Closed Buffett at Berkshire’s annual meeting 2017 – as it happened

Berkshire Hathaway CEO Warren Buffett displays a pair of men's underwear for sale with images of himself before the Berkshire Hathaway annual meeting in Omaha

They call it the Woodstock of Capitalism. Some 30,000 shareholders in Berkshire Hathaway descend on Omaha, Nebraska, to hear from the company’s founder, Warren Buffett, along with his sidekick and vice-chairman Charlie Munger, at a day long event that includes the mother of all question-and-answer sessions, and the opportunity to shop till you drop at a bazaar featuring many of Berkshire’s subsidiary companies. The FT’s Eric Platt was on the ground (and up in the gods, in the press box of the CenturyLink Centre) to report on the day’s events.


Jay Z and Alicia Keys have touched down in Omaha.

Well not literally. With the big event about to kick off, Empire State of Mind is blasting from the speakers in Downtown Omaha at the CenturyLink Center. But instead of the classic, ‘Welcome to New York’ lyrics, they’ve been updated:

“Let’s hear it for Berkshire! Let’s hear it for Berkshire! Let’s hear it for Berkshire!”

At Berkshire “financial strength is what dreams are made of. There’s nothing we can’t do. Now you’re at Berkshire. Our team will make you feel brand new.”


The arena is stuffed as Berkshire shareholders settle in to watch a celebrity-filled video celebrating the company and its businesses.

https://twitter.com/JoeJan6/status/860848544764264448


A slight damper on the festivities. That is how Eric Platt reported Berkshire’s first quarter results, which were released on Friday ahead of the meeting. His report is here.

Insurance losses were a big part of the reason that the company missed Wall Street forecasts — but remember, Mr Buffett doesn’t give a hoot for Wall Street’s quarterly forecasts, and no doubt today he will remind investors to think for themselves and focus on the long term.


No cameras or recordings at the annual Berkshire meeting. While the company will be live streaming most of the event on Yahoo Finance, the annual video remains off limits.

Mr Buffett is known to have an eclectic group of friends, beyond the business and political spheres. Many of those friends appear in a shareholder video that precedes the closely scrutinised question and answer session with the Oracle of Omaha.

Among the greatest hits, former California governor Arnold Schwarzenegger, All My Children actress Susan Lucci, Bryan Cranston and Aaron Paul of Breaking Bad, Jaime Lee Curtis, and Rainn Wilson as Dwight Schrute from the US version of The Office.

In the video this year, Mr Buffett sang in a lovely ode to his number two:

“I pray each day,
For Charlie Munger.
Who needs the gym,
When you’re next to him?”


Before the doors opened to shareholders, Mr Buffett toured the exhibition hall, where Berkshire’s subsidiaries and investee companies showcase their wares. Berkshire has a 9.3 per cent stake in Coca-Cola, which has a big stand, and Mr Buffett is a huge cheerleader for its products. He started drinking early.


The all-star duo has taken the stage. Mr Buffett’s friendly one-liner:

“That’s Charlie. I’m Warren. You can tell us apart because he can hear and I can see.”


Mr Buffett has long championed his long-term investment horizon. Chief executives who spoke to the FT so far this weekend have emphasised that they are not beholden to hurdling any quarterly estimates.

But this year, potential changes to the tax code have altered that view, albeit slightly.

The Berkshire chief executive said that the company is considering taking additional losses this year to take advantage of higher tax rates. Losses realised this year can be used to offset taxes on gains in the future.

We have a very, very slight preference this year [where] we’d rather take losses than gains because of the tax effect if two securities were equally valued. We are taxed on gains at 35 per cent.

That is not a big deal but it would be a very slight preference and it may get to be more of a factor…in accelerating any losses as the year gets closer to an end assuming a tax [change].


Extraordinary scene, when you think about it. This is an event that celebrates Mr Buffett’s stockpicking achievements and acts as an educational forum for value investors, yet there was just a huge round of applause for Jack Bogle, the man who pioneered index investing and who has done more to undermine the reputation of active management than almost anyone else.

Mr Bogle, 87, who founded Vanguard, is in the audience and Mr Buffett asked him to stand up and take a bow, thanking him for how index funds have driven down mutual fund costs.

I estimate that Jack at a minimum has saved, left in the pockets of investors, tens and tens of tens of billions [of dollars] and those numbers are going to be hundreds and hundreds of billions in time.

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Warren Buffett said that it would have been a “huge, huge, huge error” if executives at Wells Fargo had been alerted to the bank’s brewing fake accounts scandal and failed to act.

The company was hit with the largest fine to date from the US consumer finance watchdog, paying $185m after it was revealed that bank managers had opened millions of false accounts without client’s knowledge to meet sales goals.

At Wells Fargo, there were three very significant mistakes. But there was one that dwarfed all the others. The biggest mistake was, at some point if there’s a major problem, the CEO will get wind of it. And that moment that’s the key to it. The CEO has to act.

Berkshire Hathaway is the bank’s largest shareholder, holding just under 10 per cent of the company.

Mr Buffett ended by quoting Benjamin Franklin’s famous exhortation that an ounce of prevention being better than a pound of cure: “He underestimated it. An ounce of prevention is worth more than a ton of cure. And a pound of cure promptly applied is worth a ton of cure that is delayed.”


A bit more from Mr Buffett on the $10.2bn Berkshire collected in the first quarter from insurer American International Group, which the Omaha-based group can use to fund new investments.

As part of the agreement, a Berkshire subsidiary received the money upfront. It may someday have to pay as much as $25bn back to AIG for losses the insurer faces from before 2016. Mr Buffett said:

We have come to the conclusion that we think we’ll do well with $10.2bn today versus a maximum payout of $25bn between now and Judgement Day.

AIG had a very good reason for doing this. Their reserves were under criticism and it should put to bed that they’re under-reserved in that business.


Warren Buffett’s disappointing investment in IBM — he sold about one-third of Berkshire’s six-year-old holding in the computer giant earlier this year, at around breakeven — does not make him any more nervous about the company’s more recent $20bn investment in Apple.

A shareholder posed the question because, until Mr Buffett began buying IBM, he had always said he did not have enough knowledge to buy tech companies.

“I was wrong on the first one and we’ll find out if I am right or wrong on the second,” he said, but added:

I don’t regard them as apples and apples and it’s not quite apples and oranges. It’s something in between.

Apple is less of a tech company than a consumer products company, and the two businesses have very different customers.

Mr Buffett appeared to focus the blame for IBM’s disappointing performance on one strong competitor in particular: Amazon. While IBM has been trying to expand in cloud computing, Amazon continues to dominate that market.

And he heaped praise on Amazon’s founder, Jeff Bezos, for having simultaneously built and run two businesses most intently feared by their competitors, in retail and in cloud services. Andy Grove, the late founder of Intel, used to ask who fellow executives would like to use a silver bullet to “get rid of|, Mr Buffett, said.

Both in the cloud and in retail there are a lot of people who would aim that silver bullet at Jeff.


There are three journalists filtering shareholder questions for Mr Buffett today: CNBC’s Becky Quick, Andrew Ross Sorkin of The New York Times and Carol Loomis.

It was Ms Quick who got the scoop that Mr Buffett has sold a third of Berkshire’s holdings in IBM, a vote of no confidence that sent the tech giant’s shares down 3 per cent on Friday. Our San Francisco bureau chief Richard Waters has some context here.


A question from Becky Quick of CNBC on why Mr Buffett has advised his wife to invest in an index fund after his death. Mr Munger, Mr Buffett’s right hand man, has been quoted telling his offspring “don’t be so dumb as to sell”.

Mr Buffett will already have given his Berkshire shares to the Bill & Melinda Gates Foundation, so she won’t be selling, he said.

She’s going to have more money than she needs and the big thing you need then is for money not to be a problem. The object is not to maximise [money] . . . the important thing is [that] she doesn’t have to worry about money for the rest of her life.

He added that as he’s seen people age, they are “susceptible” to financial pitches.

Mr Munger countered:

I’m just more comfortable with Berkshire.If you have to protect your heiress from the stupidity of others, I’m not that interested in that subject.

Mr Buffett’s middle son, Howard, from his marriage to late wife Susan, was at the meeting, pictured below chatting to Coca-Cola chief Muhtar Kent.


Well, this is plain rude. From the Washington Post’s Emily Guskin on Twitter: “My parents are at the Berkshire Hathaway meeting and my dad called it ‘Burning Man for old people’.”

https://twitter.com/EmGusk/status/860580497126240257


The question of succession is always top of mind for shareholders. Mr Buffett is 86 after all. Mr Munger – pictured below at the meeting – is 93.

Investors are keenly aware of the importance of Ajit Jain, who runs its insurance business. Those operations fuel Berkshire’s growth — its various entities collect premiums and Berkshire uses the difference between what it pays out for claims to invest in other businesses.

“Nobody could possibly replace Ajit,” Mr Buffett said.

But we have a terrific operation in insurance outside of Ajit and there are things that only he can do. But there are a lot of things that are institutionalised in our insurance business where we’ve got extraordinary management.

Ajit has made more money for Berkshire than I have. We’ve got the best property casualty insurance business and I don’t think anyone comes close.

A cute moment followed, after Mr Munger said that the company doesn’t have a lot of people like Ajit. “It’s hard to snap your fingers and find a couple billion dollars out of the air.”

Mr Buffett began to snap his fingers.

He also went on to warn shareholders not to read too much into which of Berkshire’s senior managers are given name checks in his annual letter.

Over the years he has lavished praise on the chief executives of BNSF, Matt Rose, Berkshire Hathaway Energy, Greg Abel, as well Mr Jain and others, and some readers judge their relative positions in the letter — and the word length of the praise — to be indications of where they are in the running to succeed Mr Buffett.

Don’t do that, Mr Buffett said.

I don’t actually think that much about how many personally get named. I would say this, we have never had more good managers than we have now, but it has nothing to do with succession.

https://twitter.com/EricGPlatt/status/860902893796429830


Mr Buffett seems to be on a mission to prove that investing with 3G Capital, the Brazilian private-equity group that it bought a controlling stake in Kraft Heinz with, is not all about slash and burn.

3G managers are known for ruthless efficiency and cost cuts, but they also invest in new products, too, is the message.

While sitting on stage, Mr Buffett was presented with one of the latest creations from the foods behemoth: Philadelphia Cheesecake Cups. They’ve got 170 calories in each, he said.

He’s had three of them and says the product is “selling very well”. The company brought in 8,000 to 9,000 of them for sale to Berkshire shareholders. Mr Buffett said he’d be disappointed if the crowd doesn’t finish all of them today.


How much should Berkshire Hathaway pay for Warren Buffett’s successor?

Mr Buffett’s response: You’d pay them a very modest amount.

I would hope we’d have someone…who’s already very rich and has been working for a long time, and is not motivated by whether they have 10 times the money they and their family needs or 100 times.

Mr Munger added that he could “hardly find the words to express [his] contempt” for compensation consultants.

Mr Buffett riposted:

If the board hires a compensation consultant after I go, I will come back.

https://twitter.com/NicoleFriedman/status/860898385271848962


Messrs Buffett and Munger have been in full flow for almost four hours and almost forgot to break for lunch.

Some fifteen minutes later than planned, Mr Buffett finally lets shareholders head out to eat. “I’m sorry if you’re hungry,” he said.


During the morning session, Mr Buffett briefly addressed Kraft Heinz’s failed bid for Unilever. Berkshire and the Brazilian private equity firm 3G, with which it jointly controls Kraft Heinz, had privately agreed to each put up to $15bn in new equity into the company to fund the deal, he said

The FT’s M&A reporters, Arash Massoudi and James Fontanella-Khan, wrote this epic Big Read on how 3G and Mr Buffett lost their prize, which you can read here.

https://twitter.com/FT/status/834203570782232577


Mr Buffett told shareholders that an accounting change coming into effect next year will be a “nightmare” for Berkshire Hathaway.

New rules will require Berkshire to report the ups and downs of its $135bn share portfolio as profits or losses in its quarterly results, a “terrible idea” that will make Berkshire’s accounts more volatile and “confusing” to shareholders, he said.

Mr Buffett has long railed against having to record short-term changes in the value of long-term derivatives contracts in his quarterly income statement. The broad new application of mark-to-market accounting, which will become part of US generally accepted accounting principles (GAAP) in January 2018, means “what is silly this year, next year will become ludicrous”, he said.

They are going to mark our equities to market just like we were an investment bank or something.

Mr Buffett’s concern is that the volatility of Berkshire’s stakes in Apple, Wells Fargo, American Express, Coca-Cola and others will obscure more important information about the performance of Berkshire’s operating businesses.

Berkshire will comply with the rules, he said:

And then we are going to explain their shortcomings in either direction, what you should use and what you should probably ignore, and [how to use] those numbers to come to a judgment about the value of your holdings . . . We want you to understand what you own.


Warren Buffett says it is “pro-social” for companies to lay off staff, since productivity gains are crucial to advancing the economy and living standards.

Asked a shareholder question about the political risks of being associated with 3G Capital, the zealously efficient private equity group with which Berkshire owns Kraft Heinz, Mr Buffett came to the defence of his business partners.

The gains in this world, for the people in this room, the people in Omaha and people throughout America, have come through gains in productivity. If there had been no change in productivity we would be living the same life as people did in 1776.

The 3G people do it very fast and they are very good at making a business productive with fewer people than operated before, but we have been doing that in every industry, whether it is steel or cars, you name it, and that’s why we live as well as we do.

It’s a good question whether it’s smart overall if you think you are going to suffer politically, because political consequences do hit businesses, so I don’t know I can answer the question categorically.

Mr Buffett said he and Mr Munger would rather Berkshire bought already-productive businesses, saying laying off staff was “not as much fun”, but he went on:

I think it’s pro-social to think in terms of improving productivity and I think the people of 3G do a very good job of that.


Some levity. A shareholder for more than 20 years who now lives in New York City, said that she had asked her father when she was 15 to buy her some stock for Christmas. He bought her a share in Berkshire Hathaway.

Today she came to Omaha to ask Mr Buffett “a question that would change my life.” That question?

Do you know of any eligible bachelors?

Before he could answer, she got to a second question. Would Berkshire use its option to convert its preferred shares in Bank of America to the bank’s stock? Mr Buffett’s response: Yes, if they raise their dividend.

He added:

I certainly wish you success on your other objective.

We might start selling [personal] ads in the annual report.


Warren Buffett back on the subject of technology.

https://twitter.com/alechogg/status/860935445320007680


Spookily, Berkshire’s Class A shares closed at exactly $250,000.00 on Friday, a crisp quarter mill.

It has been a long road up.

Scouring advertisements published in Midwestern newspapers back to the 1960’s, the Omaha World-Herald has compiled an excellent little graphic on just what a Class A share could buy you at various points in Berkshire’s history.

In 1968, it traded at $38, you could buy 76 Big Macs from McDonald’s. Jump to 1998, and with the $70,000 share price, you could buy a 2,000 square foot home in Omaha, just like Mr Buffett himself. Today, the $250,000 price tag affords four years of tuition, lodging and books at Harvard.

The article is here.


How large is too large for a Berkshire Hathaway acquisition? $150bn it seems.

The group, which is “not inclined to use debt”, has a cash pile of more than $95bn ready to put to work. Mr Buffett has long said he likes to maintain a $20bn minimum — in part to guard against volatile swings in the insurance business.

While analysts with Barclays estimate that leaves Berkshire with over $75bn readily available for a deal, its top executives are not afraid to surpass that. Mr Buffett said:

We could do a very large deal if we thought it was sufficiently attractive . . . We spent $16bn in a period of two or three weeks when we were much smaller and we never got to a point where it was a ever a problem for me sleeping at night. Now we obviously have much more money to put out.

Charlie, what number would you say if I called you, you would say that’s a little too big for us?

Mr Munger’s response:

Over $150bn.


While Berkshire Hathaway has been buying more and more Apple shares over the past year, it has shied away from another rising technology behemoth: Amazon. And that’s despite the praise Mr Buffett has already heaped on Jeff Bezos today.

So why hasn’t it bought in? Mr Buffett said the stock “always looked expensive and I didn’t think he would be where he is today”.

I was too dumb to realise what would happen. I have admired Jeff for a long, long time but I did not think he could succeed on the scale that he has.

I’ve underestimated him.

https://twitter.com/AstridDoerner/status/860939594795241472


This week, Puerto Rico’s governor triggered the largest bankruptcy-like filing in the $3.8tn municipal bond market. Who would have known? Mr Munger asked.

Well I would have because they behaved like idiots.

Berkshire does not own any Puerto Rican bonds.

https://twitter.com/EricGPlatt/status/860165375245398016


Rising healthcare costs are the “tapeworm” of corporate American competitiveness, Mr Buffett said.

The Berkshire chief executive cited figures that showed healthcare spending as a percentage of US gross domestic product have climbed to 17 per cent today from 5 per cent in 1960. Corporate taxes, by contrast, have fallen to about 2 per cent from 4 per cent.

If you talk to world competitiveness of American industry, [healthcare costs are] the biggest variable where we keep getting more and more out of whack with the rest of the world.

Mr Buffett added that if the new healthcare law was already in effect — the bill that just passed the House of Representatives — his federal income taxes would have been 17 per cent lower. Nonetheless, he said people still needed to figure out the broader impact of rest of the act.

Mr Munger added some colour:

My god, the system is crazy and the cost has gone wild and it puts our manufacturers at a big disadvantage. There are huge vested interests in having this thing. So naturally you get a terrible result.


Messrs Buffett and Munger have made their disdain for one of Wall Street’s favoured acronyms known.

Ebitda — earnings before interest, taxes, depreciation and amortisation — is an “illusion and . . . very misleading statistic to be used and has been used in pernicious ways”, Mr Buffett said.

The term has become somewhat common in earnings reports, although US securities regulators require companies to also report earnings by Generally Accepted Accounting Principles.

“I think you’ve understated the horrors of the subject and the disgusting term that has been brought into our…business,” Mr Munger said. “It’s not honourable behaviour.”

The use of ebitda is often used in valuation calculations, which boosts earnings and makes multiples on businesses look more attractive. Ebitda also allows for higher borrowings, Mr Buffett said.

He added:

It is amazing the way it has been accepted. It illustrates the way people use language and sell concepts that work to their own use.

Mr Munger said:

Now they use it at business schools. It’s horror squared.


Just before the marathon Q&A session concluded, Mr Buffett returned to the question of job cuts, which earlier he said should be seen as “pro-social” because they improve productivity and lead to economic advancement that improves living standards for everyone.

In response to a question from investor Whitney Tilson, Mr Buffett is extolling the benefits of free trade, and says the US is wealthy enough to make sure people are not “roadkill” as a result of globalisation.

We need an educator in chief, logically the president, not specifically this president but any president, has to be able to explain to the American public the overall benefits of free trade. And then beyond that we have to have policies to take care of the people that become the roadkill in the process.

Investors can diversify their investments so that overall trade benefits them and they don’t get killed by a specific industry condition, but workers can’t do that. If they get destroyed by something that is good for society, they get destroyed.

We should try to hit both objectives, to make sure there is not roadkill and 320m people get the benefits of free trade.


There are three shareholder proposals to be voted on, asking Berkshire to disclose more about its political donations (a motion proposed by Tom Beers and Mary Durfee, below), to do more to limit methane leaks, and to ditch the company’s fossil fuel investments.

You can meet the little shareholders taking on Warren Buffett here.


The first of this year’s shareholder proposals, which would have required the company to disclose political donations, has been rejected by the company.

Mr Buffett voted against the matter, even though he told the proposers “my heart is with you to some extent”. He said that it was a “reality” of doing business in some industries that companies had to make political contributions.

There is a necessity essentially to make political contributions in certain businesses. I don’t want to give the idea that great sums are being spent.

I personally voted against the proposition but I hope we can spend less money on politics . . . and I don’t think the odds are for the Supreme Court to overturn Citizens United.


The business of the day has wrapped up, after two resolutions asking for Berkshire to do more to tackle climate change also failed.

Greg Abel (pictured here, at the meeting today), who runs Berkshire Hathaway Energy, the company’s utilities division, addressed the meeting, to argue that his company was less likely than some others to cause methane leaks. He said its storage facilities use different technology to that used by SoCalGas, whose facility in California caused a damaging leak in 2015.

And requests from several climate scientists and activists who spoke to urge Mr Buffett to sell Berkshire’s investments in the fossil fuel industry, such as its $6.4bn stake in the refiner Phillips 66, also fell on deaf ears.

Richard Miller, theologian at Creighton University, said:

Mr Buffett, you are standing on an ethical house of cards . . . If you do not change course soon, history will not judge you kindly.

Mr Buffett controls about one-third of the vote, and neither resolution came close to overcoming the high hurdle of his opposition.


The last of the Berkshire shareholders have now trickled out of the CenturyLink Center, where Warren Buffett and Charlie Munger took more than four hours of questions. Throughout a boisterous session, including the grandstanding by one questioner who attracted loud boos from the thousands in attendance, Mr Buffett waxed contemplatively on the nature and purpose of capitalism.

His relationship with 3G Capital, which Berkshire invested alongside to take a controlling stake in Kraft Heinz, was the focus on repeated questions. He offered a steadfast defense of the group and its practices, which several shareholders indicated they believe runs counter to the values typically espoused by Berkshire.

Mr Buffett said that 3G was ready to buyout companies that “really needed change”. “Change is painful for a lot of people and I’d rather spend my days not doing that sort of thing.”

The job cuts that such change entails? That’s how capitalism gives us the productivity growth that enhances everyone’s living standards. “That’s why we live so well,” he said.

While Berkshire-and-3G’s last takeover attempt failed — Unilever rejected a buyout offer from Kraft Heinz — the Oracle of Omaha vowed that they stood ready for other multi-billion dollar acquisitions, something he reiterated today.

And he said that, over the next decade, he (or his successors) will deploy more capital in acquisitions or investment in Berkshire’s businesses, than he has in the entire 52 years at the helm.

With Berkshire’s cash pile standing at $96.5bn, it is surely only a matter of time until the next big deal.