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Buffett Holds Court at Woodstock for Capitalists

Every year in late April or early May, tens of thousands of investors board trains and planes, heading for the US mid-western city of Omaha, Nebraska.

Those of you familiar with Warren Buffett and his company Berkshire Hathaway will instantly recognise Omaha as the hometown of the man Forbes magazine says is the third-richest person on the planet.

If you’re a particularly keen Buffett follower (yours truly is guilty, as charged), you’ll also know that the Berkshire Hathaway annual meeting is held each year around this time. This year’s meeting was held on Saturday, 30th April.

Not Your Average AGM

People who have attended Annual General Meetings of Australian listed companies will be familiar with set-piece speeches, attendance in the tens or hundreds of people and – if you’re lucky – some refreshments put on by the company.

The Berkshire Hathaway AGM – known universally as ‘Woodstock for Capitalists’ is something else entirely. With 2011 attendance estimated by some at up to 40,000, the meeting is held at the Qwest Center, Omaha – an arena that later this month will host both Taylor Swift, the ‘it’ girl of the US country scene, and WWE (what we used to know as the World Wrestling Federation).

Not only is the scale of the AGM unlike any other, but so is the meeting itself. Chairman Warren Buffett and Vice Chairman Charlie Munger spend up to 6 hours each year holding a Q&A session with shareholders. No question is off limits (other than what the company is buying or selling and the rationale of same), and Buffett and Munger offer honest, often expansive answers.

Berkshire Central

I was fortunate enough to be there in 2007 and can vouch for the experience – Omaha really does become Berkshire Central for the whole weekend!

2011 was no different, and our sister site Fool.com ran a live blog of the event (unfortunately, there is no audio or video recording allowed at the meeting). Seemingly never out of the news these days, even the Australian Dollar got a mention.

The Sokol Affair

If you’ve been following the news about Berkshire Hathaway over the last month, you’ll know that senior executive, and the man many assumed was Buffett’s heir apparent, David Sokol resigned from the company under something of a cloud. Sokol had purchased shares of a Berkshire acquisition target, Lubrizol, before recommending the business to Buffett for purchase.

Buffett has frequently been held up as an example of corporate ethics – and once famously told his employees ‘Lose money for the firm, and I will be understanding. Lose a shred of reputation for the firm, and I will be ruthless’.

In that light, the investing community was waiting with baited breath to hear how Buffett would deal with the controversy – particularly after Buffett’s press release that was widely viewed as somewhat soft on Sokol.

Buffett met the issue head on right at the beginning of the Q&A session. He labeled Sokol’s actions inexcusable and inexplicable, and agreed that his press release at the time didn’t express his outrage at the situation. Buffett also expressed surprise at the course of action chosen by Sokol for what was a (relatively) minor sum compared to Sokol’s net worth, and his remuneration at Berkshire.

Charlie Munger, characteristically a man of few words, distilled Sokol’s error to just one word – hubris.

On Oil, Gold and Productive Assets

Buffett has been widely dismissive of gold as an investment in the past. Both he and Munger took the opportunity to really put the boot into commodity investors – particularly in Gold and Oil. In what turned out to be an impromptu lesson in valuation, Buffett outlined three major categories of investment:

1. Currencies – a class of investment ravaged by inflation, by definition

2. Items which don’t produce anything, but which you hope will increase in price – such as gold. You can watch it, climb on it, fondle it… but it doesn’t do anything

3. Something that can be valued, based on its production

    Unsurprisingly, Buffett and Munger prefer the latter – estimating the future of the productive assets and how the cash flow that is produced can be used.

    Other Berkshire AGM Sound Bites

    As usual, the meeting was full of wit and wisdom, including:

    –        The competitive advantages of rail transport are becoming more evident

    –        Berkshire’s insurance will probably record an underwriting loss – the first in 9 years – due in part to the Japanese and New Zealand earthquakes and Australian floods

    –        If they could enlarge their circle of investing competence, Buffett and Munger would choose Technology or Energy

    –        Berkshire Hathaway isn’t ‘fully valued’

    –        Buffett remains as optimistic as ever about the future: ‘Over the next 100 years, we’ll have 15, maybe 20 lousy years, but we’ll be so far ahead of where we are right now it will be unrecognizable’

    –        The Australian dollar was ‘one of two currencies’ in which Berkshire had a position in 2010

    –        Question: ‘What do you want to be remembered for?’ Buffett: ‘old age’. Munger: ‘Warren wants people to say at his funeral, that’s the oldest looking corpse I ever saw.’

    Of the companies mentioned above, Scott Phillips owns shares in Berkshire Hathaway. The Motley Fool has a hubris-free (we hope!) disclosure policy

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