A Weekend with Warren BuffettSubmitted by Castlebar Asset Management on May 6th, 2013
Early May Saturdays remind some of the Kentucky Derby while others are drawn to somewhere in middle America (my apologies to the Counting Crows). The Berkshire Hathaway annual meeting draws a crowd of over 35,000 each year to Omaha so shareholders can spend a few hours taking in the wisdom of Warren Buffett and Charlie Munger.
This year’s edition of the Berkshire annual meeting did not have any major events or themes overhanging the event. No great recession, no David Sokol scandal and no Goldman Sachs lawsuits for Warren and Charlie to dissect. In general this was a pretty straight forward bull market meeting.
The crowds arrived early on unseasonably cold rainy May morning with the doors opening up early because of the weather. One shareholder thanked Warren during the Q&A session for letting shareholders out of the rain. Warren quickly replied in a half joking manner that he would have left us out there if Berkshire owned a coat company. He’s still a capitalist after all these years. I arrived a little before 7 AM with my father in law and the bowl of the Century Link Center filled up by 7:30 AM about an hour before the movie started.
The Berkshire annual meeting is broken down into three parts. The movie, questions to Warren and Charlie and then the formal shareholder meeting (I never stay for the formal stuff). The movie goes on for about an hour and is a series of short clips and commercials for Berkshire owned companies. Some of the movie clips are downright hilarious with Warren and Charlie showing their sense of humor. The highlight was a five minute Breaking Bad segment where Bryan Cranston and Aaron Paul characters get out of the drug business in favor of peanut brittle. Warren and Charlie try to buy them out of the business because their recipe is better than See’s Candies. The movie also shows Mr. Buffett’s opening statement in front of Congress during the Salomon Brothers’ scandal. It reminds everyone that ethics come before profits.
The question and answer portion of the meeting lasts from 9:30 AM to noon and then 1:00 PM to 3:30 PM. Warren and Charlie sit on stage and will answer questions which are asked by three groups; shareholders, media members and Wall Street analysts. Shareholders are given the opportunity to ask questions from microphones throughout the arena. These questions tend to be about companies BRK/A owns, current financial topics and the occasional life or financial advice. The media members are Carol Loomis of Fortune, Becky Quick of CNBC and Andrew Ross Sorkin of the New York Times. They gather questions from people over email and pick and choose the best or most interesting. The Wall Street crew included Jonathan Brandt of Ruane, Cunniff & Goldfarb, insurance analyst Cliff Gallant from Nomura and credentialed bear Doug Kass of Seabreeze Partners Management. There are great recaps of the Q&A session available here and here.
I won’t recap each question but I will highlight a couple of my takeaways. After all of these years Warren is still keeping score. He showed a slide that showed Berkshire is the 5th largest company by market cap in the US. Also Warren said that the past decade has generally been rough for business. If the market continues to rally as it has this year, Berkshire will suffer its first five-year period of trailing the S&P 500. He knows where he stands in terms of performance and is not pleased about his under-performance.
Both Warren and Charlie emphasized time and again that their decentralized conglomerate model is a superior way to run a business. The culture at Berkshire is strong and they leave their managers to run their businesses. Both believe this structure will remain long after they are gone. Warren outlined that they remain a very attractive buyer of family businesses because of this model. People want to sell to Berkshire because it is prestigious, they can continue to run their business and they will never have to deal with a banker again!
My final takeaway is Berkshire continues to evolve. They have shifted from a value investment culture to buying great individual businesses to a source of capital for distressed firms.
“Berkshire is the 800 number when there’s really panic in the market… I think when you come to a day when the Dow has fallen 1,000 points a day for a couple of days and the tide has gone out and you find out who has been swimming naked, those naked swimmers will call Berkshire.”
-Warren Buffett, 2013 Annual Meeting
This model will continue to shift as Berkshire grows and markets change.
The Berkshire Meeting seems like a shopping expedition for many as it is an opportunity for other to have their investment compass reset. I saw thousands of people in the arena with bags of See’s Candy, Justin Boots and Brooks Running Shoes just to highlight a few of the Berkshire owned brands on sale in the conventional hall attached to the arena. It was funny to watch them navigate the tight arena seating with their over-sized pages of Berkshire loot! Berkshire is making a killing at the meeting and Nebraksa Furniture Mart as well as Borsheims, two local businesses they own that have record crowds each year.
I look forward to heading back next year. The advice remains the same but I become a better investor each year I attend.
Disclaimer: The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. Castlebar does own shares of the companies mentioned above for clients. Positions may change at any time in the future.