Closed Buffett’s Woodstock of Capitalism 2016 — As it happened

Live updates from Berkshire Hathaway’s annual shareholders meeting in Omaha, Nebraska.

By Stephen Foley in Omaha


“Attention all staff, attention all staff, we’re good for doors.” The message went out over the radios more than a half hour early, so that the Berkshire Hathaway faithful could escape the rain, and shareholders have been filling Omaha’s CenturyLink Centre since before 6.30am.

The FT is here in the press gallery, and we’ll be bringing you all the wit and wisdom from Warren Buffett and Charlie Munger, his vice-chairman and partner in comedy, when the event begins with the traditional video montage in about an hour.

Wit, wisdom, and perhaps a little controversy, too, because there is a shareholder vote this year on Berkshire’s climate change policy, which Mr Buffett has opposed and — if last year’s meeting is anything to go by — shareholders are not shy about expressing dissatisfaction on issues ranging from the company’s relationship with private equity group 3G to lending practices at its Clayton Homes division.


A sneak peak here at some of the questions Mr Buffett might get today.

As well as taking shareholder questions from the floor, and via a panel of three journalists, the Berkshire boss will also be quizzed by a trio of financial analysts who cover the company.

Morningstar’s Gregg Warren is one of them, and he’s interviewed here on what he’d like to know from Mr Buffett.

Top of the list is the effect of falling energy prices on Berkshire, and particularly on its BNSF railroad business, where coal shipments have slumped.


As always, the CenturyLink Centre’s exhibition hall is filled with Berkshire subsidiary companies explaining their business and selling their merch, and while Mr Buffett only tours the hall for a short while on Saturday morning, he’s always there in spirit — and often in caricature, too.

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…and yes, that is Bill Gates. One of Buffett’s best buddies, and a long-time Berkshire board member.

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Oh no. They’re playing Prince’s Raspberry Beret in the arena for the FOURTH time. (Didn’t that guy have another hit?) At least only a few more minutes to go.


OK this is better – kind of. A reworked version of Jay-Z’s Empire State of Mind with new lyrics about Berkshire’s subsidiaries. “Let’s hear it for Berkshire, Berkshire, Berkshire…”


The annual video begins with a cartoon parody of the movie Trading Places, featuring a homeless gecko turned cocoa trader, featuring shameless plugs for Berkshire subsidiary companies, including Geico insurance (mascot: an English-accented gecko), See’s Candies, Fruit of the Loom, Dairy Queen and more.


Shareholders and press get a strict warning not to share any of the annual video. That is a condition of getting celebrities — who this year include Colin Farrell, Conan O’Brien and Stephen Colbert — to appear in cameo. But there is one segment repeated every year that is on the web: Buffett’s testimony to Congress in the wake of the Salomon Brothers trading scandal.

The clip, from 1991, is a statement of the Oracle of Omaha’s ethical principles, and it has added piquancy this year because of the death of John Gutfreund, the Salomon boss whose cover up forced Mr Buffett to step in as chairman of the bank.


“Good morning. I’m Warren Buffett and this is Charlie Munger. I’m the young one.”

And we’re off…


Buffett begins with a shout out to his online viewers.

The meeting is being livestreamed for the first time this year at Yahoo Finance and with a simultaneous Mandarin translation, so it will be fascinating to see if that has reduced the numbers attending in person in Omaha. At least on first impressions, the event seems as busy as ever.

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Berkshire suffered a 12 per cent decline in operating earnings in the first quarter of the year because of increased insurance losses and sliding freight volumes in the railroad business BNSF.

The company’s insurance arm has to pay out for damage caused by hailstorms in Texas at the end of the first quarter, Mr Buffett told the crowd here, and he also warned not to expect much improvement from BNSF this year.

“Railroad car loading are down significantly in Q1 and almost certainly will continue to be down for the balance of the year,” he said.

Berkshrie’s net earnings, which Mr Buffett always warns is less meaningful, increased 8 per cent because of one-off investment gains.


The first question this year, a shareholder question posed by the journalist Carol Loomis, is about why Mr Buffett has changed his tune from a decade ago, when he said Berkshire would acquire only businesses that required little or no capital investment. BNSF and Berkshire Hathaway Energy are quite the opposite.

It’s the downside of prosperity, Mr Buffett said. Berkshire needs to make gigantic deals to move the needle, now that it has a market cap in the $350bn region. There aren’t many circa-$20bn business that are not capital intensive.

“When circumstances changed, we changed our minds,” said Charlie Munger. “Slowly and reluctantly,” said Mr Buffett.


And the first shareholder question from the hall is from a Spaniard living in London, who wants to know what Mr Buffett and Mr Munger would have done differently in their long lives that might have made them happier.

Not much, is the short answer.

Here’s Mr Buffett: “I did decide early in life that my favourite employer was myself and I’ve managed to avoid aggravation of any sort.”


Longer pauses than usual as Warren Buffett considers his words in response to a tough question on the risks of sugary drinks, and whether Berkshire shareholders should really be proud of the company’s 9 per cent stake in Coca-Cola.

He has dodged the question in previous years by joking about how his own legendary consumption of Cherry Coke hasn’t seemed to have done him any harm, but the questioner points to a Tufts University study linking sugary drinks to 184,000 deaths annually. “Statistically you may be the exception,” it says.

Yet again, Mr Buffett’s instinct is to reach for the jokes – “I’m one-quarter Coke,” he says, “although I don’t know which quarter” – but eventually he addresses the issue, if perhaps not scientifically enough for many.

It is “quite spurious” to lay obesity-related illness on the Coca-Cola you drink, he said. “You have a choice of consuming more than you use. I make a choice to get 700 calories from this, I like fudge a lot, too, and peanut brittle and I am a very happy guy. If you were happy every day – and it may be hard to measure – you are going to live longer as well, so that may be a compensating factor.”

Ultimately, he concluded: “I’ve not seen evidence that convinces me I’ll be more likely to make it to 100 if I suddenly switched to water and broccoli.”

If Mr Buffett or anyone else does want to explore the evidence in theTufts study, there is more information at this link.


Buffettmania = Pottermania?

One especially enthusiastic shareholder tells Mr Buffett “this arena is our Hogwarts, and you are our Professor Dumbledore”.

Mr Buffett’s response: “I haven’t read Harry Potter but I’ll take it as a compliment.”


Question: As you are a long-time supporter of Hillary Clinton, if Donald Trump becomes president, what risks do you see to Berkshire’s businesses?

Buffett: That won’t be the main problem.

Audience: Laughter and applause.


But has Warren Buffett decided to stay out of politics today? He largely sidestepped a question on a Trump presidency by moving into a long paean to American capitalism. “No presidential candidate or president is going to end that,” he says.


Warren Buffett ripped into Bob Goldfarb, the former manager of the Sequoia Fund, for the disastrous investment in Valeant Pharmaceuticals that send the fund’s value tumbling and which has caused financial pain to many Berkshire Hathaway shareholders.

The Sequoia Fund has historic ties to Mr Buffett – he just called himself the “father” of the fund – because when he wound up his investment partnership in 1969, he told small investors to put their money with Mr Goldfarb’s predecessor, Bill Ruane.

The fund had 30 per cent of its assets in Valeant last year, before the company’s stock collapsed, and Mr Goldfarb should have seen the warning signs.

Mr Buffett never said Mr Goldfarb’s name, but noted that “the manager who made the decision on Valeant is no longer running the operation. It was very unfortunate when the manager got overly entrenched with a business model.”

And he went on: “I watched the Senate hearings a couple of days ago. It was not a pretty picture. In my view, the business model of Valeant was enormously flawed.

“Pattern recognition gets important in evaluating humans and businesses. There are certain things in business and securities markets we have seen over and over and that frequently come to a bad end but frequently look extremely good in the short term. There were patterns at Valeant that really should have been picked up on and that have been very painful to the people of Sequoia.”

Charlie Munger was more succinct on the company and the hedge funds who supported its business model: “Valeant was a sewer and those who created it deserved all the opprobrium they got.”


OK, lunch break. Back on the hour for more from the Two Ronnies of Capitalism. (note to American readers: Google them).


Buffett parries a question on the diversity of the Berkshire board by throwing shade on Theranos, which had big names such as Henry Kissinger on the board. “We’re not interested in those for whom it is a prestige item,” Buffett says. Only three criteria for being a board member at Berkshire: “Business savvy, shareholder oriented and with a strong personal interest in Berkshire.”


Buffett on having too much cash: “A full wallet is like a full bladder, the urge is to very quickly pee it away.”

(But don’t worry, he says Berkshire won’t do that with its cash pile. It’s sticking to its rule about only buying back stock when it falls below 1.2 times book value.)


Buffett is bullish on the Dallas-Fort Worth area.

Berkshire recently opened its largest Nebraska Furniture Mart store there which — after initial problems with deliveries — will soon turn into a $1bn-a-year store, in terms of annual sales, Buffett said.

There are also 20-plus Van Tuyl auto-dealers in the region, and other Berkshire subsidiaries are in the process of opening eight new food outlets there.

“I’m starting to sound like Donald Trump here,” says Buffett. “Everything’s tremendous, terrific, fantastic, I’ve never seen anything like it.”


Warren Buffett has been quizzed on the investments in his personal share trading account, and how he manages potential conflicts of interest or insider trading risks, following news that he has personally taken an 8 per cent stake in Sears property spin-off Seritage Growth Properties.

He says the $2bn company was too small for Berkshire. and Berkshire does not invest in real estate investment trusts.

“I have about 1 per cent of my net worth outside of Berkshire and 99 per cent in it… My best ideas – I hope they are my best ideas – are off limits to me because they go to Berkshire if they are big enough. Every now and again I see something that is sub-size for Berkshire and the rest of the stuff is off limits.”


A question now on Berkshire’s cashflow and the company’s mounting deferred taxes. The FT’s Sujeet Indap has written a great technical post on the issue, which you can read here.

The article concludes:

“Accounting tax expense grew at an annual average rate of 7.5 per cent (roughly in-line with pre-tax income and, as such, the effective book tax rate stayed around 30 per cent). But cash taxes owed were basically flat over the decade with the deferred portion growing at nearly a third annually. That is a neat trick.”


A shareholder points out Warren Buffett and Charlie Munger are famous for making a deal over a day or two, with nothing more than a handshake. Speed may be a competitive advantage, the shareholder asks, but does that minimal due diligence process put Berkshire at greater risk and how would Mr Buffett recommend his successors change the process?

The question elicits a strong defence of the current method.

“We make plenty of mistakes in acquisitions. Plenty. But the mistakes are always about making an improper assessment of the economic conditions in the future of the industry of the company,” Mr Buffett. “They are not this specific or that, about details of labour relations, or about a questionable patent. They are not things that are on the [due diligence] checklist of every major corporation in America.”

Berkshire’s acquisition mistakes would not have been cured by more due diligence, he said, “though they might have been cured by us being a bit smarter.”


A comment from earlier this morning ought to generate a guessing game on Wall Street.

When answering a question about the derivatives exposure of the banks in Berkshire’s portfolio (Wells Fargo and Bank of America are major investments), Mr Buffett said he had no fears about those companies but he did say that mismarking and misunderstanding of derivatives positions remains widespread across the financial system.

And he threw in this: “I know one that is so mismarked it would blow your mind.”

What might he be talking about?


Anyone flagging as we approach the seven hour mark might want to play this fun quiz the FT put together last year to mark the 50th anniversary of Mr Buffett’s leadership of Berkshire Hathaway. His investment philosophy has not changed substantially over the years. Can you tell which Buffett quote is from 1965 and which from 2015?

Quiz: When did Warren Buffett say it?


Here’s a shareholder who is concerned that the US property market is “frothy” again, reminiscent of 2007. “How do you feel about the real estate market today?” she asks Mr Buffett.

“It’s not as attractive as it was in 2012… but I don’t see a nationwide bubble in residential real estate now. In a place like Omaha, and most of the country, you are not paying bubble prices. I don’t think the next time around the problem is going to be a real estate bubble.”


Final question of the day: Where does your sense of humour come from?

And it’s Charlie Munger who gets the last word: “If you see the world accurately, it’s bound to be humorous because it’s ridiculous.”

Don’t leave, though. The Q&A may be over, but we’ll have the formal business of the meeting shortly, including that controversial shareholder vote on Berkshire’s climate change policy, as addressed by Mr Buffett iin his annual letter.

Warren Buffett says climate change no risk to Berkshire


A really underwhelming defence of IBM, one of Berkshire’s biggest investments, from Messrs Buffett and Munger, which might get some tongues wagging about their commitment to Berkshire’s 8 per cent stake.

IBM was a big presence here last year, showing off its Watson artificial intelligence engine. Not this year.

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Mr Buffett is trying to claim that Berkshire already does publish a report on climate change risks to its insurance business – kind of.

Opposing a shareholder motion demanding such a report, he just said:

“I did address this subject in the annual report. That would be a report. And it was a report concurred by Ajit Jain who is the No 1 expert on insurance risk, so that does represent the view of our insurance division and myself as chief risk officer.”


Climate scientist James Hansen is here making an appeal to Mr Buffett to support a policy that would put a price on carbon.

“I’m not asking you to endorse a carbon fee on the spot, but I hope thet you will reflect upon it. It could be your greatest legacy, it could affect everything.”


Buffett repeatedly trying to steer the discussion back to the resolution at hand, namly a request that Berkshire publish a report on climate risks to the company’s insurance business.

“We’re not denying climate change is an incredibly important subject, we’re not denying it’s existence. But it will not hurt our insurance business,” he says.


69,114 FOR the motion

531,724 votes AGAINST

The motion has failed.

And the meeting is adjourned.


Warren Buffett prevailed in his attempt to stop Berkshire Hathaway having to produce a report on the risks of climate change to its business, at the end of an annual meeting that was light on comedy and which drilled unusually deep into the workings of his giant conglomerate.

The shareholder motion, from climate activists, attracted little more than 10 per cent support, as a large majority accepted Mr Buffett’s argument, set out at length in his annual report in February, that Berkshire could simply raise insurance premiums if climate risks turn out to be significant.

But Mr Buffett will regard the seriousness of the meeting as a bigger triumph. He has wrestled in recent years with how to steer the event away from questions seeking his wisdom on world events and investing theory and more towards the nuts and bolts of Berkshire’s business.

Questions to Mr Buffett and vice-chairman Charlie Munger were filtered by journalists and came from a hand-picked trio of analysts, as well as from the floor. They ranged across the wisdom of investing in sugary drinks companies, the amount of cash held in various Berkshire subsidiaries, and the gloomy outlook for its reinsurance and rail freight businesses.

As shareholders make their way to the parties and reunions that characterise the evening-after-the-day-before, it was the detour on climate change that may be the most memorable, however, because it dominated the last 25 minutes of the meeting.

Opposing the shareholder resolution, Mr Buffett pointed out that by the same argument, Berkshire could be asked to produce a report on nuclear proliferation. “You could say nuclear proliferation is a threat to the planet, so then it’s a threat to Berkshire,” he said, “but it is not specific to Berkshire.”

Mr Munger, typically, was blunter. Berkshire’s insurance arm has to consider thousands of issues, and “if we had to spend our time taking public stands on all of them, put me down as not welcoming that”.

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