Munger: "I'm proud to say we don't have a mission statement." (Amen --'''':> )
Buffett Shares Insights With Berkshire Shareholders
By JAMES P. MILLER
Dow Jones Newswires
OMAHA, Neb. -- The 11,000 Berkshire Hathaway Inc. (BRKA, BRKB)
stockholders who trekked to this midwestern town for the investing
company's annual meeting Monday got their money's worth from Chairman
Warren Buffett, who turned in a witty and assured performance that
frequently ranged beyond the financial arena.
Decades of extraordinary stockpicking success have made Buffett, a
plainspoken practitioner of "value investing," the subject of investor
reverence so ardent that it approaches a personality cult. At the
annual meetings, Berkshire investors are as likely to ask Buffett what
books he has been reading as where he thinks interest rates are
headed.
Seated at a plain table with his taciturn investing partner, Berkshire
vice chairman Charlie Munger, Buffett once again took potshots at some
of his favorite targets. High on that list is the "efficient market"
theory, which holds that the marketplace so effectively clears
information that any company's stock is valued correctly at all times.
That "random walk" theory suggests that investing is basically a
matter of luck, and it directly contravenes Buffett's strategy of
finding stocks that the market has temporarily undervalued.
The idea is "less Holy Writ in universities than it was 15 years ago,"
Buffett told Monday's meeting, before musing that it's a distinct
advantage "if you're in the shipping business and all your competitors
think the world is flat." Thus, he told Munger, as value investors,
"Maybe we should be encouraging the teaching of this theory."
Asked about the possibility that he would seek investing opportunities
in the Japanese stock market, Buffett said he has looked at securities
"in all major markets, particularly with the Nikkei as low as it is."
But, he said, in Japan the corporate return on equity is
unsatisfactorily low.
Of course, he then told the audience, there is always "the cigar-butt
theory of investing," in which, by examining discarded stubs,
occasionally "you find some with one good free puff" left. As the
audience laughed, Buffett said "I've found some like that - I've had
portfolios of cigar butts and it can pay off. But it doesn't work with
big money."
Before the lunch break, Buffett and Munger ate their way through a
substantial amount of candy - candy which, as their outsized image on
two giant video screens made clear, was produced by Berkshire's See's
subsidiary. They washed it down with glasses of Coca-Cola, a company
in which Berkshire has a substantial minority holding.
Munger broke his silence at one point to make the deadpan disclosure
that at Berkshire, "I'm proud to say we don't have a mission
statement."
A woman from Palm Beach, Fla., approached one of the microphones at
the sports arena where the meeting was held to ask Buffett how much
bridge he was playing these days. "We should probably put that
(information) in the annual report," he said, "it may be a material
factor." Buffett admitted to spending several hours a week at the
game, but noted that it's a slow period for Berkshire because the
stock market is so high. If stock prices decline, he promised, "I'll
cut back."
As he has before, Berkshire Hathaway Chairman Buffett harshly
criticized companies that issue excessive amounts of stock options. As
for the consulting firms that help such companies devise such plans
that enrich management for mediocre performance, added Vice Chairman
Munger, "I can only say, prostitution would be a step up."
One stockholder asked Buffett his thoughts on the pharmaceutical
industry. The investor replied that, while he didn't feel comfortable
selecting individual companies in the sector to invest in, in
retrospect he thinks that he and Berkshire's vice chairman should have
recognized, before the sector moved sharply higher, that the industry
as a whole presented an attractive investing opportunity. "Yes, we
stupidly blew that one," said Munger. "We'll miss others, too,"
Buffett told the audience.
Buffett sought to downplay Berkshire's purchase of 130 million ounces
of silver, an investment worth $910 million at the time Berkshire
disclosed it earlier this year. Aggregate demand for silver is close
to 800 million ounces a year, Buffett told the crowd, while annual
production from mines and reclamation is about 150 million ounces less
than that.
Although the gap has been made up by tapping large inventories of the
metal. Buffett said, "the present price of silver doesn't represent an
equilibrium between usage and production and reclamation." Despite new
production likely to come on line, Buffett said he expects that as
silver inventories are depleted, silver prices are "likely" to
stabilize at a new, higher level in the future.
Buffett noted that "The Hunt brothers caused a lot of silver to be
converted into bullion," when they moved aggressively into the market
in the early 1980's. Because such "dislocations" can be
counterproductive, he said, when Berkshire entered the silver market
he was cautious: "I didn't want to buy so much it would upset the
market." |
