>>Saturday, May 4, 2002
By TOM CAHILL
BLOOMBERG NEWS
OMAHA, Neb. -- Warren Buffett may see record attendance this weekend at Berkshire Hathaway Inc.'s annual meeting, the "Woodstock for capitalists."
Berkshire's staff fielded 20 percent more ticket requests than last year, when 12,000 flocked to its Omaha, Neb., headquarters. Recent Berkshire buyers include Janus Capital Corp. and other investors burned by the telecommunications, Internet and accounting busts.
In between Omaha steaks, minor-league baseball and "Mensa Olympics" of bridge, backgammon and chess, investors will get hours of unscripted wisdom from Buffett, Berkshire's chairman and largest shareholder, and Charlie Munger, vice chairman.
Enron Corp., WorldCom Inc. and Tyco International Ltd. alone have lost about $145 billion in market value in the past year, adding resonance to the Berkshire duo's reputation for honest management and square dealings.
"They're the exact opposite of Tyco, WorldCom or Enron," said Everett Puri, who runs equity investments for City Capital Inc. in Atlanta, which bought about $134 million of Berkshire shares last October, according to regulatory filings.
Janus was one of bankrupt Enron's biggest investors, leading to losses of more than 20 percent for its equity mutual funds last year. Now it is one of the top 10 holders of Berkshire, with shares worth $1 billion. Janus didn't return calls.
Buffett's philosophy of buying cheap businesses and shares relative to their earnings is being vindicated after Berkshire lost out on gains from the rally in computer-related and telecommunications stocks that sent benchmark indexes to records in early 2000.
Berkshire's Class A shares have fallen 1.7 percent this year to $74,300, less than the 6 percent decline in the Standard & Poor's 500 Index and the Nasdaq Composite Index's 17 percent drop.
"The past two years have done nothing better than show the pitfalls of investing," said Thomas Russo, a partner at Gardner, Russo & Gardner, who helps manage $1.6 billion, including Berkshire shares, and has attended every meeting for the past 15 years. "We're seeing a whole new crop of fresh converts."
While shunning Internet and other shares with high stock prices relative to their profit potential, 71-year-old Buffett was building up a stable of businesses whose prospects may be brightening.
Berkshire owns a wide array of companies, including Seattle-based Ben Bridge Jeweler. But the company's main holdings are in insurance, an industry benefiting from price increases of 30 percent or more after a decade of price cuts squeezed earnings. The hikes follow a year when claims from the Sept. 11 terrorist attacks contributed to a 76 percent drop in Berkshire's profit to $795 million.
General Re, the reinsurer Berkshire bought for $17 billion in 1998, had an underwriting loss of $1.27 billion in the fourth quarter. After the attacks, Buffett said he "severely miscalculated" terrorism risks in insurance pricing. General Re has boosted reserves for future claims by $570 million.
With insurers raising rates, Berkshire operations are poised for a better showing. Its operations include auto insurer Geico Corp., which is able to push through increases following a similar move by leader State Farm Mutual Automobile Insurance Co.
"They have a significant tailwind for the next year or two," said Bruce Berkowitz, a money manager at Fairholme Capital Management, which has about $161 million in Berkshire shares.
Buffett, who along with the 78-year-old Munger is paid $100,000 annually, accounts for 36 percent of Berkshire with 477,166 shares, now worth $35.3 billion. Based on the stock alone, he's the world's richest man, just ahead of his frequent bridge partner, Microsoft Corp. Chairman and Chief Executive Officer Bill Gates, whose stock dropped 24 percent this year.
Berkshire, with assets of $162 billion as of Dec. 31, is one of only 10 U.S. companies with triple-"A" ratings, the highest possible. While the 1990s bull market masked problems of many companies, the more difficult conditions underline the strengths of Berkshire, investors said.
"The tide has gone out and not only is Warren not swimming naked, he's wearing an old-time swimsuit, belt, suspenders and a money belt," said David Winters, chief investment officer of Franklin Mutual Advisers Inc., which has about $500 million in Berkshire shares.
In his annual letter in March, Buffett told investors he's "lukewarm" about prospects for U.S. stocks, declaring that his firm "won't come close to replicating our past record."
Some Berkshire holdings have surged this year: Coca-Cola Co. rose 21 percent, Gillette Co. 11 percent, rating company Moody's Corp. 12 percent and American Express Co. 18 percent.
"Stocks that people used to laugh at are now suddenly great performers," said Anna Dopkin, a fund manager at T. Rowe Price Group Inc., which owned about $72 million in Berkshire shares as of Dec. 31.
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