Notes From the Berkshire-Hathaway Annual Meeting

by Michael C. Higgins, Ph.D.

Berkshire-Hathaway held its annual shareholders meeting in Omaha earlier this month. Television Broadcast obtained intelligence on the event, held exclusively by BRK chief Warren Buffet and his lieutenant, Charlie Munger, with more than 31,000 of their closest friends.

The faithful, whose shares in the company are trading at around $125,000, were said to have queued up at 2 a.m. to get the chance to ask the dynamic investing duo questions. Here is an excerpt of those queries and Buffet’s responses:

What kind of returns can we expect in the future?
We are happy to have lower returns in the future than what we have had in the past, and we think you should adopt the same attitude.

How do you use options when you buy stocks?
We don’t. We just buy or sell companies. Options turn the markets into gambling parlors.

How do you determine if a stock has the right value?
I don’t. I price companies as a business, not as a stock. I look at the intrinsic value of the business, even if there is no market.

What is the highest amount of your net worth you would invest in one deal?
Several times I have invested more than 75 percent of my net worth in a single deal. It would be a big mistake not to have 50 percent of your net worth in an idea of extraordinary circumstances. Diversification is for the know-nothing investor. Load up on as much of a good idea as you possible can.

I understand you made an investment from simply reading an annual report. Why no due diligence?
The company was worth $100 billion and we could buy it for $35 billion. There was nothing more we needed to know. What could millions of dollars of due diligence possibly determine in making that decision? …Companies come to us because we can make quick decisions. We know what we are looking for, and we can usually act within a day. It’s an intrinsic value decision.

Which Berkshire Hathaway company spends the most on advertising?
Geico--$700 million annually.

Why did you buy Wrigley?
A brand is a promise. Predictable products mean predictable profits. I don’t think the Internet will change the way people chew gum. Runaway leaders are value investments.

If you had a small amount of money, $1 million, how would you invest it?
This would open up thousands of opportunities we do not have at Berkshire Hathaway being so large. I would buy mispriced bonds, both U.S. and international. I would buy tax liens and small stocks. And if I did not have the time to research opportunities, I would put it all in a low-cost index fund like Vanguard.

How do you know in one hour if someone is a good manager to hire?
I cheat. I buy good companies that come with good mangers. It is my job to keep them. Keep them enthused, excited and passionate. Keep them loving the business, not the money. I would choose a good manger based on their performance and track record. I want to see passion in their eyes and that they are a good communicator.

What are the pitfalls of giving money?
Never trade reputation for money. If you give money to those causes you personally believe in, there are no pitfalls.

Who are your successor candidates, and why did you choose them?
The directors and I have chosen three potential successors. All are currently working running companies. They were chosen based on their ability, their integrity, and that they are already millionaires. I don’t believe in CEO golden parachute contracts. Leaders have a moral duty to be underpaid. I want my successor to already be rich and passionate about what they do.