If it's Good Enough for Warren...
raveninvestment.com
Buffett faithful dine out at the DQ as Omaha beckons
By William Hanley
National Post
Saturday, April 28, 2001 -The Dairy Queen propping up the end of a strip mall on Broadview Avenue in Toronto's east end is a tiny outpost of the sprawling empire that billionaire investor Warren Buffett has built at Berkshire Hathaway Inc. in Omaha, Neb. But this DQ and the 6,000 stores like it across North America neatly reflect Buffett's philosophy of buying companies he knows and understands, recognizable names from the Old Economy that can be relied on to produce dependable streams of income.
So, with about 15,000 shareholders converging on Omaha this weekend for Buffett's "Woodstock of Capitalism" and today's Berkshire annual meeting, what better venue than a DQ for a couple of Canadian Buffetteers to anticipate the event and its importance for true believers of the Oracle of Omaha?
With "cool treats" not being much of a menu option on a cold spring day, money managers Jonathan Wellum and John Zemanovich join Lunch Money in going for the "hot eats," each of us ordering the grilled chicken sandwich special, with fries and a medium soft drink, for $5.29.
If, as Warren Buffett is wont to say, price is what you pay and value is what you get, then $5.29 gets you a reasonable quick-service meal -- the industry's term for fast food -- in clean, fairly comfortable surroundings. Meantime, we are adding a few pennies to the bottom line of Berkshire, the shares of which Wellum and Zemanovich own themselves and on behalf of their clients.
Wellum, 39, is chief executive of Georgian Capital Partners Inc. of Mississauga, Ont., which manages about $100-million and advises two big AIC mutual funds. Zemanovich, 34, is chief executive of Raven Investment Management Ltd., a money manager based in Oakville, Ont.
They are both regular pilgrims to Buffett's Woodstock of Capitalism in Omaha, though they are hardly the types that tend to party the weekend away, being more devout and observant.
For the shareholders who return year after year, "there's a certain element of grounding. It's getting back to basics. They feel a little more anchored, and human beings need that in various aspects of life," says Wellum, who came to money management by way of a diverse education that included studies in theology. Which comes in rather handy when analyzing the considerable appeal of Warren Buffett.
"And even though some people go out and violate all the reasons they're there, they still know what [Buffett] is doing is right. They feel a lot better. It's somewhat analogous to why people go to church at Easter and Christmas. People like to get re-established at the church or the synagogue."
For those re-establishing their faith in the house of Buffett this weekend, the rewards will be more than spiritual.
Berkshire stock (BRKa/NYSE) had fallen to US$40,800 by last March from US$84,000 in 1998, the victim of the company's "worst year ever," by the chairman's admission, and the dot-com mania that had temporarily consigned Buffett and Old Economy stocks to the rubbish heap of history. But by the annual meeting a year ago, the stock had recovered to US$59,000. This year it is up to US$66,100 in a down market.
Zemanovich, who has a psychology degree, seamlessly picks up Wellum's theme: "It's good to go to refocus their energies. A lot of the phenomenon is about loyalty. The people feel very loyal to Berkshire and it is a loyalty that Buffett deserves. And because of that they have a very special relationship."
Of course, loyalty has its rewards. If you had stuck with Buffett since the mid-1960s, a US$10,000 investment would be worth US$7-million because Berkshire has racked up an average annual gain of 25% over the past 35 years.
Wellum and Zemanovich have done very well from their Berkshire shareholdings. But equally important are the lessons they have learned from studying the methods of the world's most successful investor.
"The focus is on the business," Wellum says. "You put the stock market aside. That's helpful in [money management]. We're not short-term momentum investors. We're long-term capital allocators."
Zemanovich says Buffett is "the ultimate instructor. People admire principled people. We aspire to be like that. No one else is as focused on wealth creation, with integrity and humility, too."
They point out Buffett makes a salary of only US$100,000. And while he's worth more than US$30-billion in Berkshire equity, being the lowest paid CEO of a major company doesn't work for anyone else.
"He makes money with shareholders -- not off them," Zemanovich declares.
But with Warren's weekend coming up, the Buffetteers can also find some negatives as they cast their gaze toward Omaha.
First, Berkshire's massive capital base makes it difficult to keep producing double-digit annual growth. And although Buffett has a history of underpromising and overperforming, finding the investments big enough to fuel growth will prove increasingly difficult.
Meantime, the Oracle is 70 and presumably not immortal, even though he jokes that he plans to retire three years after he dies. "He will die one day and that will hurt the ... business. You really can't replace him," Zemanovich says.
On that note, the questions hanging in the air, we're finished lunch at the Dairy Queen. We leave wondering whether some Buffetteers will run into Warren at the DQ he has been known to frequent on Woodstock weekends in Omaha. |
