Monday, April 15, 2024

Buffett: Straight talk from ‘Woodstock of Capitalism’

AP BERKSHIRE HATHAWAY SHAREHOLDERS A F USA NE

Warren Buffett, speaking at Berkshire Hathaway's annual meeting Saturday, told his flock of followers that first-quarter earnings jumped 8.2% to $5.59 billion despite weakness in key insurance and railroad holdings, reiterated he's still on the lookout for big deals like January's $32 billion purchase of Precision Castparts, and advised mom-and-pop investors to build their stock portfolios around low-cost index funds that capture the long-term success of American businesses.

Saturday's event marks the first-time that Berkshire Hathaway and Buffett, the company's chairman and CEO, live streamed its annual shareholders meeting — dubbed the "Woodstock of Capitalism" — around the globe. Roughly 40,000 Berkshire investors made the pilgrimage to Omaha to be there in person.

Heading into the closely watched gathering at the CenturyLink Center, where Buffett, 85, and long-time Berkshire vice chairman Charlie Munger, 92, are fielding questions for hours from journalists, analysts and everyday investors who own a piece of Buffett's Berkshire conglomerate are feeling flush.

Berkshire's A shares (BRK-A) are up 10.7% so far in 2016, soundly topping the 1% gain for the broad U.S. stock market, measured by the benchmark Standard & Poor's 500 stock index.

In the first half of the Q&A, Buffett addressed a wide variety of issues. Topics ranged from:

• The outlook for Precision Castparts, Berkshire's biggest acquisition ever.  "Precision," Buffett said, "will do better" under the Berkshire umbrella. Buffett said Precision Castpart's CEO Mark Donegan, who he called an "extraordinary" and "one of a kind" manager, would be freed up to make the business even better post-deal.

• Berkshire's thirst for future acquisitions. "We would love to find another three of four types of Precision Castparts," he said.

• Why auto insurer Geico's quarterly results fared worse than expected and trailed rival Progressive in the first quarter? "The frequency of accidents and the severity, or cost per accident, both of those went up quite suddenly and quite substantially," Buffett said.

• On the meteoric rise of online retailer Amazon.com and its Internet driven marketing power. "Charlie and I are not going to out-Bezos Bezos," said Buffett, referring to Amazon CEO Jeff Bezos.

• His take on the controversy surrounding one of his biggest holdings, Coca-Cola, and its role in causing health effects such as diabetes. Buffett defended Coke and his large daily consumption of Cherry Coke. "I have not seen evidence that I will reach 100 if I switch to broccoli or water," the 85-year-old Buffett said.

• The danger of derivatives to the financial system. Buffett who once famously said derivatives are "financial weapons of mass destruction," said they are still "a danger to the system," especially when used in "large quantities" and under adverse market circumstances big enough to cause "major discontinuity" in markets.

• Financial advice. Buffett, showing data over the past eight years that was part of a debt that shows owning a S&P 500 index fund outperformed five hedge funds by about 40 basis points, or 40%. Ignore the sales pitch from Wall Street, he says. And avoid the high-priced management fees.

"Very few (active fund managers) have an outstanding performance record," Buffet said. "And people you pay to identify them don't know how to identify them."

Added Munger: "Few in the universe exceed the market returns (on a regular basis). It's like finding a needle in a haystack."

When Buffett and Munger return after lunch, they will likely face queries on topics ranging from succession plans at Berkshire to the state of the U.S. economy and the stock market.

Buffett, best known for his stock-picking prowess and investment savvy, in recent years has shifted Berkshire's focus to buying businesses outright. And the deals are getting bigger and bigger.

In January, Berkshire closed on its largest acquisition ever, paying $32 billion for aerospace parts maker Precision Castparts. That mega-deal, which meets Buffett's definition of hunting for "elephants," follows a $12 billion deal for a more than 50% stake in ketchup maker H.J. Heinz a few years back, which has since merged with Kraft Foods of Macaroni & Cheese fame to form Kraft Heinz. Back in 2010, Buffett bought the railroad, Burlington Northern Santa Fe, for $27 billion.

At the end of 2015, Berkshire's top stock holdings included Wells Fargo, Coca-Cola, IBM and American Express. The list of businesses the sprawling conglomerate owns include paint maker Benjamin Moore, battery maker Duracell, insurer Geico and ice cream retailer Dairy Queen, to name a few.

Buffett's holdings touch virtually every corner of the U.S. economy, which makes his commentary that much more relevant.

In the minutes leading up to the webcast, Robert Miles, a Buffett scholar and author, let Yahoo Finance know what makes Buffett special: “He is just a regular guy that speaks the truth, unlike Wall Street."

It was a dreary, rainy day in Omaha, but that didn't keep the Buffett faithful away or dim their mood. Buffett followers came from as far away as Taiwan, Mexico and Australia, many were chanting "Buffett! Buffett! Buffett" in the long line outside the arena despite a driving rain.

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