centigrade in Omaha this afternoon, and threatening rain. The Finest Hour will be keeping shareholders warm at Borsheims later.

There are quite a few Australians who have spent more than 24 hours in the air to be in Omaha. The excellently named Sam Paradice of broker RBS Morgans has led a group to hear Buffett each year for a decade.

Mark Moreland, who runs an Aussie investment club business, is on his third trip. Because Berkshire owns more than 70 different business, he says:

For an Australian, Berkshire is almost the only stock you need to get exposure to the US market.

Heading on to Las Vegas for another value investing conference in the desert next week seems to be a popular choice. It’s definitely the draw of the conference. No other reason whatsoever.

Berkshire’s first quarter earnings are out. Cash pile up to $44bn, from $42bn at the start of the year.

I’ll go take a look at them now. If the numbers are a little dry, here’s a longish piece from earlier this year pondering what will Warren do next?

Berkshire Hathaway reported strong earnings up 50 per cent as its insurance business produced a big gain in profits from a year ago and the $268bn conglomerate’s diverse mix of manufacturing retail and services businesses produced mixed results but overall steady grow in profits of around 10 per cent.

The company reported net income of $4.9bn in the first quarter, up from $3.2bn a year ago. The largest contributor to the rise was insurance underwriting profits of $901m, compared to $54m last year. The rise included a one-off gain of $255m related to amendments to a contract with a unit of Swiss Re. Overall revenues of $43.9bn rose from $38.1bn a year ago.

The earnings came after Berkshire A shares closed at $162,904, a record high and a rise of 34 per cent from a year ago.

Right, warm up over, time to go mingle with the value investors and peruse the Borsheims discounts.

The doors to the Century Link Center will open at 7am central time tomorrow, and I will be there to cover the main event in all its glory for the FT.

Mr Buffet will hold a newspaper tossing competition first thing, and then will show a warm up video at 8.30. At 9am Warren and Charlie will start the six hour question marathon, with a break for lunch and shopping.

See you here tomorrow!

Good morning Buffett fans!

It is unseasonably wet and cold here in Omaha, but the crowds are already thronging outside the Century Link Center waiting to hear what the Sage has to say.

I’m Dan McCrum, the FT’s roving Investment Correspondent and Buffett watcher, and when the questions start in around two and half hours time I’ll be bringing you live coverage of the Q&A, with running commentary, context and shareholder reaction.

In the meantime, there will be pictures, experimental social media video and some thoughts on what to expect today. Stay tuned.

And they open the doors half an hour early, all to the sound of Pink Floyd’s Money. It’s a long song, but the crowd is pretty sizable by the end of it.

Before we introduce today’s cast, lets reflect on last night at Borsheim’s – the jeweler that features the only free food and drink for shareholders of the whole weekend.

Here’s a quick tour.

Here’s the inside of the tent where the band, tasty Omaha brisket and a crowd 10 deep at the bar. Seems more crowded than the room with the expensive diamonds to buy, don’t you think.

Coming up, an 89-year-old and an 82-year-old share homespun wisdom with the crowd. Let’s introduce them.

In the black chair, Charles Thomas Munger, the 1268th richest man says Forbes, and Berkshire Hathaway vice-chairman.

He doesn’t say much, but watch out for zingers. Leans right, thinks energy independence is one of the stupidest ideas known to man (use other countries’ gas & oil first).

In the other black chair, the chairman himself, the world’s fourth richest man, the left’s favourite billionaire who would welcome higher taxes, the so-called Oracle of Omaha, 82-year-old Warren Edward Buffett.

They use to confine questions to the crowd only, but then Buffett invited three journalists to give them a bit of focus. They will get six each, use them wisely, oh representatives of the press.

We have Andrew Ross Sorkin of the New York Times. He is too big to fail at this (sorry).

Becky Quick of CNBC

And Carol Loomis of Fortune, old Buffett friend, and author of Tapdancing to work, one of at least 20 books on the man for sale here.

Then last year they invited three insurance analysts, who insisted on asking detailed questions on insurance. For some reason only one was invited back. Step up Cliff Gallant of Nomura.

He is joined by industrial-minded Jonathan Brandt of Ruane Cunniff & Goldfarb to ask about, you know, the 70 or so operating businesses of Berkshire. Six each for them too, and the peril of not being a world famous journalist is pictures are harder to come by. If you’re reading guys, and I’ll stick them up.

And finally, we have the bear.

Doug Kass of Seabreeze Partners said to sell Berkshire Hathaway in 2008. You can read his reasons here, a sample

In the extreme, the company could (without Buffett at the helm and in the fullness of time) be viewed as just another diversified conglomerate without a “moat”.

It was a good call, Berkshire A shares dropped from more than $120,000 to a low of $73,000.

But they have since recovered to stand at a record $160,294, and there is a risk that Mr Kass is here for the role of court jester. Six each for him, and we shall see.

The results last night were good by the way.

Berkshire Hathaway said first-quarter profits had jumped more than 50 per cent from the year-ago period because of insurance gains and overall growth from the $268bn conglomerate’s diverse mix of business.

I’m going to see if I can beat Warren Buffett at tossing a newspaper. Posting to resume in 30 minutes or so. Tweets will continue from @FD.

There is a newspaper tossing competition (35 foot, onto the porch of Clayton prefabricated home also available for sale, starting at around $50,000 to you, shareholder), because Mr Buffett loves newspapers.

He delivered them as a boy, the Buffalo News has been one Berkshire’s oldest possessions, and in the last few years he has snapped up local franchises. Daily circulation of his newspapers in nine states: turn to page 108 of the annual report and you will see it adds up to 812,335. If he keeps this up he could be the next Rupert Murdoch…

How many people are here? A number of around 30,000 to 40,000 visitors to Omaha is bandied around.

But there are only 17,560 seats in the Century Link Center. Lets say another 2,000 on the floor in the centre. There are overflow rooms, which I’ll investigate later, and a live link to the business school, but I reckon its hard to get far past 20,000 people watching the spectacle live.

Why do people come?

One reason, in an age of tweets, livestreams and always-on news is that sitting here is still the only way to get the full Buffett. No recording allowed.

And Mr Buffett is 82. There can’t be more then another 20 of these events left.

The video is starting. Imagine adverts for Coke, a lot of Berkshire companies and a cartoon of Warren with celebrity cameos. The GEICO gekko also features heavily.

GEICO is possible the smartest purchase Buffett ever made, half for less than $50m in the 70s, then $2.3bn in 1995. Here’s the lowdown on the Buffett model.

Cartoon Buffett dance Gangnam style. Sigh.

One bit of video you can watch that they will show is Warren’s testimony to Congress on Salomon Brothers, after he was made chairman when it ran into trouble in the early 1990s.

How you see this depends on your view of Warren. Either he is humble because he can show his faults, or its another sign of the one real Buffett vice: Vanity.

I realise you are here for me, but I’m humble enough to realise I make a few mistakes…

There is a See’s Candy lollipop under every seat. Warren’s Oprah touch.

Subjects for the day: Ajit Jain.

Buffett will likely laud one of his top lieutenants as always. Often this is seen as fair, Jain has created a huge reinsurance business one of Berkshires most important, from scratch. He is seen as a potential post-Buffett chief executive.

But instead of succession, what is the risk that he actually leaves or retires? I’d like to see questions about whether the hiring of four senior insurance executives from AIG is preparing for that day.

Interest rates: I’m sure opinion will be sought.

Worth noting, Berkshire is pretty hedged. Look at page 94 of the annual report for the balance sheet where interest rates to rise 300 basis points. Assets drop $58bn to $52bn, but liabilities shrink far more, $77.5bn to $62bn.

Looks like there is some pretty major interest rate swap somewhere in the railroad, energy and utilities business.

Gold: we all know they hate it, but someone will tee it up for them.

At the moment Arnold Schwarzenegger is discussing the casting of Warren Buffett in the next Terminator film. Charlie gets the part.

The insurance business: potential yawn fest, but there was a lot of complicated stuff going on in the results yesterday, and he has said it will be slower in the future. Also been pretty dismissive of Property and Casualty pricing, so again, what do the AIG hirings mean?

Women: Warren wrote an essay about how America should embrace the potential of women.

The closer that America comes to fully employing the talents of all its citizens, the greater its output of goods and services will be.

But Berkshire only employed its first non-Buffett female director in 2003, and talking to Karen Linder last night, author of The Women of Berkshire Hathaway she says that it is bang in line with the average for large companies in the US in terms of women in senior positions.

So Mr Buffett, where are all the women, and why the sudden conversion to the feminist cause?

Heinz: Warren has always said he can’t provide management. But the $28bn deal to buy Heinz was with 3G Partners, a private equity outfit who are going to do more than just run their eye over the iconic ketchup makers operations.

Expect more on the plans and the possibilities.

Shoppers, below the conference floor is an exhibition with stands from many Berkshire businesses to grab your commemorative merchandise and special offers. Hedge fund managers, the Netjets stand is for you.

There is also a Burlington Northern Santa Fe stand. You can’t buy a cargo train (I think), but there is a tremendous model railway.

A Breaking Bad bit, Yo!

Walter White and Jesse making peanut brittle instead of Chrystal Meth in the mobile home! (Wasn’t that torn apart in season 3?)

Warren wearing the hat.

Did he just put that piece of peanut brittle back in with the batch? He’s contaminated the whole thing.

Final season of Breaking Bad arrives August 11. Mark your calendars people.

And some schmaltz, a Berkshire-themed rendition of the YMCA.

We are the managers of BRKB…

Questions will be starting soon. Those who try and transcript the whole thing are usually found slumped and sobbing at around the four-hour mark.

So this will be as many highlights, key lines and Munger soundbites as possible. Plus of course the FT’s trademark analysis and context.

Pull up a chair, get comfortable, Warren and Charlie will be taking their time.

Buffett: The insurance earnings were helped a bit by currencies. A disagreement with Swiss Re over a life contract also produced a $255m gain but

Interestingly Swiss Re showed a $100m gain also

The marvel of accounting that both can settle and show a gain in the same quarter

We are now the fifth most valuable company in the world.

Prompts round of applause

Warren is introducing the board. He and Charlie Munger are sat behind a big black desk in the center of the main stage under the glare of a spotlight, a plain blue curtain behind them. Only stage decoration is a small tree and a pot plant in each corner.

To each side is a smaller, lower stage with the three journos on one side, analysts and bear on the other. You can spot them by the small glow of their table lamps, but in comparative darkness for now.

First question goes to Carol Loomis, the panel now illuminated.

It’s on performance, which has been slow the last decade, and Buffett himself said was poor in his last letter to shareholders. His yardstick is growth in Berkshire book value and it is at risk of trailing growth in the S&P 500 for the first time more than five years if the market beats him this year.

The last 10 or so years have not been the best for business generally.

Says that Berkshire tends to do better in down years, and the S&P is on track for fifth up year.

Munger on likely slower performance ahead.

We won’t do as well in the future … because of course our past returns were almost unbelievable.

Buffet jokes that at 89 Charlie is not really concerned about short-term performance.

Shareholder asks on future worries. Warren rambles a bit on culture, hands to Charlie who has a message for younger Mungers in the audience.

Don’t be so stupid as to sell these shares.

First Shareholder question on Heniz structure with the preferreds and equity.

We probably paid a little more than we would have paid were we doing the deal ourselves, because Jorge and his associates are such excellent managers that we stretched a little.

We have more money than operating ability at the company level

3G, Buffett’s partner, wanted more leverage he says.

Mr Galant asks the first insurance question, what’s up with hiring the AIG guys?

The goal is to take a greater share of the market.

Part of recent moves. One was an announcement of a deal to take 7.5 per cent of the entire Lloyds of London insurance market.

The AIG guys have joined them to write commercial insurance. They reached out to Berkshire a number of times in the past, he says.

A shareholder question about something called snapshot used by Progressive to track how drivers drive, would Geico use it?

Warren says their process, their underwriting policies and systems, is working and that price is what attracts customers.

We watch it with interest but we are quite happy with the current situation

Sorkin asks about Twitter, use as a corporate tool and what are the implications for Businesswire, a Berkshire Co.

He says that accuracy and getting information out to the world simultaneously is the key to disclosure, not checking a website so see if its updated.

On what is he doing on Twitter?

I haven’t figured that out yet.

Charlie doesn’t know anything about Twitter, is avoiding it like the plague.

The bear rises.

Doug Kass thanks Buffet for the unusual opportunity.

I look forward to playing the role of Daniel in the lion’s den in front of 45,000 of your closest friends.

Setting what is likely to be the tone, Buffett fires straight back

You can bring your own friends next year.

The question is on size, is Buffett too big to grow and should be thought of as an index fund for widows and orphans?

Buffett says:

There is no question we cannot do as well as in the past, and size is part of that.

However he says that size is also a virtue in bad markets, and a favourite topic points to all the great huge companies Berkshire now owns.

Shareholder asks the Oracles about reserve currency status for the US. Charlie sounds dour for a second, all civilizations fail, but Warren suggests he narrow his focus to next 20 years.

The US will still be top currency dog in 20 years says Charlie. (Sleep soundly, restless goldbugs).

Shareholder – what about corporate profitability, isn’t pretty high by historic standards?

Yes says Warren, but corporate taxes are half what the once were.

If I had to bet that corporate profits would be 10 per cent of GDP… I would say they are likely to trend downward, but of course GDP is still growing.


You have to recognise that stocks themselves are owned by a lot of pension funds, endowments and so on, so it doesn’t necessarily mean that the world is more unequal.

The left right political two-step of the men on show right there.

Succession and organisation. Will all the small ones still report to the center like now?

Guesses that successor will organise things moderately differently because he knows all the companies and their managers so well already. A new person will want to maybe hire one new person (to the 23 at headquarters).

Buffett doesn’t meddle, he lets managers get on with it. (Would you want to be the one who disappoints him?).

Buffett on his unknown successor

We’re solidly in agreement as to whom that individual should be.

Shareholder on the Federal Reserve, quantitative easing and bond buying, what are the consequences?


The basic answer is I don’t know


I might say I have nothing to add.

Of course he does have something to add.

All this liquidity hasn’t really hit the economy because the banks have let it sit there.

Talks about Wells Fargo, a favoured stockholding, which has $175bn parked at the Fed. Banks want to make loans, but there isn’t demand. Would like to see more inflation, and suspects some Fed members would too.

Expects the first real sign of interest rates to be a big deal.

Charlie again

Generally speaking what’s happened in the realm of macroeconomics has surprised the economists.

He thinks they should be more cautious about what to expect from printing money in huge amounts, the grand experiment.

Low interest rates now.


Interest rates are to asset prices sort of like gravity is to apples.

Very low rates exert a weak gravitational force, and that affects all markets. Cost of debt on the Heinz deal was far cheaper than it used to be, for instance.

Interest rates power everything in the economic universe.

The country and we have benefited considerably from what the the Fed has done in the last few years, and will do so again if it can reverse course safely, he says.


A shareholder tosses Warren and Charlie a gimme. Pray tell, oh Sages what you make of this gimcrack money?


I have no confidence whatsoever in Bitcoin being any sort of universal currency.


Of our $49bn, we haven’t moved any to Bitcoin.

Whack! Pseudo virtual currency disappears over the boundary wall.

Sorkin asks about Herbalife, as Berkshire owns a multilevel marketing company.

(Bill Ackman has called Herbalife a pyramid scheme, a charge they have denied).

Warren hasn’t read the 10-K, Berkshire’s business Pampered Chef is A OK.

There was another question about the AIG guys and why build a new commercial business. Warren says:

It’s really better to build than buy if you can find the right people

Carol Loomis, can you give us the two-minute pitch on Berkshire for kids?

Charlie has a go at laying out the Berkshire principles. Try to be sane when other people are crazy. Treat subsidiaries like you would like to be treated. Do unusual things that most people are avoiding.

This was a very good idea, I wish we had done it on purpose.

The Berkshire pitch has always been that they almost never sell, so its a home for entrepreneurs who want to hand over their business to a good corporate steward. They don’t look for synergies, and they don’t load them up with leverage.

The problem is there aren’t many companies big enough in private hands to make a difference to Berkshire.

A detailed question on the effect of changing demand for coal, oil and gas on BNSF, the railroad.


Oil moves a whole lot faster by rail than it does by pipeline, by the way.

More flexible as well. He turns to Matt Rose, head of BNSF, who talks about the effect of the Bakken shale. The company has 10 loading points, 30 destination points and is negotiations on another 30.

Rose says that BNSF ships 650,000 barrels a day now, and is on a path to 1.2m to 1.4m.

On BNSF and the many subsidiaries, here’s an art project by Scott Blake. Its the face of Buffett rendered in barcodes of products made by Berkshire Hathaway companies.

Geico again. Buffett heaps praise on Tony Nicely, longtime CEO, again. Says if he was going to start an insurance business he would copy it, but doesn’t think you could. Thinks it will take two thirds of the market growth this year.

A digression on the habits of the two men prompted by an odd question on how they prioritise. The crowd warms up considerably to the jokes after all the talk of trains and pricing models for car insurance.

Ms Quick asks about the two investing lieutenants Todd Combs and Ted Weschler. Here’s how her fellow panelist rendered the response.

The bear.

Post-Buffett Berkshire, what about a break-up he says, comparing it to Dr Henry Singleton who built and then finally broke up his conglomerate Teledyne into three.

Buffett says there won’t be any significant changes in the level of central control after his death. Charlie says that Singleton, an “enormously talented man” who could play chess blindfolded, had tried to sell to Berkshire, but wanted stock which they were not prepared to give.

Conclusion: Berkshire ain’t for changing.

So a question about Bill Gross prompts Warren to share that he was conceived in November 1929: there was no television and there wasn’t much to do in those days.

Not sure where we are going with this, but seems like its more of the underlying optimism of America, and a reflection of good fortune, favourite themes.

Being born in the US is a huge advantage.

Berkshire is going to do fine in solar.

says Charlie Munger

I confidently predict there’ll be more solar generation in deserts than rooftops

Warren on hedge funds getting into reinsurance

Hedge funds have got into the reinsurance business quite aggressively in recent years.

It’s a combination of tax effect of locating in places like Bermuda, and can be sold to investors as an uncorrelated asset.

Anything Wall Street can sell it will sell, you can count on that.

It may drive down pricing, but we have seen people do stupid and irrational things before, says Buffett, and the key is to not follow them. Shrunk business at National Indemnity by 80 per cent in the past when conditions aren’t right.

Sorkin: is Berkshire to big to fail and how is Dodd-Frank affecting Berkshire’s insurance business?

I don’t think it is affecting out insurance business to the best of my knowledge.

I consider the banking system of the US to be certainly stronger than any time in the last 25 years.

I do not worry about the banking system being the cause of the next bubble, the bubble will be something else.

Returns will be lower because the rules have been changed and holding more equity depresses returns.

Charlie is more pessimistic

I do not see why massive derivative books should be mixed up with insured deposits.

The investment world has been very good at extracting a significant percentage of the returns that investors get for themselves.

Says Mr Buffett. He reports on a 10-year bet over performance of fund of funds versus an index fund. They put $700,000 into bonds, expecting it to be worth $1m when the bonds matured. (They’ve now bought Berkshire stock as rates fell so far it got there far sooner). The bet is halfway through, and small early lead for the fund of funds.

And that is lunch. Back in an hour for more from the Berkshire stage.

Ding ding! Round two.

The first half was longer on insurance than might have been expected, and all the familiar topics loved by the two men, Warren Buffett and Charlie Munger. Yet for all the sound bites, very little that they haven’t said before.

One stand out absence from the first part. No questions on acquisitions, or what Mr Buffett might like to buy. Expect that to change.

On when to buy and the merit of forecasting (also see Galbraith from yesterday down below).


I like Bill Gross, but it doesn’t make any difference to me what he thinks about the future.

My guess is people will do very well owning good businesses if they don’t pay too much for them.

After lunch, the whole room seems perkier. A German asks them to name their 10 most influential books, aside from Ben Graham’s.

Warren talks about how great Graham’s book was, he’d read every book on investing in the library by age 11, otherwise couldn’t name 10 better than any other 10.

The bear dares to suggest that Mr Buffett’s work rate is less intense these days, comparing the acres of research that went into buying a big stake in American Express versus the snap decisions Warren now makes, such as the Bank of America stake conceived in Mr Buffett’s bathtub.

He sparks a strong response.

I love thinking about Berkshire, I love thinking about its investments, I love thinking about its managers, I love thinking about its businesses. It’s a part of me.

Charlie says that the first time they make an investment, it takes a lot of work, but its all cumulative. And more from Buffett on Bank of America.

It’s true I thought of it in the bathtub, but the bathtub wasn’t the most important part

And to go back to Bill Gross for a second, Charlie is minded to agree, he doesn’t think the future will be as good as the past he’s enjoyed.

Share buybacks are up. Warren repurchased a teaspoonful last year, and he briefly retreads the explanation from last year’s letter to shareholder. With the share price above $160,000 its a subject for another year.

Sorkin asks an interesting one on climate changes, what would your experts on reinsurance say about climate change, and the prospect for carbon pricing?

My general feeling is that there is certainly a reasonable chance that the people worrying about warming are right … but I don’t think it makes a real difference from assessing reinsurance rates from year to year.

Charlie on carbon pricing.

I think carbon trading is pretty impractical, a whole bunch of nations with different interest. If you want to change things, I think you want to use carbon taxes.

He compares it to “socialist Europe” where they have higher taxes on fuel, among other things.

I think they stumbled onto the right policy, I think the US should have higher taxes on motor fuel.

The bear asks for their view on short selling and then makes a pitch for $100m to manage with some convoluted charity element. Charlie is abrupt:

The answer is no.


Making a lot of money short selling isn’t something that really appeals to us over along period of time.

Charlie adds:

We don’t like trading agony for money.

Bill Miller of Legg Mason got a question in about airlines via Becky Quick, and while the pair admit that it is a sexy business, and Netjets is great, they aren’t going to put it together with a domestic airline. They could be wrong about airlines as terrible business, but have no interest in risking anything to find out.

US debt, is it Obama’s fault?

We’ll have to give Bush a certain amount of credit for that as well.

The amount of stimulus provided in the last four years has been quite appropriate to the threat posed by the greatest panic in my life.

We needed fiscal stimulus in the country, and the real question is how we get off that. Its a real problem, but a lesser problem than if the stimulus had not been in place.

He quotes Bush in September 2008 as 10 of the greatest words in economic thought.

If money doesn’t loosen up this sucker is gonna go down.

Mr Buffett is not disturbed by national debt. Debt was higher after world war two.

We’ve encountered far worse problems than we now face. This is not our country’s darkest hour by any margin.

Charlie strikes another Gross-like note, worries about off the books liabilities like social security that can’t be changed. But:

All of our problems are trivial if GDP compounds at 2 per cent. All these problems that the Republicans are screaming about.

A very specific question about the Benjamin Moore paint business, which sells through a network of dealers rather than through big box stores like Home Depot.

A dealer policy will work with a first class brand like Benjamin Moore.

Going to a big box would break the promise made to the dealers, for just a one off jump in volumes.

Warren says index funds are a good idea for the non professional investor.

Equities will do well over time, you just have to avoid getting excited when others are excited.

If you are an amateur investor, there is nothing wrong with being an amateur investor and you have a very profitable opportunity available to you by buying American businesses.

Charlie on current economic problems:

If you are not confused, you don’t understand it very well.

Ajit Jain, Berkshire’s insurance genius and possible future CEO comes up, what would you do without him? They don’t really answer beyond saying Berkshire has lots of great people, but Warren finds a new way to heap praise:

If he had come into the office in 1965 rather than 1985, we’d probably own the whole world.

Warren’s son Howard, a board member since 1993, will become nonexecutive chairman after Mr Buffett senior dies (note he doesn’t say “or retire”), and there is a discussion of why he will be a good steward of the business. His main job is to be there in the low probability that the successor turns out to be the wrong man. He will be there to safeguard the company’s culture.

On IBM, Warren says he doesn’t understand the moat – the Buffettian term for sustainable competitive advantage – at the company as much as he does at say Coca-Cola, but he understands it enough.

Mentions that IBM is a big annuity company on the side, due to its big pension fund.

Balls can take funny bounces on the annuity side … the liabilities look a lot more certain than the assets

Warren still loves equities

I’m sorry for people who put their money into fixed-interest investments. For 90 per cent of my life it’s better owning equities.

Europe prompts some reflection. Warren thinks there could be some opportunities to buy businesses in some of the 17 countries of the Eurozone, but they soon get onto the topic of what went wrong.

Essentially they syncronised a currency without syncronising much else, and nature finds a flaw.

Charlie doesn’t hold back on Greece in the Euro:

Its a lot like mixing rat poison with whipping cream.

Its not a responsible capitalistic country, and it committed fairly extreme fraud, they lied to get their way into the Union.

Warren tries to limit the offense.

We would be delighted tomorrow to buy a very big business in Europe.

But Charlie jumps back in

I hope you will call me if its in Greece.

Charlie is not a fan of twitter at all.

I don’t like the idea of any member of my family immortalising the three dumbest they ever said in their life when they were 13.

It would be a terrible mistake to put me in charge of social media at Berkshire Hathaway. Charlie wouldn’t be a good choice.

Mr Buffett has always said to leave your kids enough to do something, but not so much they can do nothing. An estate planner from Fort Worth, Texas asks him how much that is, exactly.

More kids are ruined by the behaviour of their parents than the amount of their inheritance.

He says that his kids like it whenever he rewrites the will because the amount is not going to go down. He recommends having the kids read it before you die, as asking questions of a ouija board is not useful.

Charlie says he’s not sure if having you children read the will beforehand is a good idea if you are going to treat them unequally…

We are into the last breaths of this now. Station 6 does not have a question. Warren says he likes station 6. The next one is about stock splits, which is not going to happen. And that is it! Thanks for coming.

So it was a positive day retreading old themes. The battle between Doug Kass the bear and Warren Buffett was always going to be one sided, but only veered into the ridiculous when Doug tried to offer Warren a managed account in his own business. He asked solid questions, but mostly the ones that are always asked of Buffett about size and succession, and I don’t know what different he could ask if he’s invited back next year.

Andrew Ross Sorkin did well to ask about Ajit as successor directly, but Warren dodged that one as well. The most we learnt was about the insurance business, and there was remarkably little discussion of Heinz, or on what next big elephant of a purchase he hopes to bag.

I can see why investors come for a reset. This was no radical departure, but time for members of the Berkshire tribe to be reminded of its core creed: buy stocks, be optimistic, trust Warren.

The formal part of the shareholder meeting passes without incident. I checked out the additional seating areas and it looks like there could be two to three thousand extra seats, so maybe a little over 20,000 in attendance today.

This is your Buffett watcher Dan McCrum signing off. Check on Sunday for the latest commentary and analysis and remember to buy Monday’s FT for upsumming and shareholder thoughts.