Snippets From Berkshire Hathaway AGM

As if we were there yesterday, sourced from WSJ:

With entertainment involving loud music and bright lights kicking off at 6 a.m., Warren Buffett’s legendary “Woodstock for Capitalists” isn’t for slackers or morning dozers. Some 30,000 Berkshire investors are expected to squeeze into the stadium by 9 a.m. central time to hear Mr. Buffett, 77 years old, and his droll sidekick Charlie Munger, 84, hold forth for six hours on just about anything. They came for the serenading Fruit of the Loom minstrels and the limited-edition T-shirts that say, “I’m a Berkshire Hathaway Shareholder!” They came for the Dilly Bars, the Borsheim’s baubles and the 6 a.m. show by artist Michael Israel, who speed-painted a Buffett portrait with Benjamin Moore paints and U2 music blaring in the background. They came for the zeitgeist.

As rain the night before forced flight delays and cancellations, some investors chartered private jets (NetJets, natch) while others piled into rented cars with strangers and drove through the night. Many checked themselves into hotels and motels in Lincoln or over the state line in Iowa, since Omaha’s accommodations were long sold out.

Did they seem tired or discouraged? No way.

While so much bad news these days keeps other investors lying awake at night, Berkshire investors slumber well on the fact that their Class A shares are trading at a respectable US$133,600 a pop. No wonder they’re morning people.

Warren Buffett and his vice-chairman Charlie Munger frowned on the use of options as ways to buy or sell equities.

“We virtually have never used options as a way to enter or exit a position and we would doubt very much that we do,” he said, adding that Berkshire had owned some puts on Coca-Cola years ago, but they were never exercised. “If we buy something, we just buy it. We don’t get involved in fancy techniques.”

Mr. Buffett did acknowledge, however, Berkshire’s investment in long-dated equity-index options. The billionaire investor, who studied under famed value-investor Benjamin Graham at Columbia University, then proceeded to criticize business schools for spending too much time teaching students “about things like options pricing, which is absolutely ridiculous.” The only two things students need to learn, he said, are “how to value a business and how to think about stock-market fluctuations.”

Mr. Munger, as usual, was more blunt. Pondering out loud the widespread use of stock options and his reaction to options exchanges, he said: “The idea of turning financial markets into gambling parlors that enable the croupiers to make more money has never been very appealing to us.”

None of the 31,000 Berkshire Hathaway shareholders at the Qwest stadium in Omaha rushed for the exits when Chairman Warren Buffett told them they might be better off owning other stocks. “Anyone who expects us to come close to replicating the past should sell their stock. It’s not gonna happen,” he told the hushed crowd.

Berkshire’s securities portfolio, tipping the scales at more than $60 billion, scours the world for stocks of market capitalizations of at least $10 billion and often more than $50 billion, “otherwise they don’t move the needle,” Mr. Buffett said. Berkshire’s securities investments, which for years have included stalwarts like Coca-Cola and Wells Fargo — have increased in aggregate by dollar amount, but they now drive a smaller percentage of Berkshire’s book-value growth. Berkshire’s 70-plus wholly owned subsidiaries, such as precision tool-maker Iscar, based in Israel, reinsurer General Re, Geico and Dairy Queen are bigger drivers of the book-value growth.

The 77-year-old billionaire hearkened back to the 1950s, when he managed his first investment partnership and racked up spectacular annual gains for about a decade. He often bought small stocks, and still refers to his investment performance of those days as the best of his decades-long career. “You may have something better to do with your money than buy Berkshire,” he said. “We don’t think it’s the most attractive investment in the world if you’re willing to take the time to go through the thousands of possibilities that Charlie and I used to do,” he added.

Over the past two years, Mr. Buffett has significantly pared down Berkshire’s position in foreign-currency futures, which he starting using in 2002 to bet against the dollar. As interest rates rose in the U.S., making that bet more expensive, he preferred to buy companies that earned foreign-currency revenue that Berkshire could convert back to U.S. dollars.

Berkshire’s biggest stock and operating-company holdings, ranging from shares in Coca-Cola to Iscar, an Israeli precision-tool maker, ring up big non-dollar revenues, which translate into bigger boosts to earnings for Berkshire. Later this month, Mr. Buffett will tour five cities in Europe to look for more buying opportunities.

“We are happy to invest in businesses that earn their money in the euro, or in companies that derive their earnings in Germany, or from the sterling in the U.K. because I don’t have a feeling that those currencies are going to depreciate in a big way against the dollar,” he said in response to a question from a German shareholder who asked if Berkshire hedged its foreign-currency exposure. “Overall, I think the U.S. is going to continue to follow the policies that have made the dollar weaker in recent years. I’m willing to bet the dollar will weaken against other currencies over the longer term, so I feel no need to hedge those currencies.”

p/s photo: Akemi Katsuki (remember her name)