Warren Buffett's take on the Internet stocks for all cake eaters.
Long article... scroll halfway down for his comments
kurt
Commentary Features: Warren Buffett Weekend -- Part II
By Christopher S. Edmonds
Special to TheStreet.com
5/3/98 9:21 PM ET
OMAHA, Neb. -- Churches and synagogues throughout America's heartland and beyond must really dislike the first Sunday in May. Not two weeks earlier the pews were full and the plates overflowing. However, come this Sunday, collections were much lighter. After all, with the first leg of the triple crown in Louisville and the Berkshire Hathaway (BRK.A:NYSE) annual meeting in Omaha, there are few souls left to fill the local parish, as many either chose to play the ponies or migrate to Omaha to here the gospel according to Buffett.
The Warren Buffett weekend is filled with diversions, including the Sunday trip to Borsheim's, a jewelry store owned by Buffett's conglomerate. Borsheim's is only open one Sunday every year, including the Christmas season -- the Sunday of the Buffett weekend. That Sunday, the company does 4% of its annual business in an exclusive sale to Berkshire shareholders.
When the doors opened at 10:00 a.m., stockholders were greeted with a choice of Gloria Ferrer bubbly, Louis Jadot Chardonnay, Forest Glen Merlot and, of course, an array of Coca-Cola products.
Entering the atrium at Borsheim's guests were enticed by "Buffett's buffet" of fruit and cheese, sesame chicken (Berkshire President Charlie Munger's favorite), spanakopitas, and rare roast beef on fresh bread.
Of course, at the same time, shareholders were lured to booths manned by GEICO insurance representatives offering an 8% discount on automobile insurance to Berkshire shareholders, World Book staff members attempting to impart a world of knowledge about their products, and even a See's counter, offering some of the world's best chocolate. Of course, all these brand names owned outright by Berkshire.
From time to time during the day both Chairman Buffett and President Charlie Munger made the rounds signing autographs and creating small talk among the shareholders. And, while both were a focal point of the event, most shareholders were interested in just a glimpse of the second wealthiest man in America only to return to cheese and Chardonnay.
After a long evening of baseball and autographs at Rosenblatt Stadium Saturday evening, Buffett arrived at Borsheim's about 1:15 p.m. looking well rested. Quipped one shareholder, "I don't know how he does it. I suppose one day it will just come to an abrupt end." When asked about his health Buffett said he feels great and continues to love his work.
The "Oracle from Omaha" entertained the press later in the afternoon and provided exclusive interviews to members of the media, including yours truly. He appeared relaxed, yet reserved. Regulars say he tends to save some of his best thoughts for the shareholders meeting on Monday. Here's a look at what he had to say about the markets, the Internet, and a few short shots.
The Markets
While tending to suggest the markets were not terribly overvalued in conversation Saturday evening, he remains cautious about future growth. Berkshire is finding it difficult to find values that fit their criteria in the current market. "Our ideal investment is a wonderful business that we can own forever," Buffett said. "One where we feel the business becomes more and more valuable, where we like and trust the management and where we don't have to pay too much when we buy into it. That's number one by miles in terms of what we are looking for. We have trouble finding that today and we have had trouble finding it for some time."
While concerned about the lofty levels of the markets, Buffett isn't about to change his long-term strategy. "Our preference is to buy and hold. We lean toward treating marketable securities the same way we would treat a subsidiary of Berkshire," said Buffett. "Just because someone offers us a fancy price, maybe even temporarily too much of a price, does not mean that were going to sell it and look for something else."
However, his holdings in companies like Disney (DIS:NYSE) and Gillette (G:NYSE) are more available for adjustments than Berkshire's direct subsidiaries.
"Markets do a lot of things over time and with marketable securities you have an option if prices get to the level that you really think they are discounting too far ahead," Buffett indicated. "You can either cut back some or eliminate in a way that we would not do with a totally owned business."
While not willing to comment directly on the valuation issue going forward, the company remains very cautious. "The cash position once and awhile drifts up due to not finding things we like to buy," added Berkshire President Munger. "It is not a calculated attempt to predict the market. The cash position is drifting up."
Buffett was as coy about the debt markets. "I don't have an idea about rates that I want to talk about." When asked about the current climate for bond investors he said: "It was a comforting place to be when we bought the bonds we announced [last year]."
However, the Berkshire Chairman did have high accolades for both Fed Chairman Alan Greenspan and Treasury Secretary Rubin. "We certainly think both Rubin and Greenspan have been tremendous assets to the country," Buffett said. "I don't see how you could have had two better people and had them both at the same time. It's been a real plus for the country."
The Power of the Internet
While he says he's not smart enough to figure out how to turn it into millions, Buffett is impressed with the transformational power of the Internet. He said the Internet will fundamentally change commerce around the world. "It's big. It does change a lot of things. It will change the way a lot of commerce is done over time," said Buffett when asked about the economic impact of the on-line explosion. "I'm not smart enough to make a lot of money off of that but there is no question it is changing people's behavior by the day. There are lots of way that it will have commercial application."
While the power intrigues him, it is not intriguing enough for him to consider Internet-related holdings in the Berkshire portfolio. "We own no Internet stocks. We will own no Internet stocks. We do not have any idea how to make any money off the Internet," said Buffett. "At the same time, we do recognize it as a terrific social force. It has had an enormous impact on lives already."
He specifically is impressed with the potential of the electronic revolution for communication. "It changes the time aspect, the distance aspect, and the cost aspect of communications in a huge, huge way," he said. "We can print our annual report in effect for nothing and have it available to every home that has a computer in the world instantaneously."
While not ready to endorse the Internet as an investment for his own portfolio, he does recognize the differences between electronic commerce and traditional ways of information dissemination. "You compare that to chopping down trees and doing everything else and sending it through the mail and that's a big change."
As for his personal habits, he is a big Internet fan. "I play bridge probably twelve hours a week on the Internet," said Buffett. "And, I look up a lot of things. Last year when I lost my voice [at the annual meeting] I went home and looked up laryngitis on Alta Vista."
However, even after prodding, the chairman remained steadfast. "We don't think we'll make a dime off of it." As for Charlie, the phobia runs deep. When asked about his Internet habits, he spoke, "I don't do it."
The Media Frenzy
From the sight of things, one might have thought Bill Clinton had just arrived in Omaha. The annual meeting is being covered by 42 different news organizations, including 17 foreign publications. This is the first year Buffett has set aside time exclusively for the media and he seemed to enjoy it.
He certainly enjoyed the friendly sparring with the captive audience. When asked why he thought the annual meeting had drawn record meeting attention he commented wryly: "You people are hard up for something to do." Seriously he said, "When the stock goes up a lot it creates interest. And, we have a lot more shareholders. If the stock price goes down, maybe we can cut back a little."
Coming Up
It's hard to believe that the past two days have been just the preliminaries. Tonight Buffett dines on a T-bone at Gorat's steakhouse and then heads to a Berkshire-owned Dairy Queen for dessert. Between 5,000-6,000 are expected to enjoy a DQ treat with Buffett. Then it's home to bed for a good night's rest. The doors to Ak-Sar-Ben Coliseum open at 7:00 a.m. for shareholder to stake out their seat for the annual meeting, which begins with a half-hour film on Berkshire Hathaway at 8:30 a.m., followed by the formal annual meeting which is scheduled for less than 10 minutes.
The only item on the agenda is to re-elect the company's directors. After that, Buffett and Munger will entertain questions from shareholders for six hours. The final gavel falls at 3:30 p.m. CDT. In addition to the shareholders, Disney CEO Michael Eisner plans to be In attendance. Berkshire owns a stake in his company and he attended the annual meeting last year. Other Disney officials are on hand to exhibit their products and peddle shirts and caps. "Disney is selling shirts and we're [Berkshire] selling shirts," Buffett said. "Maybe we'll have a contest to see who can sell more."
As for Buffett, he seems to continue to enjoy himself. "I do enjoy it. I wouldn't enjoy it 365 days a year," said the Chairman. "We enjoy what we do but we enjoy doing it more if there are real people out there. It makes a real difference in their lives." As long as he keeps making money, they'll keep coming back.
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More views from the "Oracle from Omaha" are forthcoming for your wake-up enjoyment, including his silver strategy, his feelings on the Golden Arches, and the future of Berkshire stock. That and complete coverage of tomorrow's annual meeting.
Christopher S. Edmonds is the president of Resource Dynamics, a private financial consulting firm based in Topeka, Kan. At the time of publication, he has no positions in the stocks mentioned. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While he cannot provide investment advice or recommendations, he welcomes your feedback at invest@cjnetworks.com.
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