Glenda Koporaal From: The Australian
- March 05, 2010
IN May this year, almost 1000 foreigners — including a fair swag of Australians — will be among 40,000 people attending the latest annual meeting of Warren Buffett’s conglomerate, Berkshire Hathaway, at the Qwest centre in his home town of Omaha.
Buffett announced in his latest letter to shareholders released this week that his annual “reception” for the increasing number of foreign shareholders coming to the weekend meeting had been scrapped.
It had become too much for the 79-year-old Buffett and his 86-year-old partner, Charlie Munger, to handle, having turned into a rather meaningless book-signing exercise taking 2 1/2 hours with no real chance for anyone to chat to either man.
But that will merely give foreign investors more time to check out the merchandise of the more than 100 different businesses under the Berkshire Hathaway umbrella, which stage a major annual trade show on the day.
If they are lucky, they may well just rub shoulders with Berkshire Hathaway director Bill Gates or even his father, who was selling his book at last year’s meeting.
Buffett is the antithesis of the Wall Street “greed is good”, “end justifies the means” brigade, and his following offshore has taken off as eager investors flock to learn from the Oracle of Omaha on how to avoid the pitfalls of stockmarket investment.
Recent meetings have included an increasing number of representatives from China (where he has recently made a very successful investment in electric car maker BYD) and also Europe, where Buffett has signalled he is keen to pick up family companies wanting buyers. This year’s split of Berkshire B shares will also make Berkshire Hathaway shares, which do not pay a dividend, more accessible to ordinary investors around the world. Berkshire Hathaway A shares now sell for about $US121,000 ($134,510) plus.
In January, Buffett split the Berkshire Hathaway B shares, which were trading at around $US3200, into 50 to help finance his $US26 billion takeover of railroad company, Burlington Northern Santa Fe.
The B shares have now risen from about $US65 in January to their latest close of $US82.95.
Some wonder why Buffett bothers to put in the weekend-long show that he does for his annual meeting, which brings in millions of dollars each year for the city.
But Buffett cleverly uses the event to sell the products of all his companies, which are showcased in the giant hall next door to the conference centre. The weekend is the biggest single annual generator of sales for his GEICO insurance business, his Nebraska Furniture Market operations and his Borsheims jewellery business.
Last year, Buffett exhibited several models of the Chinese-made BYD electric car. Well-heeled Berkshire Hathaway investors crowded around the cars, all asking about plans for its launch into the US market.
This year’s shareholder letter shows that his 9.9 per cent stake in BYD is worth almost $US2bn, having been bought not too many years ago for $US232 million.
Those unable to make the annual pilgrimage to Omaha can access his annual shareholder letter on the internet (www.berkshirehathaway.com).
As usual, Buffett’s latest words of wisdom about investing are deceptively simple.
Many profess to follow Buffett but none have put in the decades and decades of astute, intense financial analysis that he has done in his lengthy career as an investor. The shareholder letter confirms Buffett’s traditional keenness on big consumer brands and businesses with a clear, simple business model.
His major listed investments are American Express (where he holds 12 per cent of the stock), BYD, Coca-Cola (8.6 per cent), Conoco Phillips (2.5 per cent), Johnson & Johnson (1 per cent), Kraft Foods (8.8 per cent), POSCO (5.2 per cent) and Proctor & Gamble (2.9 per cent).
The latest letter includes several important tips from the Oracle — none of which are a surprise to his followers. But for many investors and company managers, they are more often honoured in the breach.
“Charlie and I avoid businesses whose futures we can’t evaluate,” says Buffett, who famously avoided the dotcom crash of 2000 by avoiding the tech boom of the late nineties. “We will stick with businesses whose profit picture for decades to come seems reasonably predictable.”
Buffett doesn’t like debt and likes businesses with predictable, strong cashflows.
During the crisis of 2008, he invested a cool $US15.5bn that he had on hand into shoring up several US institutions — including a $US5bn investment in Goldman Sachs — buying in, of course, at bargain basement prices. But even as the economy recovers, Buffett says he insists on having $US20bn in cash equivalent assets around in case of any crises in his business — or any business opportunities that require an instant decision. Even if this means having to sell some of his favourite shares.
Despite his description of derivatives as being “financial weapons of mass destruction”, Berkshire Hathaway has done well out of its own derivative positions, which were worth some $US6.3bn at the end of last year.
But Buffett makes it clear that derivatives are not for the lazy or uninformed investor, nor should they be a part of the activities of companies whose senior managers don’t understand and monitor them.
Buffett also argues that changes need to be made to the compensation structures of the executives of major corporations who, even as the market recovers, still have compensation packages, which encourage them to take risks in search of short-term profits with no real personal responsibility should things go wrong.
“CEOs and, in many cases, directors have long since benefited from oversized financial carrots; some meaningful sticks now need to be part of their employment picture as well.”
Simple really.
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